Many employers provide benefits in kind as part of a remuneration package. Salary and wages are processed and taxed through the PAYE Real Time Information system which is a very efficient system for accounting for all employees earnings. But what about other parts of a remuneration package, particularly benefits in kind? What is the best way to process these?
HMRC are slowly introducing the payrolling of benefits in kind, but only for certain benefits. Until the payrolling becomes compulsory, we here at Dataplan Education are not advocating payrolling the benefits as time is not saved and there remains the fear that the employee could be taxed twice for the same benefit.
Benefits in kind include company cars and fuel, vans, medical benefit, gym membership etc. The list is virtually limitless given that an employer can pay any bill or expense on behalf of an employee. Such elements of a remuneration package are still taxable, but this is where the P11D comes into play.
Using the P11D
Benefits in kind are declared to HMRC on form P11D and the tax is collected from the employee through the employees’ tax code or through Self-Assessment.
However, there is also a charge on the employer for National Insurance Contributions (NIC) under Class 1A NIC. Class 1A NIC is only payable by the employer at 13.8%, there is no employees NIC payable. The employers declaration form P11D (b) notifies HMRC of the amount of Class 1A NIC due.
What benefits are not reported on P11D?
There are certain expenses and benefits that are exempt from tax either because the government wants to promote the use of a certain benefit, or because there is deemed to be no or little tax consequences to their use. These include;
- Cycle to work schemes
- Mobile telephones where the contract is between the employer and the telephone company
Are P11D’s required?
Yes, if employees and directors have been provided with a non-cash benefit in kind such as company car or medical insurance. However the issue becomes clouded when considering the payment of expenses.
HMRC have a snappy statement for assessing whether expenses are taxable or not. Expenses incurred, ‘wholly, exclusively and necessarily in the performance of the employees duties’, do not attract a tax charge and therefore do not need to be reported on form P11D. These are expenses covered by an exemption.
Exemptions have replaced dispensations. If the employer is either paying a flat rate expense in line with HMRC’s benchmark rates or reimbursing the employees actual costs, employer don’t need to report the expenses on form P11D.
However expenses that have a duality of purpose with part being for business and part private, must be reported on form P11D. A claim can then be made to HMRC seeking relief in respect of the business related expenses.
Similarly expenses reimbursed without documentary evidence of the expense must be reported on P11D.
Are there time limits?
Yes there are deadlines and time limits you need to be aware of. P11D’s and the employers annual declaration form P11D(b) must reach HMRC no later than 6 July following the end of the tax year.
The Class 1A National Insurance must be paid no later than 22 July if paid electronically or 19 July if paid by cheque.
HMRC will charge penalties for the late submission of the forms, £100 per 50 employees per month or part month. In addition if the payment of the Class 1A NIC is paid late, HMRC will charge interest.
For more information please contact Paul Chappell Head of Legislation and Compliance at Dataplan Education Ltd on 03331 123456 or email