What is a P11D and the key areas to consider in your submission?

What benefits and expenses need to be submitted on a P11D?

There are a number of areas that need to be reported on the P11D form. A few examples of benefits and expenses that need to be included can be found below:

• Company cars
• Accommodation provided to employee at or near a permanent place of work
• Private Fuel
• Assets transferred to the employee
• Medical insurance
• Low interest loans including directors’ loan accounts
• Gym memberships

How does the P11D apply to my business?

It’s important to ensure that the correct amount of tax is paid and all benefits in kind and expenses are accounted for. Failure to submit your P11D form correctly or late can result in financial penalties from HMRC.

Employees are required to pay tax on the value of the taxable benefits that they receive, and the employer must also pay Class 1A National insurance contributions on the total value of the benefits and expenses within the scope of national insurance.

It is important to also note that employers can voluntarily payroll certain benefits (subject to HMRC agreement) rather than report them on a Form P11D. This can help some employers reduce administrative burdens and make it more straightforward for employees to understand their tax position. However, employers need to tread very carefully as there many areas to watch out for including:

• Making sure you still report benefits like loans via Form P11D as not all benefits can be payrolled;
• Making sure a Form P11D(b) has been submitted to HMRC and Class 1A NIC paid by the relevant due dates;
• A benefits summary has been provided to employees where benefits have been payrolled by 31 May following the tax year end (this effectively replaces the P11D). There is no mandated way of communicating this currently
• Making sure a benefits reconciliation is carried out prior to the final month of the tax year to give some time where amounts may not be correct
• Be nimble enough to update payrolled benefits values where values change within the tax year
• Make sure any payrolled benefit it is communicated carefully to employees, so they understand what is happening and how they are being taxed
• Make sure interaction with statutory leave, unpaid leave and salary sacrifice among other areas has been considered, with documented governance in place.

What is a PAYE Settlement Agreement (PSA)?

There may be certain benefits that are taxable and provided to employees that employers do not wish to report on an employee’s Form P11D. This is because the employer may not want the employee to pick up the tax liability. In these cases, HMRC does allow employers to put in place a PAYE Settlement Agreement. This PSA enables employers to pick up the tax and NIC bill on a grossed up basis for certain agreed items that are deemed, minor, irregular or impracticable to operate PAYE/NIC through payroll or report on a Form P11D.

What are the key questions that you, as an employer, need to consider to ensure P11D compliance?

• Have you had an adviser or HMRC carry out a review of your Employment Tax affairs in the last four years?

It is important to take stock of how you manage and govern compliance of benefits and expenses. As well as legislative change, HMRC guidance can alter.  The rewards and benefit an organisation wants to offer can also change. This can mean certain benefits can get missed or mis-reported when undertaking P11D, payroll or PSA compliance obligations,

It is always best to check in with a trusted adviser before HMRC knock at your door – where HMRC carry out a review and find liabilities they can charge penalties as well, if you identify these proactively and voluntarily disclose them, penalties can be mitigated.

Therefore, if you have not had a review, it is recommended to take action and look at your employment tax compliance. A good place to start is completing the questionnaire here – once completed our team will give you a free 30-minute consultation to discuss your answers and what action to take.

• Have you ever submitted payroll, P11Ds or PAYE settlement agreement (PSA) incorrectly?

Where incorrect submissions have been made, it will be important to inform HMRC either by way of a letter or re-submission. This will help correct the issue. Payment of the additional tax / NIC will need to be made, together with any interest and penalties. Further, in some instances, tax/NIC may have been overpaid – HMRC may then owe you money, provided the details can be supported with appropriate evidence.

• Do you undertake any staff entertaining or provide any employees with non - cash gifts?

Staff Entertaining and non-cash gifts like hampers, bottles of wine and gift vouchers are generally well received by employees. However, the tax treatment can be complex given there are exemptions within legislation that may apply, and these are often items employers do not wish to include on Forms P11D. This means it may be relevant to put in place a PSA to report these costs.

Often, these costs can be benefits that are agreed locally, which head office or finance may not always have oversight of. It is therefore important to review Purchase Ledger and Expense items regularly, but particularly at tax year end. We have a PSA Expense AI Analyser tool that can help employers undertake this exercise accurately. Please get in touch if you’d like more information.

It is important with these benefits to have robust governance to demonstrate reasonable care has been taken, to reduce the risk of errors and HMRC finding fault. Training and having clear policy on entertaining and benefits will help ensure employees are fully aware too.

• Do you provide non – cash benefits to employees?

If you do provide non-cash benefits, whether it be a vehicle, bicycle, non-cash voucher, medical insurance, or something else, it will be vital to consider whether it is taxable and how it needs to be reported (i.e., payroll, P11D or a PSA if one is in place).

Get in touch

Our employment tax team can support you with your P11D submission to ensure you mitigate any potential risks but also enhance your employee reward strategy. If you would like to speak with a member of the team, please contact us using the details below.