One of the least well-known accounting and tax questions is what is a P11D. This is a form that employers use to report certain non PAYE expenses during the tax year. This can include benefits such as railcards and childcare as well as the traditional company car.
Benefits in kind are additional items or services that an employee receives from their employer, in addition to or in lieu of their salary. Examples include company cars, private health insurance, and rail season tickets.
As an employer, you must complete a P11D form for each employee who receives benefits in kind. The form has to be submitted to HMRC by the end of the tax year and payment made shortly after.
Employees should also receive a copy of their P11D form from their employer, highlighting the benefits in kind that have been submitted to HMRC.
Benefits in kind are counted as taxable income. This means that you will need to pay income tax on the value of the assets you receive. The amount of tax you pay will depend on your income and your tax rate and the type of benefit.
Employers pay national insurance contributions on taxable benefits. Failure to submit a P11D form on time and pay the tax owed can end in a substantial fine.
What is a P11D form and who is responsible for submitting it?
If an employee receives a benefit (for example, a financial bonus) via their normal pay then it will be dealt with through the normal PAYE system and taxed accordingly.
Many businesses, however, offer in-kind benefits that include private healthcare insurance, mobile phones and interest-free loans that are less easy to quantify.
These are considered taxable benefits, however, and HMRC needs to be informed and income tax paid. This is done using a P11D form which needs to be completed for each employee who has received such a benefit. The employer is responsible for submitting the form and giving a copy to the employee.
The employee can include the taxable expenses in their self-assessment tax return or let HMRC calculate the tax deduction and remove it from their salary at a later date.
If you are an employer or freelancer and you receive a benefit in kind, then the onus is on you to tell HMRC about it and pay the tax.
When is the deadline to submit the form?
If there have been any benefits paid in any other way than through PAYE, you will need to complete a P11D after the end of the tax year, in this case 5th April.
It needs to be submitted by 6 July, and the tax needs to be paid by 22nd July.
Who has to pay tax on a P11D?
Employees need to pay tax on the taxable value of the benefit, which is not the same as the cost of the benefit. How much tax will be added will depend on the type of benefit and the tax code.
For example, the taxable value of a company car will depend on whether it is leased or bought outright, whether it is used only for business, and how energy efficient it is.
Employers also pay class 1a national insurance contributions on any benefits in kind (employees don’t pay national insurance contributions, only tax on the same benefit).
You need to tell HMRC by reporting the class 1a national insurance you owe at the end of the tax year by filling in a P11D(b) form.
What employee benefits need to be included in P11D?
The P11D form can be used for a range of employee benefits, including:
- Company cards.
- Season tickets and loans for season tickets.
- Company cars.
- Non-work entertainment and travel expenses.
- Childcare costs.
- Some expense payments.
You can find a full list here.
The general rule is that you need to declare any employee benefit that is not reflected in their salary.
The HMRC does make exceptions for fees and subscriptions relating to the business, and some smaller benefits in kind (mostly those that cost less than £50) are not counted.
How are P11D taxable benefits calculated?
Each taxable benefit has a different taxable value which is not the same as cash value. You will need to calculate the amount that is due when you submit the form. For example, the taxable value of childcare will depend on the type of vouchers and how they are provided to the employee.
What happens if you don’t submit a P11D?
The P11D form can be submitted either online or through a paper version. Failure to do so or a late submission and payment will result in a £100 for every 50 employees for each month that you fail to pay.
They can also add a 5% penalty to any national insurance contributions that are due.
Get in touch with VW Taxation and prepare for your tax year
Getting everything ready to complete a tax return can be challenging, especially for smaller businesses with fewer resources. If you are giving employees benefits in kind, it’s important to know which forms need to be filled in.
At VW Taxation, we’ve got a long and distinguished record of helping local construction businesses to complete their tax returns. We’ll make sure all the important boxes are ticked and let you focus on what you do best, running your own business.
Conclusion
Benefits in kind are extremely popular with businesses of all sizes, but they do count as taxable assets, which means employees need to pay income tax. This is done by submitting a P11D form after each financial year.
