P11DS - Benefits For Your Staff

The P11D filing deadline of 6 July is fast approaching so now’s the time to get this done if you haven’t done so already. This means that you must pass any appropriate P11D to your staff member and must file these plus the P11D(b) supporting them to HMRC. In most instances Class 1 or Class 1a National Insurance Contributions are due by 19 July.

An employer is required to complete form P11D in respect of each employee and company director receiving benefits, unless the benefits have already been taxed through the payroll. As with all accounting and tax information, comprehensive records should be kept in relation to all benefits and expenses payments made.

A P11D reports benefits in kind provided to employees by way of their employment and shows the value of the benefit, chargeable to tax on the employee. This would typically cover things like;

• Medical insurance and other insurances paid by the employer

• Car benefit based on a scale charge based on the CO2 level of the output of the car and the car’s list price

• Interest on employee loans

• Assets and goods transferred to an employee for personal use

• Memberships and subscription paid that are not for the purpose of the business, such as a gym membership

• Payment of mobile phone or other home/utility bills that are not required for the business

• Vouchers

• The cost of entertaining in excess of the annual entertainment allowance of £150 given for annual events like Christmas and summer parties

Therefore if you provide any benefits to your staff you must complete the annual P11D(b) and accompanying P11D(s) by 6 July.

Employee benefits

Tax efficient benefits can assist your company's profitability by ensuring that employees receive the maximum benefit from the money spent on their remuneration, thereby helping to retain key staff members.

Most, but not all, benefits are caught by tax legislation, and are also caught for National Insurance.

The Benefits - Planning - the detail

Benefits-in-kind are assessed on all directors and employees. 

Provided the employer does no more than reimburse allowable expenses to employees and the appropriate checks are made, these are no longer to be reported on form P11D, and the employee is no longer required to make a claim for them. As an employer you need to gain a good understanding of which expenses are allowable.

You will need a good system of expense claims supported by receipts to justify the payment of expenses tax free.

Employers are able to choose whether to tax benefits in kind, such as the provision of a company car, through the payroll, known as "payrolling benefits". This is purely optional, but could mean the end of P11D reporting for some employers, and is likely to be increasingly popular over the next few years.

We can tell you more about these changes to help you decide what is the right approach for your business.

Non-taxable benefits

Remuneration by way of benefits would no doubt be attractive to employees if they were tax free or subject to less tax.

But, a benefit that is not taxable is not automatically exempt from national insurance contributions (NICs).

There are several benefits that are not normally taxable, although the benefits must generally not be provided in return for a reduction in salary, otherwise they are taxable in full. These can be substantial and the most significant are:

• Contributions to registered pension schemes within limits (salary sacrifice acceptable) 

• Car, motorcycle or bicycle parking facilities at or near the workplace.

• Childcare vouchers worth up to £55 a week (£243 a month) for basic-rate taxpayers are no longer available to new entrants. You may be eligible for tax-free childcare instead.

• Compensation/termination payments up to £30,000

• Welfare counselling services (with restrictions)

• Staff canteen and dining facilities (provided they are available to all directors and employees)

• Sports facilities (provided they are available to all directors and employees)

• Relocation expenses, up to £8,000

• Long-service awards (provided they are an established practice within the firm or are in the employees' contract) up to specified limits

• Awards under suggestion schemes (but there are restrictions)

• Use of a pool car

• Use of an employer-provided mobile telephone - one mobile phone only per employee where provided

• The provision of representative accommodation (except for certain directors)

• Approved share incentive plans

• Use of cycles and cyclist's safety equipment used mainly for journeys between home and work (salary sacrifice acceptable)

• Certain bus services for journeys between home and work

• Annual parties or similar functions costing up to £150 per head (including VAT, and travel and accommodation - this is the cost for the year - not per party) per annum

• Payments towards household expenses incurred by employees working at home (generally £6 per week, £26 per month)

• Retraining expenses and courses

• Trivial benefits such as Christmas presents up to a value of £50 (excluding cash and cash vouchers)

Removal expenses

The tax-free limit is currently £8,000 and is available per move as opposed to per tax year. In order to qualify the expenses and/or benefits must normally be paid or provided in the tax year or subsequent year in which the job starts.

NI relief is available on all the tax qualifying expenditure, however where the £8,000 is exceeded the excess is chargeable to Class 1A and payable by the employer.

Small interest-free loans

No tax is payable on 'cheap' or interest free loans to employees of up to £10,000. If this limit is exceeded at any time during the tax year a benefit in kind is chargeable for the full year, not just the period during which the limit is exceeded. The amount of benefit is calculated as an interest charge of 2.25%.

Cars

When company cars are made available for private motoring, the taxable benefit is normally calculated as a percentage of the list price.

Increases in the benefit-in-kind rates over the last few years have made the provision of a company car very expensive in terms of tax, and previously not worthwhile for many employees.

However, from 6 April 2020, changes to encourage a shift towards environmentally-friendly motoring have completely changed the position in some cases. The current benefit in kind percentage for a fully electric vehicle is 0% and other hybrid vehicles (depending on the number of electric miles) also benefit from potentially low benefit in kind charges.

Where an employee also has their fuel paid for which covers private use in the car they are taxed on the same percentage applied to a standard value regardless of the value of the fuel used.

There is no such charge for a fully electric vehicle.

Class 1A NICs must be paid by the employer on the car and fuel benefits.

Vans

If a company van is made available for private use a standard taxable benefit of £3,490 applies. There is a further benefit of £666 where fuel is provided for private use. If the van is electricity powered the current scale charge is £2,792.

There is no charge for employees who have to take their van home and are not allowed other private use or the extent of private use is 'incidental'. There is also no charge for use of a commercial vehicle of more than 3.5 tonnes gross weight, so long as the employee's use is not wholly or mainly private.

Expenses payments

Employees need to put in claims on their own tax returns or tax codes for expenses incurred in the performance of duties if these have not been reimbursed by the employer. These claims are to be made through the personal tax account in future (as yet unspecified).

These claims are to be made through the personal tax account. In the meantime, employees not within self-assessment should use form P87 (tax relief for expenses or employment where these are less than £2,500 - any greater and claim must be made through the self-assessment tax return) instead.

Valuation of benefits

The rules for valuing employee benefits provided in conjunction with salary sacrifice or in circumstances where an employee could choose a cash alternative are to change are the higher of:

• the existing tax value

• the cash alternative or salary foregone.

This does not apply to employer pension contributions, employer provided pensions advice, employer provided childcare and cycle to work. Neither do these rules apply to ultra low emission vehicles.

There is protection in respect of arrangements made before April 2017. However this protection will lapse when the agreement comes to an end or is renewed, while arrangements in place for low emission cars, accommodation and school fees are protected until 2021, unless the agreement comes to an end before that date.

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FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.