It’s that time of year again – P11D Benefit in Kind Reporting

Each year by 6 July, employers are required to report to HMRC details of any reportable benefits and expenses payments made to their employees and directors in the previous tax year. This also includes any such items provided to members of those employees’/directors’ family or household members.

This information is submitted on form P11D unless one of the following applies to the benefit in kind:

• Has been dealt with via a PAYE Settlement Agreement (PSA)
• Has already been returned under a formal payrolling benefit in kind arrangement with HMRC
• Qualifies for tax and national insurance contributions (NIC) relief under the ‘Expenses Exemption’ arrangement
• Qualifies as a trivial benefit

In addition to form P11D, which records details of the taxable benefits and expenses provided to an individual employee/director, form P11D(b) is also required to be submitted by 6 July detailing the amount of Class 1A NIC that the employer is due to pay.

Common benefits in kind and expenses

Common type of benefits and expenses provided to employees and directors which need to be reported on form P11D include:

• Company cars and fuel
• Company vans and fuel
• Private medical insurance
• Living accommodation
• Beneficial loans
• Use of company assets or transfers of company assets
• Business mileage paid in excess of HMRC’s approved mileage rates

Remember that a pure electric company car made available to an employee during the 2020-21 tax year is taxed at 0%, meaning that no benefit in kind arises. However, the details still need to be returned on form P11D.

In addition, for 2020-21 it is possible for a new purchased electric car to qualify for 100% first year allowances, which can be set against the company’s profit for corporation tax purposes.   

How can the submission be made?

Both the P11D and P11D(b) can be submitted digitally using commercial payroll software, HMRC’s PAYE Online service or HMRC’s Online End of Year Expenses and Benefit service.

Alternatively, if preferred, it is possible to complete the P11D/P11D(b) forms manually.  The forms can be downloaded from HMRC’s website and, once completed, they will need to be sent to HMRC’s P11D Support Team. 

What are the consequences of missing the deadline or getting it wrong?

HMRC can look to charge penalties where the P11Ds are submitted late or are incorrect. The penalty for failing to submit form P11D by the due date is a maximum initial penalty of £300 per form with further penalties due of a maximum of £60 per day after the initial penalty has been charged. 

For an incorrect P11D, where the employer fails to take reasonable care, a maximum penalty of £3,000 for each incorrect return could be charged.

If form P11D(b) is received late, a penalty will be charged at £100 per 50 employees for each month or part month the return is late.

Penalties can be charged for an incorrect P11D(b), and these are behaviour-centred penalties based on whether the error was made due to the employer’s behaviour being careless, being deliberate or being deliberate and concealed.

Making payment to HMRC of Class 1A NIC

Employers must pay to HMRC the Class 1A NIC due on form P11D(b) by 19 July if paying by cheque or 22 July if paying electronically.

For those employers who have processed the benefits through the payroll, they will still need to pay the Class 1A NIC due on those benefits. This information needs to be included on form P11D(b) to enable them to pay the Class 1A NIC due to HMRC.

Do not forget any Class 1 NIC liability due

For national insurance purposes, the way in which an employer provides something to an employee will normally determine whether a payment of earnings has been made on which Class 1 NIC are due or a benefit in kind has been provided on which Class 1A NIC are due.

Whether Class 1 NIC or Class 1A NIC is due will depend upon who has entered into the contract with the supplier to provide the goods or services and how the payment has been made.

Form P11D identifies entries on which Class 1A NIC are considered due, but employers still need to be mindful that for those entries which are not highlighted as attracting Class 1A NIC, Class 1 NIC would be due, and this would need to have been accounted for through the payroll. 

Summary

It is important that employers have appropriate systems in place to check and identify the expenses and benefits that are provided to employees and directors, so they can satisfy their obligations and submit the appropriate P11D returns and form P11D(b) to HMRC on time.

If you would like to raise anything we’ve discussed in this article, please contact us at info@guildhubservice.co.uk and talk to our expert team. We’re here to help. We have in-house ex-HMRC Employer Compliance experts who can assist with benefits and expenses queries.