P11D forms – what they are and when you need to complete them

Form P11D is a statutory form required by HM Revenue & Customs (HMRC) from UK based employers to detail the cash equivalents of benefits and expenses that they have provided during the tax year to directors and employees.

Your company will be affected by the P11D rules and regulations if your directors or employees enjoy the reimbursement of expenses that aren’t covered by a dispensation and, or benefits in kind that are paid either directly to them or to others, by way of, for example, employment of spouses or children. There are three different possibilities whereby such reimbursements or benefits in kind might be arranged:

• A contract between the employee and provider, whereby the employer makes a payment on behalf of the employee direct to the provider.
• A contract between the employee and provider, whereby the employer reimburses the employee.
• A contract with the employer and provider, and the employer makes a payment on behalf of the employee direct to the provider.

When is a P11D required?

A P11D is required when benefits or expenses payments have been made.

What sort of expenses and benefits are included?

• Company cars.
• Company car mileage allowances and fuel.
• Company vans provided for private use.
• Private car mileage allowances and fuel.
• Motorcycles provided for private use.
• Payments for use of home telephones.
• Mobile telephone usage and reimbursements.
• Private medical insurance.Subscriptions and professional fees.
• Non credit card expenses payments.
• Credit card expenses payments.
• Living accommodation.
• Interest-free and low interest loans.Assets transferred.
• Assets placed at the employee’s disposal.
• Working from home.
• Employer supported childcare.
• Other benefits or expenses such as childcare costs, spouse or partner expenses on business trips, late night taxis and so on.

If you are a director of a company and your company has provided benefits or expenses to either yourself or your employees, you’re required by law to provide details of these benefits to HMRC.

When any of these benefits in kind are supplied to either a director or an employee during the tax year, then the form P11D needs to be submitted for each person involved as well as a P11D(b) to outline the Class 1A National Insurance Contributions (NICs) that are due on the payments. You can download Form P11D here. You can download Form P11D(b) here.

Be wary of complex rules and regulations and forthcoming changes

P11D rules and regulations are complex, and just to make matters worse; the penalties applied for not submitting returns on time are hefty. It’s for this reason that it’s well worth your while keeping up to date with your obligations, particularly bearing in mind the host of changes that are due to come into effect both this and next tax year. Here’s an ‘at a glance’ overview of the changes that you should expect over the next couple of years:

• The introduction of the possibility of dealing with P11Ds through payroll.
• Changes in dispensation rules.
• The ability to report company car changes online.
• The treatment of trivial benefits.The exemption from reporting certain benefits.

P11D Submission deadlines

At this moment in time, the particular situations where a P11D is required are where expenses payments, benefits and facilities have been provided.

P11D information is collated up to the end of the tax year and completed forms must be submitted to HMRC by 6 July in the same year.

Penalties will start to be applied if HMRC doesn’t receive your completed form by 19 July.

Penalties for late submission

When P11Ds are not submitted on time, penalties are applied for each month or part month that a return is outstanding and are calculated at £100 per 50 employees for each month or part month. If your P11D information is overdue, you will initially receive a reminder from HMRC before the deadline of 19 July, but after that you will simply receive a penalty notice when it is 4 months overdue, which means that you will be facing a minimum penalty of £400. So the message is clear; get your P11D information in on time.

P11D checklist

In order to complete a P11D, you will need:

• Your employer reference.
• Your employee’s name, National Insurance Number, date of birth and gender.
• The precise details of the benefit that has been made eg. the list price for a company car if that’s what’s being reported, or the total cash equivalent of car fuel or cars provided or loans provided and so on.

You need to include the total value of all the expenses and benefits provided during the year. Thereafter, you should adjust this total for the expenses and benefits that don’t attract Class 1A NICs. Once you have done this you will be able to calculate your Class 1A NIC and report them using form P11D(b).

Typically, P11D elements will include things like living accommodation, cars, vans and fuel, interest-free and low-interest loans, relocation expenses and mileage allowance payments as well as passenger payments. That said, the whole area of P11D is a complex subject and even extends to benefits and expenses that have been paid to family and household members of directors or employees.

There is a whole host of things to take into consideration when you’re compiling a director or employee’s P11D information and it’s for this reason that HMRC has a comprehensive guide to everything P11D related. You will find it here and our useful P11D checklist accessible from this page can be used as a reminder of the benefits that might apply. This page of the HMRC website enables you to download Form P11D as well as providing a full and easy to follow guide on how to complete the forms associated with this aspect of your accounting. The guide also covers what you need to do should you need to report any expenses that you have already processed through your payroll, and provides a step-by-step outline of how you can report this information online.

Dealing with expenses and benefits through payroll

During this year, a scheme will be introduced that will enable benefits in kind to be dealt with through payroll. This means that deductions and repayments of income tax for benefits that employers provide to employees will be able to be carried out through PAYE. This system will be coined “payrolling”. Although it is envisaged that this payrolling system will be rolled out to all benefits in kind in the fullness of time, due to the complexity of one-off or fluctuating payments, when the system first comes into play, it will be limited to company cars, car fuel, medical insurance and subscriptions to start with. When the system becomes more established, it is envisaged that other benefits will be included.

Taking advantage of payrolling means that not only will you relieve yourself of much of the burden of your P11D responsibilities, it also means that you’ll be able to substantially reduce the risk of facing the hefty penalties associated with this part of your accounting process. If you’d like to find out more about payrolling your P11D, why not get in touch?

Dispensations

In certain cases, employers may be granted a P11D Dispensation. This allows employers to benefit from a dispensation from being obliged to produce these benefit in kind forms. Once such a dispensation has been granted, the employer is relieved of reporting these expenses and the employee is free of having to enter them on their personal tax return and claim the deduction for business expenses.

Future changes

There have already been some modernisations to the P11D system and going forward you can expect a significant number of additional changes to come in regarding P11D reporting and regulation.

Here’s an overview of some of the most significant things that have already happened as well as the things that are on the P11D horizon:

• Reporting company car changes online
  • HMRC has launched a system that will allow company car drivers to report changes to car and fuel benefits that will impact on their tax code online. This means that there will be no more waiting for HMRC to update tax codes to reflect changes. This new, safe system comes into play at the same time as voluntary payrolling of benefits in kind, such as company car benefits. This payrolling will mean that changes to company car benefits will be taken into account in real time by using the correct tax code.
• Trivial benefits
  • The impact of the Finance Bill 2015 will mean that there will be a new statutory exemption for trivial benefits from 2015/16 and later. In the past, concessionary arrangements had to be agreed between employers and HMRC in relation to trivial payments. In a situation where benefits are provided by or on behalf of an employer to an employee or a member of the employee’s family or household, these benefits will be exempt from income tax and national insurance if all of the following conditions are met:
    • The benefit is neither cash nor a cash voucher as defined by Section 75 ITEPA 2003.
    • The cost of providing the benefit does not exceed £50*.
    • The benefit is not provided in conjunction with a salary sacrifice arrangement or other contractual obligation.
    • The benefit isn’t in recognition of services performed in the course of the employee’s employment or in advance of this type of service.
• Exemption from reporting certain benefits
  • In a situation where a deductible expense is reimbursed and where that reimbursement is made outside of a salary sacrifice arrangement and the amount is equal to or less than the amount allowed from the employee’s earnings, there will be no need to report.
  • Further exemptions will be made for payments made for expenses that are worked out in an “approved way”. Employers often call this type of arrangement “scale rate” or “flat rate payments”. Once again, if these payments are outside of a salary sacrifice arrangement and certain conditions are met, then there will be no need to report.
  • Where a flat rate (currently referred to as a “custom scale rate”) has been officially approved by HMRC as a way of reimbursing deductible expenses, once again there will be no need to report.
• Existing dispensations
  • When these new exemptions come into play in April 2016, generally speaking employers will no longer benefit from existing dispensations. However, for the interim period between now and 5 April 2016, dispensations will continue to be granted but will be set to expire on that day. The only exception to this will be where a custom scale rate has been agreed. In this instance, a notice will be issued to define the terms of its use, but either way, it will be no longer than 5 calendar years from its date of issue.

Irrespective of whether your Expenses Payments and Benefits are straightforward or if they’re complex, you should be able to find all the answers you need in the HMRC guide. That said, because of the importance of getting P11D information absolutely correct, this isn’t something you should leave to chance. If you’re in any doubt about what you should include on your own P11D or on a P11D for one of your employees, either seek the advice of your accountant or find out about our P11D services.

NOTES:

*If benefits are provided to more than one person and it is deemed to be impractical to calculate the cost per person, an average of £50 should be assumed.

**Ministers of religion will remain exempt from income tax on some benefits and expenses where they earn less than £8,500 a year, but benefits that are deemed to be taxable will need to be reported on P11D due to the abolishment of P9D. In a situation where a care and support employee is in receipt of board and lodging via their employment, so long as it is of a “reasonable scale” will also be exempt from income tax. A new exemption from NICs will also apply, no matter whether the worker is employed directly or via an agency.