Use our guide, including helpful Q&As, to understand the new rules
Since 6 April 2016 new rules for P11Ds have been in place. This is the first year when P11Ds are going to be submitted after the change.
Here’s a recap of the main changes:
1 Dispensations are abolished.
2 The £8,500 threshold and P9D form are abolished with certain exceptions.
3 Trivial benefits-in-kind exemption is £50 (capped at £300 pa for directors).
4 Exemptions from reporting have been introduced.
5 Employers are able to register themselves if they are payrolling expenses (except provision of living accommodation and interest-free/low-interest loans).
From 6 April 2016 P11D dispensations are no longer valid and have been replaced by a more general exemption. This exemption should cover expenses previously covered under a dispensation. If employers are paying HMRC’s benchmark rates for allowable expenses, they do not have to apply for exemption; they only need to apply for an exemption if they want to pay bespoke rates to their employees.
Employers will no longer need to report business expenses on form P11D where they meet the following criteria:
• the employer operates a checking system to ensure that employees are incurring costs equal to the amount they claim through receipts and payment proofs
• the employer checks that a ‘fully matched’ deduction is available under the current legislation.
Unless the employers meet the conditions for reporting exemptions, all employers are required to prepare form P11D for any employee to whom it has:
• reimbursed, or paid expenses, on their behalf; and/or
• provided non-cash benefits in kind or services.
As a reminder, employers are required to report the total of all taxable benefits in kind and expenses subject to class 1A national insurance contributions (NIC) on the form P11D(b).
The due date for filing both forms P11D and P11D(b) is 6 July following the end of the tax year. Payment of the liability is due by 19 July (22 July where payment is made electronically).
Typical questions that arise in relation to P11D reporting and benefits are:
Q 1: Which expenses are allowable expenses?
A: Business expenses are allowable if they are ‘wholly, exclusively and necessarily’ incurred in the performance of the employment, such as business travel and associated subsistence and accommodation costs. A relevant and proportionate business entertainment is allowable to the circumstances of the meeting.
HMRC has stated that expenses covered by the exemption that you don’t have to report are business travel, phone bills, business entertainment expenses, uniforms for work and tools for work.
Q 2: What should be the value of the benefit when goods are transferred to an employee?
A: When any assets/goods are transferred to employees, which could be sold for cash otherwise, the benefit will be the market value of that asset.
Q 3: How should payments made on behalf of employees be treated?
A: If contracts for the supply of goods or services are held in the names of employees but the supplier is paid directly by the employer, it gives rise to taxable benefits in kind. However, if the supplier is paid by the employee but the employer reimburses the employee, the amount is deemed to be earnings and subject to tax and class 1 NIC at the time of payment.
Q 4: Do all employees have to pay tax on living accommodation provided by the employer?
A: It depends. They will pay tax on their living accommodation regardless of the amount of income that they receive, unless they qualify for an exception. Full HMRC guidance explains the exceptions.
Q 5: How could an employee reduce their fuel benefit when provided by the employer for private motoring?
A: The only way to reduce the fuel benefit for benefits in kind is make good the full cost of the fuel for private use. An employee has until 90 days (ie 6 July) of the end of the tax year to pay it back.
Q 6: How should subscriptions and professional fees be dealt with?
A: Subscriptions and professional fees covered by the employer will be exempt from tax and NIC where the organisation is listed on HMRC’s ‘List 3‘. The employee must have membership to do their job or because it’s helpful for their work. If the fees paid to organisations are not listed on HMRC’s List 3, they will be taxable and liable to class 1A NIC.
Q 7: What are the conditions for a trivial benefit
HMRC states that businesses ‘don’t have to pay tax on a benefit for your employee if all of the following apply:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract’.
HMRC also states that directors of a ‘close’ company (five or fewer shareholders) ‘can’t receive trivial benefits worth more than £300 in a tax year’.
Q 8: Are there any exemptions available on staff entertainment?
A: The provision of tea and coffee and staff gifts and celebrations are considered trivial and are exempt, and therefore not reportable on a form P11D.
A staff party or an annual function qualifies as a tax-free benefit for employees subject to the following conditions:
- The total cost must not exceed £150 (including VAT) per head, per year.
- The £150 is a limit and not an allowance; if the cost exceeds £150, the whole benefit is taxable.
- The entertainment event must be open to all staff.
Q 9: How should expenses be treated if there are director/employee loans on which no interest is charged during the year?
A: This is a common area where HMRC finds anomalies when dealing with PAYE enquiries, where accountants failed to disclose this on P11Ds. If the withdrawals by a company director are not processed through the payroll, they will be treated as a loan by the company to the director. The cash equivalent of the benefit is calculated using HMRC’s official rate of interest of 3% for 2016/17 (2.5% for 2017/18). Any interest paid by the employee during the tax year will reduce the loan benefit.
However, it is important to remember that there will be no taxable benefit if the aggregate of all loans outstanding throughout the tax year is £10,000 or less.
Additionally, HMRC released a directors’ loans account toolkit on 9 May, which addresses many related matters with the director’s loan account.
Full HMRC guidance on payrolling of expenses is available.
Article from ACCA In Practice