If you ask most people what a P11d benefit is you will get a blank look and a shrug of the shoulders. You could be the recipient of a P11d benefit from your employer and not even know it. We have detailed below what are classed as P11d benefits and the tax implications for both the employee and the employer.
A P11D is the form used to report expenses and benefits paid to directors and employees which have not been subject to PAYE tax. HM Revenue & Customs require your company to notify these expenses for each director or employee after 5th April each year. There are penalties for late or non submission.
The form covers a tax year so run from the 6 April to the 5 April and need to be submitted to HM Revenue and Customs by the 6 July following the end of the tax year to avoid late filing penalties. Any Class 1A national insurance will need paying by the 19th July.
WHAT TYPE OF EXPENSES ARE REQUIRED TO BE REPORTED ON A P11D?
Essentially taxable expenses and the cash equivalent of company assets provided for the private use of the director or employees will need to be reported on the form. Both are referred to as benefits in kind.
WHAT ARE BENEFITS IN KIND?
As noted above, where the company incurs costs or provides assets for the private use of the director or an employee these normally result in a Benefit in Kind charge. In respect of taxable expenses, the amount to report on the P11d form is equal to the amount of the expense (see below). Where an asset is provided for private use, the amount to report on the form is the cash equivalent value –how this is calculated is dependent on the asset in use. Both are referred to as benefits in kind.
By reporting these amounts on the P11d, this means additional tax is payable personally and a potential Class 1A national insurance charge is payable by the company. Generally, Benefits in Kind fall into several categories and depending on the type of benefit, depends upon whether or not Class1A national insurance will be due.
The following are examples of taxable benefits and expenses which you should inform your accountant about so they can be considered for P11d reporting:
- Assets paid for by the company and transferred to you at no cost or below market value.
- Payments made on your behalf e.g. paying personal bills from the company bank account or with a company credit card;
- Vouchers (in the case of child care vouchers any excess over £55 per week ) or credit cards e.g. using company credit cards to fund personal expenditure;
- Living accommodation – the cash value of the living accommodation is regarded as a benefit;
- Mileage Allowance – amounts in excess of the HMRC approved rates;
- Cars, vans and/or fuel provided by the company and available for private use (in the case of vans incidental private use can be ignored);
- Low or interest free loans, often referred to as director’s loans;
- Private medical or dental insurance paid for from the company account;
- Assets placed at your disposal, e.g. motorcycles, holiday homes;
- Professional fees, subscriptions – some subscriptions to professional bodies may be exempt;
- Training – only work related training is allowable and only if paid for or reimbursed by the company;
- Telephones and mobile phones – unless the contracts are in the company’s name.
WHAT ARE TAXABLE EXPENSES?
They are expenses which the business incurs directly but have a personal benefit to you. For example, this could be if the business has paid for expenses from which you derive personal enjoyment such as gym membership or football hospitality.
These expenses are not as obvious as a company car, but they have the potential to be a benefit and kind. It is always better to be safe and discuss all items with your accountant to make sure that the expense does not need to be recorded on a P11d.
DOES HAVING A P11D MEAN I HAVE ADDITIONAL TAX TO PAY?
Normally yes and it will normally be coded out via your tax coding, the P11d benefit will also need to be recorded on your self assessment tax return.
As well as personal tax the company will most likely be liable to Class 1A national insurance on the total amount of the benefit recorded on the P11d form. The current rate of national insurance is 13.8% rising to 15.05% from April 2022.
WHAT IF I ONLY HAVE REIMBURSABLE BUSINESS EXPENSES AND NO BENEFITS IN KIND?
You will not require a copy of a P11d form as there are no benefits in kind to report.
The company, however, is still obliged to confirm to HM Revenue & Customs that there are no benefits in kind to report and no Class 1A national insurance to pay as part of the P11d process.
WHAT IS A P11D (B)?
A P11D (b) is the form that is sent in to HM Revenue & Customs with the P11D showing the amount of any additional tax or Class 1A national insurance due on the expenses and benefits. Where no benefits have been paid during the tax year ending 5 April 2021 and a form P11D(b) or P11D(b) reminder is received, employers can either:
- submit a ‘nil’ return
- complete the ‘2020-21 Employer – No return of Class 1A’ form, to advise that they have no P11D to submit and no Class 1A return to make.
WHAT HAPPENS IF I DO NOT COMPLETE A P11D?
Completing a P11D for a director and employees who are in receipt of company benefits or expenses is a necessity and there are serious consequences for failing to comply including penalties based on a percentage of lost revenue.
WHAT HAPPENS IF MY P11D IS INCORRECT?
There can be penalties for incorrect P11D’s so the sooner a mistake is rectified the lower any penalties will be.
WHAT ARE “ALLOWABLE” EXPENSES?
Allowable expenses are the costs incurred for the sole purpose of making profits for your business.
For expenses paid by the company to be allowable they must satisfy HM Revenue & Customs criteria that they are wholly and exclusively for the purpose of the trade. Similarly, expenses paid by you are only allowable if they are incurred wholly, necessarily and exclusively in the performance of the duties of your office or employment.
Allowable expenses are no longer required to be shown on your P11D form –but you do need to claim your expenses on an expense claim form for these amounts to be relieved against the company profits.
HOW WOULD I KNOW IF ANY OF THE EXPENSES I HAVE CLAIMED DURING THE YEAR ARE BENEFITS IN KIND?
Contact your accountant if you are unsure, it is your legal responsibility as the business owner to ensure that if P11d’s are needed, that they are completed and filed on time. Your accountant will be able to advise you and complete the necessary forms and submit them to HM Revenue & Customs on your behalf.
WHERE CAN I FIND FURTHER INFORMATION ON EXPENSES AND BENEFITS?
You can contact us direct and we can advise you or detailed HMRC guidance on all of the above can be found via https://www.gov.uk/employer-reporting-expenses-benefits
When it comes to your company’s accounts and tax returns, GW & Co Ltd, offers Fresh Thinking, Friendly Advice for Your Business Success. If you’d like to talk about the issues raised in this article or any other accounting challenge facing your business, please do not hesitate to get in touch.
Tel: 01326 378288
Email: info@gw-accountants.co.uk
