Expenses and benefits can be more expensive than you think. Staying on top of expenses and benefits can be a big headache for a business. All the more so if they get out of hand and management suddenly gets landed with unexpectedly high bills for unpaid tax and NI contributions, perhaps stretching back years.
Two forms and expert advice to help you stay in control
At PKF, our tax experts can help you get it right and avoid these pitfalls. That starts with helping you get to grips with two essential employee benefit reporting events: Forms P11D and P11D (b).
Form P11D is an annual tax return form that helps you report benefits in kind in respect of employees and directors.
Form P11D (b) is the summary of benefits in kind chargeable to Class 1A NIC and helps calculate the amount of Class 1A payable.
What you need to include
The most common benefits include company cars, vans and fuel for private use; living accommodation; private medical costs and insurance; and interest free and low interest loans.
Benefits in kind also include services provided and assets placed at an employee’s or director’s disposal; as well as any assets that have been transferred to an employee or a director.
Subject to specific qualifying conditions, trivial benefits are exempt from tax where the cost is less than £50. Owners of close companies are restricted to an annual exemption of £300 for trivial benefits.
Some salary sacrifice arrangements entered into after 5 April 2017 will be ineffective for tax purposes and some arrangements predating 5 April 2017 will be phased out. If you are affected by their changes you should contact us for detailed advice.
Dispensations replaced by statutory exemption
Dispensations ceased to exist in 2016. Instead expenses can now be paid or reimbursed with no tax or NIC where they are fully deductible. In brief, expenses that are incurred wholly, exclusively and necessarily in the performance of the duties of employment qualify as exempt from tax and do not need to be reported on Form P11D.
Value of benefits in kind
With some types of benefit in kind, there are special rules which determine the cash equivalent or taxable value. These rules apply, for instance, to company cars and fuel for private use, living accommodation, beneficial loans and assets provided or transferred.
When there is no special rule, the cash equivalent or taxable value is calculated as the cost of providing the benefit, less any part of that cost met by the employee or director.
It is vital that employers maintain good records of all expenses and benefits in kind, comprising dates and details, including supporting documentation (e.g. receipts).
In the event of an HMRC inquiry, the employer must be able to demonstrate that its records and Form P11Ds are accurate.
When are the forms due?
Forms P11D and Forms P11D (b) should be provided to employees and submitted to HMRC by 6 July following the end of the tax year.
What is the Class 1A payment due?
By 19 July following the end of the tax year.
What if you miss a deadline or make a mistake?
You may face a penalty if you submit the forms late or fail to submit them; or if there are errors in the forms for which you are responsible.
For a delayed Form P11D, there’s an initial penalty of £300 and up to £60 per day after the initial penalty has been imposed.
For an incorrect Form P11D which has been submitted either fraudulently or negligently, there’s a penalty of up to £3,000.
If you fail to submit form P11D (b), the penalty is £100 per 50 employees per month, up to the total of the Class1A NIC due.
Working with PKF as your tax adviser can help you avoid these penalties and potentially high costs which could hold back your business. We can advise you on how to get the details correct and meet all the statutory deadlines.