If you’re an employer and provide expenses or benefits to employees, you must usually report them to HMRC so that tax and NICs are accounted for, unless they are subject to an exemption. It’s important you understand which exemptions apply and what needs reporting. We would recommend employers review the expenses and benefits they provide each year to establish the correct treatment and identify any changes.
Forms P11D and P11D(b) are forms employers must submit to HMRC annually to confirm the value of reportable benefits they have provided to employees. This is where the benefits are not covered by a formal payrolling arrangement with HMRC or aren’t dealt with under a pay as you earn settlement agreement (PSA). The P11D(b) form is the employer’s annual return of class 1A NICs due on those benefits. The P11D and P11D(b) deadline is 6th July following the tax year the benefits were provided in. A copy of each employee’s form P11D, or the information it contains, must also be provided to employees on this date. Any class 1A NIC payments (the employer’s NICs due on taxable benefits) are due 19th or 22nd July following the tax year, depending on how payment is made. For the 2022/23 tax year, class 1A NIC will be charged at a blended rate of 14.53% due to changes to NI rates part way through the tax year. HMRC no longer accept any paper forms P11D or P11D(b).
Currently, employers can choose to payroll certain benefits rather than report them on forms P11D. The only benefits that cannot be payrolled are living accommodation and beneficial loans. To payroll benefits, employers must formally register via HMRC’s portal before the start of the tax year they first want to payroll the benefit from. Once registered, the employer must then add the correct cash equivalent value of the payrolled benefit to employees’ taxable pay, and HMRC should then exclude the value of the benefit from the employees’ tax codes. The advantages of payroll benefits is it reduces the employer’s end of year P11D administration, plus it enables employees to pay tax in real time.
However, even if you are payrolling benefits now, you will still need to include the value of the payrolled benefits on a form P11D(b) by 6th July. This is to enable the class 1A NICs due on those benefits to be declared and paid to HMRC by 19th or 22nd July.
PSAs are used by employers to maintain compliance and reduce administration around taxable employee expenses and benefits they don’t want employees to personally pay tax and NICs on. By using a PSA, an employer can settle any tax due via an annual submission and payment to HMRC. PSA items do not then need to go through payroll or on a P11D. Rather than class 1A being due via the P11D(b), the value of the benefit is subject to class 1B NICS. To be included on a PSA, items must be minor, irregular in nature or impractable for the employer to operate PAYE on. Examples of PSA items are staff lunches, staff entertainment, non-cash awards, taxable travel costs for hybrid workers and trivial benefits over £50 such as Christmas gifts. You cannot include cash bonuses, company cars or low interest loans. A PSA must be applied for in writing. The deadline to have agreed a PSA with HMRC is 5th July following the tax year in which it relates.