The last tax year has not long ended, but now is the time to think about how you report taxable benefits provided to your employees.
On the horizon there is the all important P11D deadline looming, which may require some employers to report taxable benefits provided in the last year to HM Revenue & Customs (HMRC).
What is a P11D form?
The P11D (for income tax) and P11D(b) for Class 1A National Insurance Contributions) are used to report benefits provided to employees and expense payments by employers that are not included in the payroll process.
If you provide benefits or non-exempt expenses, you must be aware of the annual P11D form that needs completing and sending to HMRC by 6 July every year.
To complete this, you will need to know what you must report and if you are required to pay tax and National Insurance (NI) on the benefits or expenses provided to employees.
The form allows businesses to report benefits that employees have received from their employer in addition to their salary, for example, company cars, health insurance, living accommodation and beneficial loans.
Do I have to use the P11D form to report taxable benefits?
If you have taxable benefits and are looking to include these in your payroll reporting, you must register the details with HMRC. You can register these by using the taxable benefits and expenses service.
When using this online service for payrolling benefits and expenses, you do not have to submit a P11D form, but you must tell HMRC which benefits you want to payroll during the registration process.
However, if you miss the registration deadline, you may have to wait until the following tax year to report employee benefits unless you have a valid reason. If HMRC agrees with your reason, then you may informally report this payroll information.
In this instance, you must complete a P11D form for each affected employee at the end of the tax year and mark each P11D ‘Payrolled’. Doing so prohibits HMRC from collecting the tax deducted from your employees.
What benefits are tax-free?
There are several tax-free benefits that can be given to employees, which must be considered, including:
- The provision of a mobile phone.
- A social function for staff – if the total cost does not exceed £150 (including VAT and extra costs such as accommodation and transport) per head, per year.
- Trivial benefits – if it costs £50 or less to provide, it is not cash or a cash voucher, and it is not a reward for the employees’ performance or a term in their contract.
Remember, a Director of a close company, run by five or fewer shareholders, cannot receive trivial benefits worth more than £300 in a tax year.
If the benefits provided by your business meets the above criteria, you do not need to update HMRC via payroll or P11D and pay tax or NI on this benefit.
What are the penalties for filing a P11D late?
HMRC can levy penalties of up to £300 for each late P11D form. However, it needs to apply to the First Tier Tribunal in order to do so.
Additionally, it can levy continuing daily penalties of up to £60 a day for late forms, but only after the first penalty is authorised by the tribunal.
Because of the need to apply to the tribunal, HMRC rarely issues late penalties for P11Ds.
That said, it is easier for HMRC to issue penalties in respect of the P11D(b). In the first 12 months of lateness, it can issue penalties of £100 a month for up to 50 employees, plus £100 for every additional 50 employees and an additional £100 for additional employees where the total is not a multiple of 50.
However, these penalties are capped at the total Class 1A contributions payable, meaning penalties cannot be levied where no contributions are payable.
To find out more, please contact us.