If you’re an employer providing expenses or benefits to your employees, it’s crucial to report them to HMRC (Her Majesty’s Revenue and Customs) in order to account for tax and NICs (National Insurance Contributions), unless they qualify for an exemption. Understanding which exemptions apply and what needs to be reported is essential. Payroll Umbrella Services recommend that employers review the expenses and benefits they provide annually to ensure proper treatment and identify any changes.
The submission of Forms P11D and P11D(b) to HMRC is an annual requirement for employers to confirm the value of reportable benefits provided to employees. These forms are used when benefits are not covered by a formal payrolling arrangement with HMRC or are not addressed 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 deadline for submitting both the P11D and P11D(b) forms is the 6th of July following the tax year in which the benefits were provided. On this date, a copy of each employee’s Form P11D or the information it contains must also be provided to the employees. Any payments of Class 1A NICs (the employer’s NICs due on taxable benefits) are to be made on the 19th or 22nd of July, depending on the payment method. For the 2022/23 tax year, Class 1A NICs will be charged at a blended rate of 14.53% due to changes in NI rates during the tax year. HMRC no longer accepts paper forms P11D or P11D(b).
Presently, employers have the option to payroll certain benefits instead of reporting them on Forms P11D. The only benefits that cannot be payrolled are living accommodation and beneficial loans. To payroll benefits, employers must register formally through HMRC’s portal before the start of the tax year in which they wish to begin payrolling the benefit. Once registered, the employer must include the correct cash equivalent value of the payrolled benefit in employees’ taxable pay, and HMRC will exclude the value of the benefit from the employees’ tax codes. The advantages of payrolling benefits are a reduction in the employer’s end-of-year P11D administration and the ability for employees to pay tax in real-time.
However, even if you are currently payrolling benefits, you must still include the value of the payrolled benefits on a Form P11D(b) by the 6th of July. This is necessary to declare and pay the Class 1A NICs due on those benefits to HMRC by the 19th or 22nd of July.
PSAs are utilized by employers to ensure compliance and streamline administration concerning taxable employee expenses and benefits that they prefer employees not to personally bear the burden of paying tax and NICs on. Through a PSA, an employer can settle any tax liabilities through an annual submission and payment to HMRC. Items included in a PSA do not need to go through payroll or be reported on a P11D.
Instead of Class 1A NICs being due via the P11D(b), the value of the benefit is subject to Class 1B NICs. To be eligible for inclusion in a PSA, items must be minor, irregular in nature, or impractical for the employer to process through PAYE (Pay As You Earn). Examples of items that can be included in a PSA are staff lunches, staff entertainment, non-cash awards, taxable travel costs for hybrid workers, and trivial benefits exceeding £50, such as Christmas gifts. Cash bonuses, company cars, and low-interest loans cannot be included. Applying for a PSA must be done in writing.