Reporting benefits & expenses provided to employees

As we have now passed the end of another tax year, attention may well be increasingly focussed on the completion of Tax Returns for the year ended 5 April 2018 and annual accounts for those businesses with a March (or 5th April) year end. However, businesses shouldn’t forget that there is a more pressing deadline for completion of forms P11D ‘Expenses and Benefits’ in respect of the year ended 5 April 2018. These forms, together with the annual Employer Declaration form P11D(b), must be submitted to HM Revenue & Customs (HMRC) by 6 July 2018 and a copy of the form P11D must be passed to the employee in question by the same date.

Do all businesses need to complete the forms and which benefits/expenses are reportable?

Not every business will need to prepare forms P11D since they are only required if the employer has provided reportable and/ or taxable benefits or expenses to employees during the tax year. However, any business with employees (whether operating as a sole proprietor, partnership, limited company etc.) will need to consider their reporting requirements. The list of taxable benefits and expenses that may need to reported is long but some of the more common benefits include company cars and vans, provision of living accommodation, medical insurance and interest-free (or low interest) loans etc.

Employers should review their records for the tax year carefully to ensure that any benefits or expenses provided to employees are analysed and reported where necessary. There are potentially significant penalties for not filing the forms where they are required, or for completion of incorrect forms.

Is any tax and National Insurance payable?

An income tax charge will usually arise on the employee based on the value of the taxable benefits included on form P11D. The employer may also have to pay Class 1A National Insurance on certain benefits provided and any Class 1A NI is payable to HMRC by 19 July following the end of the tax year (or 22 July if paid electronically).

Employers should also be mindful that if they settle any personal liabilities owed by employees e.g. personal debts, or make payment for personal bills in the employee’s name e.g. telephone bills, the value of such payments could well be taxable on the employee as earnings and liable to Class 1 (employee and employer) National Insurance

Are there any exemptions from reporting certain benefits/ expenses?

There are a number of exempt benefits which employers can provide to staff without incurring a tax or National Insurance liability and May 2018 which do not need to be reported on forms P11D. Again, the list of exempt benefits is lengthy but the more common items include car parking at or near the employee’s place of work, annual parties and functions where the cost does not exceed £150 per head per year, childcare vouchers (up to the exempt amount), contributions to a registered pension scheme and provision of a mobile phone (one per employee).

With effect from 6 April 2016, HMRC also introduced a general exemption from the requirement to report certain business expenses paid or reimbursed by employers to employees and a ‘trivial benefits’ exemption.

The exemption for business expenses paid or reimbursed replaced any dispensations previously in force. The most common items that will be covered by the exemption include reimbursement or payment of business travel (excluding ordinary commuting), subsistence costs associated with business travel, business entertainment expenses, credit cards used for business expenditure and qualifying fees and subscriptions.

The ‘trivial benefits’ exemption is a statutory exemption from tax for qualifying benefits costing £50 or less. Accordingly, these benefits will no longer be required to be reported on forms P11D. The £50 exemption generally applies on a ‘per gift’ basis (so is not necessarily limited to £50 per employee) but in order to qualify, the gift cannot be cash or a cash voucher and must not be a reward for work or performance, or included in the terms of the employment contract. Furthermore, any qualifying trivial benefits provided to Directors of close companies and their family members are subject to an annual cap of £300.

We can assist with the completion of forms P11D and advise on your reporting requirements, as well as providing you with a more comprehensive list of the potential benefits and expenses that may need to be included on the forms. Please contact any of our offices if you would like further assistance.