P11D – Employee benefits
A P11D is used to inform HMRC of expenses of benefits which the employer has provided to each of their employees. A P11D(b) is used to report the amount of Class 1A National Insurance due on a number of expenses and benefits which the employer has provided. These are identified on the form P11D by a brown box with a 1A indicator. The Class 1A rate for 2014/15 was 13.8%. You must submit your P11D and P11D(b) by 6 July following the end of the tax year with payment of the P11D(b) due by 22 July (19 July if paying by cheque).
When do you need a form P11D?
You have to submit a P11D if you provide any benefits, facilities or pay expenses for an employee/director earning £8,500 or more a year. Any expenses payments, benefits or facilities provided to members of the director’s or employees family or household will be included on the employees P11D and treated as though they had been provided for the employee personally. A separate P11D is required for each director or relevant employee.
To work out the employees/directors earnings for the year you need to make sure you add the value of any expenses or benefits you have given them during the year to their earnings for the year. This could bring someone earning less than £8,500 over the threshold therefore requiring a P11D.
Dispensations
A dispensation means you don’t have to report some expenses and benefits on the P11D and the employee need not show them in their tax return. A dispensation can cover routine business expenses and benefits like:
* Travel
* Phone bills
* Business entertainment expenses
* Company car fuel
* Credit cards used for business
Items which cannot be included in a dispensation:
* Living accommodation
* Removal expenses and benefits
* Company cars
* Vans
* Loans
Requests for dispensation will usually be approved by HMRC provided they are satisfied that the expenses to be paid under the proposed dispensation are tax exempt and that the employer is intending to keep adequate records. HMRC may ask to see evidence of how you accounted for each expense or benefit at the end of the tax year. There is no time limit on dispensations but HMRC will inspect these records occasionally to ensure that the dispensation remains valid. Any employer regardless of size or nature of business can apply for a dispensation.
Advantages to a business for applying for a dispensation
It gives the employer the facility to give full details of certain expenses payments to HMRC and receive confirmation of the tax treatment thus affording the employer peace of mind provided that things do not change.
The removal of the requirement to complete a P11D in respect of the expense covered by the dispensation saves the employer considerable time.
If all expenses paid by the employer are covered by dispensations then the deadline for submission of P11Ds is no longer an issue for the employer and they have no cause to concern themselves with the penalty regime for late submission or incorrect completion of the forms.
What records should I keep?
You should keep a record of the date and details of every expense or benefit you provide, any information needed to work out the amounts you put on your end-of-year forms and any payment your employee contributes to an expense or benefit. It would also be an idea to keep any correspondence with HMRC. These records must be kept for 3 years from the end of the tax year they relate to.
Emer McAleer
