P11D: Benefits in kind and expenses

If you provide benefits and/or expenses to your employees, remember that these too are subject to tax.

You therefore need to keep careful track of employee expenses and benefits for tax purposes and inform HMRC, either using form P11D or via your payroll.

In this article:

• What are benefits in kind?
• Why do I need to keep track of benefits and expenses?
• What is a P11D form?
• What needs to be included on a P11D form?
• Are there any exemptions when completing the P11D form?
• When do I have to submit the P11D form?
• Payrolling employee benefits

What are benefits in kind?

Benefits in kind (BIK) can form part of an employee's overall rewards package.

A 'benefit in kind' can be anything beneficial other than actual money (wages, bonus etc). Typical benefits in kind include:

• Workplace pension
• Death-in-service benefit
• Private medical insurance
• Share options
• Childcare vouchers
• Company car
• Cycle-to-work schemes
• Voucher and discount schemes
• Subsidised or free meals
• Gym memberships
• Employee counselling services

As benefits in kind have a monetary value, many of them are subject to tax.

Some may also result in a tax charge on the employee. It’s therefore important for you to know which benefits in kind are taxable and which are tax-free.

If your employees make use of taxable benefits in kind, you must report the details to HMRC to ensure you and your employees pay the right amount of tax and National Insurance (NI).

Why do I need to keep track of employee benefits and expenses?

A fundamental part of bookkeeping is maintaining a record of all the expenses and benefits in kind that you provide to your employees (and their families or households).

You will need to send this information to HMRC at the end of every tax year. In addition, HMRC could ask to see evidence of your record keeping.

HMRC needs to know this information in order to calculate your employer’s NI contributions.

Usually you’ll need to pay Class 1A NI contributions on the majority of benefits you give to your employees. You may also need to pay tax on employee benefits.

What is a P11D form?

A P11D form is the form you use to submit your end-of-year declaration of employee expenses and benefits.

You’ll need to submit a P11D form to HMRC for every employee to whom you’ve provided benefits in kind or expenses.

If you send HMRC one or more P11D forms, you also need to submit a P11D(b) form.

This enables them to see how much you’ll pay in Class 1A NI on the benefits and expenses you’ve provided to your employees.

What needs to be included on a P11D form?

A wide range of benefits and expenses are included, such as company cars, private medical insurance and even some Christmas gifts.

Exactly what you have to report and pay can vary depending on the type of expense/benefit.

Company cars are one example. You’ll need to report any company cars and fuel that you provide to your employees as part of a salary sacrifice arrangement.

Salary sacrifice is where the employee voluntarily takes a reduced gross salary in order to receive the benefit. You may then need to pay NI on the calculated value of this benefit.

There are tools online that help you work out what that value is.

It’s vital you keep a record of all the benefits and expenses you provide to your employees.

Records should include everything from dates to any receipts related to the expense. These must be kept for three years from the end of the tax year to which they relate.

Benefits in kind that must included on a P11D form include:

• Discounted services or goods
• Vouchers (including childcare vouchers)
• Living accommodation
• Travel allowances
• Company cars, vans, bikes or other vehicles available for private use
• Low cost loans
• Private insurance
• Professional fees and subscriptions
• Training fees
• Devices (e.g. phones) available for personal use

Some benefits in kind do not have to be included on the P11D form. These include employer contributions to a workplace pension.

Your accountant will be able to advise you on any others that apply to you.

Are there any exemptions when completing the P11D form?

It’s not necessary to inform HMRC of some routine employee expenses, such as business entertainment expenses and phone bills.

This rule applies as long as you’re either paying back your employee’s actual costs or paying a flat rate to your employee as part of their earnings. '

Trivial' benefits in kind are also not include. A benefit is considered trivial if it is:

• less than £50 in value
• not performance related
• not a cash equivalent
• not a salary sacrifice
• not part of your employment contract

When do I have to submit my P11D forms?

You must give P11D forms to HMRC by 6 July following the end of the tax year.

So for example, for the tax year 2017 to 2018 the P11D forms had to be returned to HMRC by 6 July 2018.

If you don’t submit the correct forms and on time, HMRC can impose a penalty of £100 per 50 employees for each month (or part of a month) that your P11D(b) is late.

Payrolling employee benefits

An alternative to the P11D form is to register with HMRC to pay tax on employee benefits through your payroll.

This way, you may be able to avoid the often time-consuming process of submitting a P11D form for each employee. However, you’ll still have to submit the P11D(b) form for the Class 1A NI contributions.

If you want to do this, tell HMRC before the start of the tax year in question.

Dealing with benefits through payroll (also known as payrolling benefits) may not be right for every business.

It’s important to check that the employee benefits you offer can be payrolled.

If they can’t, consider whether you want two systems (some benefits through payroll, some through P11D) or whether you would rather submit them all via P11D.

Also bear in mind that if you want to payroll benefits, you’ll need to calculate the cash equivalent of each benefit. This is probably a job for your accountant.

If you found this article helpful, you might also find our article on the staff appraisal process useful too.