I became an employer during 2015 and recently received notification from HM Revenue & Customs that before 6 July I am required to complete a P11D Return of Expenses and Benefits form for the tax year 2015-16. What is the purpose of this return and what benefits and expenses do I need to declare on it ?
If you’re an employer and provide expenses or benefits to employees or directors, you need to tell HM Revenue and Customs (HMRC) and pay tax any National Insurance on them.
Examples of expenses and benefits include:
- company cars
- health insurance
- travel and entertainment expenses
There are different rules for what you have to report and pay depending on the type of expense or benefit that you provide.
The P11D(b) is used to declare the amount of Class 1 A national insurance you are due to pay on any benefits or expenses paid to either company employees or company directors. You must submit either a Form P11D or P9D Benefits & Expenses Form to HMRC to declare these benefits.
Form P11D should be prepared for the expenses and benefits you provide to each director or employee earning at a rate of £8,500 or more per year. Form P9D is prepared for employees earning less than the £8,500 rate, including any benefits they receive.
The most common examples of expenses or benefits that should be included on the P11D form are company car & car fuel benefits, company van & van fuel benefits, mileage allowance payments to employees over the approved HMRC rate, private medical treatment or insurance, private use of company credit card, interest free or low interest loans greater than £10,000, subscriptions and professional fees or any payments made on behalf of employees.
The P11D(b) Employer declaration, together with the P11Ds for each director or employee must be submitted to HMRC before 6 July 2016. You should also provide a copy to each director or employee of their individual P11D form to allow them to include this on their personal tax return.
It is the responsibility of the employer to keep a record of all expenses and benefits you provide to your employees. Your records need to show that you’ve reported accurately and your end-of-year forms are correct.
HMRC may ask to see evidence of how you accounted for each expense or benefit at the end of the tax year.
You’ll need to 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
- Any payment your employee contributes to an expense or benefit
You should also keep any correspondence you have with HMRC. Records must be kept for 3 years from the end of the tax year they relate to.
For example, if you reimburse an employee’s travel expenses – you’ll need to keep a record of when and why the employee travelled, and where possible keep receipts as evidence.
You don’t have to report some routine employee expenses to HMRC. This is called an ‘exemption’. Exemptions have replaced dispensations. You can’t apply for a dispensation any more.
You don’t have to report certain business expenses and benefits like:
- business travel
- phone bills
- business entertainment expenses
- uniform and tools for work
To qualify for an exemption, you must be either be:
- Paying a flat rate to your employee as part of their earnings – this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC
- Paying back the employee’s actual costs
You must deduct and pay tax and National Insurance on all other expenses and benefits you give to your employees, and report them to HMRC as normal.
You don’t need to apply for an exemption if you’re paying HMRC’s benchmark rates for allowable expenses. You only need to apply for an exemption if you want to pay bespoke rates to your employees. You’ll have to give HMRC evidence that the rates you’re suggesting are based on your employees’ actual expenses.
If you had a dispensation from HMRC, your dispensation won’t apply after 5 April 2016, but the expenses covered by it should also be covered by the exemption. If you agreed bespoke rates with HMRC between 6 April 2011 and 5 April 2016 as part of your dispensation, you can apply to carry on using them. You can only use the bespoke rates for up to 5 years from the date they were agreed.
You must have a system in place to check payments you make at benchmark or bespoke rates. Your employees aren’t allowed to check their own expenses, so someone else within your company needs to do this to make sure they’re legitimate. Tell your employees to keep proof of their expenses, eg receipts or bills, in case you need to check them.
The rate at which class 1A National Insurance on the value of all these benefits is charged is 13.8% and is payable to HMRC before 19 July 2016.
Penalties will be charged on both late returns and late or part payments.
The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.