Employers are under strict statutory obligations when it comes to declaring to HM Revenue and Customs (HMRC) what they pay to their employees by way of remuneration, including expenses and benefits in kind that form part of an employee’s salary package.
The following article looks at the rules relating to submitting P11D forms to HMRC to report any taxable expenses and benefits, from what these forms are and what to include on them, to how to use the payrolling method instead and the common pitfalls to avoid.
What is a P11D form?
A P11D form is an end-of-year report used to notify HMRC, either online or by post, about any expenses and benefits in kind that the employee is liable to pay tax on. It’s used by employers to declare the value of any work-related taxable expenses and taxable benefits that an employee has received over the course of the tax year (from 6 April to 5 April).
Benefits in kind are essentially non-cash benefits provided by an employer to an employee in addition to their salary. For tax purposes, many of these benefits are treated in the same way as earnings. This means that the amount on the P11D form represents additional employment income that is typically assessed based on the cash equivalent value of the benefit to the employee. This is because the benefits have been provided by reason of employment, where their monetary value is regarded by HMRC as part of the overall reward for the job.
Who needs to file a P11D form?
By law, at the end of every tax year, an employer must give HMRC details of any expenses payments, benefits and facilities that they’ve given to each of their employees. It’s the employer’s, and not the employee’s, responsibility to complete and file the P11D form. This information will then be used by HMRC to adjust the employee’s tax code to include the value of the expenses and benefits that the employee has received. This adjustment will appear as a deduction from the employee’s tax allowances for the tax year, meaning that more tax is collected than would be the case on their wages or salary alone.
A P11D form must also be submitted when paying expenses or providing benefits in kind for company directors, where the employer will need to use a separate form for each director or relevant employee. However, an employer doesn’t need to complete a P11D form if:
- there are no taxable expenses, payments or benefits to be returned for an individual,
- the expenses and benefits have already been taxed through their payroll.
What information does a P11D need to show?
Generally speaking, any items that an employer pays for or provides, and that the employee or director benefits from, need to be included on the P11D form. Common examples of taxable expenses and benefits that need to be reported to HMRC include:
- Company cars and fuel
- Company vans and fuel
- Mileage allowance payments
- Childcare vouchers
- Private medical treatment or insurance
- Interest-free or low interest loans
- Living accommodation
A P11D form only needs to include information relating to expenses or benefits that haven’t already been taxed through payroll.
P11D exemptions
Employers don’t have to report certain routine employee expenses to HMRC. Formerly known as dispensations, these are now called exemptions. Expenses and benefits covered by an exemption include things like business travel, business entertainment and phone bills.
To qualify for an exemption, the employer must be paying a flat rate to their employee as part of their earnings. This can be either a benchmark rate or a special bespoke rate approved by HMRC. Alternatively, the employer must be reimbursing the employee’s actual costs. If the employer is paying HMRC’s benchmark rates for allowable expenses, they don’t need to apply for an exemption. An application for an exemption only needs to be made if the employer wants to pay bespoke rates to their employees. In these cases, the employer will need to provide evidence that the suggested rates are based on their employee’s actual expenses.
Employers must have a system in place to check any payments made. Employees shouldn’t be allowed to check their own expenses, but must keep any receipts and bills so that someone else within the company or organisation can check these to ensure that they’re legitimate.
P11D filing deadline
Employers must submit an end-of-year report to HMRC using form P11D for each employee or director who has received taxable expenses or benefits during the tax year ending 5 April. The deadline for doing this is by 6 July following the end of the tax year to which these relate. The employer is also required to file a P11D(b) form by the same date, so that they can pay any Class 1A National Insurance contributions (NICs) on the value of any expenses and benefits.
Once these forms have been completed, the employer must provide each employee with a copy of their P11D information, again by 6 July. If an employee’s expenses and benefits are taxed through payrolling instead, the employer must explain how this works in writing.
There are various online methods to submit P11D and P11D(b) forms, including commercial payroll software, HMRC’s PAYE Online service if the employer has up to 500 employees, or HMRC’s Online End of Year Expenses and Benefits service. The employer can also report by post, although this method should only be used if they cannot use any of the online methods. To report by post the employer will need to download and fill in forms P11D and P11D(b) and send them to HMRC’s P11D Support Team.
Any failure to submit forms P11D or P11D(b) in time can result in significant financial penalties for the employer. The employer must also pay any Class 1A NICs owed by 19 July if paying by cheque, or by 22 July if the payment is by an approved electronic method, otherwise risk further penalties and interest charges. Additionally, an employer may be charged a penalty if they carelessly or deliberately give inaccurate information in their returns.
What is a P11D(b) form?
Form P11D(b) is the report that employers are required to submit so that they can tell HMRC the total sum of Class 1A NICs that are due on the value of any expenses and benefits provided. Class 1A NICs will be payable on most benefits.
The P11D(b) form is used to summarise all the P11Ds submitted to show the total benefits in kind provided by the business, and any Class 1A NICs payable on these for the year. However, a P11D(b) form will still need to be submitted so that the employer can pay any Class 1A NICs that are owing, even if all expenses and benefits are payrolled and no P11D form is necessary.
An employer will therefore need to submit a P11D(b) form if:
- they’ve submitted any P11D forms
- they’ve paid employees’ or directors’ expenses or benefits through their payroll, and have not had to submit any P11D forms, or
- HMRC have asked the employer to do so, either by sending them a form or an email.
If HMRC has asked an employer to submit a P11D(b), but the employer doesn’t owe any Class 1A NICs, they will need to complete and sign a declaration to this effect.
Record-keeping for P11D & P11D(b)
Employers must keep a record of all expenses and benefits provided to their employees or directors. These records need to show they they’ve accurately reported what expenses were paid, or benefits provided, and that their end-of-year P11D and P11D(b) forms are correct.
HMRC may ask to see documentary proof of how an employer has accounted for any expenses or benefits at the end of the tax year. This means employers must retain a written record of:
- the details and date of every expense and benefit paid or provided
- any information needed to work out the amounts inserted into the end-of-year forms
- any payment an employee or director has contributed to an expense or benefit
- any correspondence with HMRC about expenses or benefits.
These P11D records must be kept for a period of 3 years from the end of the relevant tax year.
Managing expenses and benefits through payroll
Instead of submitting an end-of-year P11D report, employers can manage expenses and benefits through their payroll system. When “payrolling”, the employer must notionally add the cash equivalent of the expense payment or benefit to the employee’s pay to deduct the correct amount of tax. HMRC will then ensure that the value of the expense or benefit isn’t included in the employee’s tax code to avoid them being taxed twice.
If an employer is intending to payroll benefits and expenses, they must register them with HMRC using the payrolling employees’ taxable expenses and benefits service before the start of the tax year, letting HMRC know what they want to payroll during the registration process. Once the tax year has started, the employer will have to payroll the expense payments or benefits for the whole of the tax year, or until they stop providing them.
Using the online service for payrolling expenses and benefits means that the employer will not have to submit a form P11D, although they’ll still need to work out the Class 1A NICs on benefits and complete form P11D(b). An employer can payroll all benefits, except employer-provided living accommodation and beneficial loans. This means the employer may need to use a combination of payrolling and P11D methods, where they will still be required to submit a P11D for any non-payrolled expenses and benefits.
If the employer misses the registration deadline, they cannot payroll expenses and benefits until the following tax year unless HMRC agree that they can payroll informally for that year. In these circumstances, the employer must still complete a P11D form at the end of the tax year. This can be done using a paper P11D form or electronically using the ‘PAYE notification of payrolled benefits’ form. The employer can only submit electronic P11Ds if all benefits and expenses have gone through their payroll and they tell HMRC in advance that they will be sending electronic P11Ds. If submitting paper P11Ds, the employer will need to mark each “Payrolled” to stop HMRC collecting tax that has already been deducted from their employees.
An employer can also exclude employees from payrolling once they’re registered, but they’ll need to send a P11D form to declare the non-payrolled benefits.
Pitfalls to avoid
Reporting taxable expenses and benefits can be complex, especially when it comes to calculating the value of the benefit. A benefit in kind is usually calculated using the cash equivalent value of the benefit to the employee or director, although there are often complicated rules on valuing different taxable benefits.
There are working sheets to help employers calculate the cash equivalent for certain benefits, and there are various HMRC booklets and online guidance. Employers can also phone the employer helpline, although it’s often best to seek independent expert advice.
By seeking professional advice before filing expenses and benefits returns, employers can safely navigate the complexities of the tax rules, and the requirements to complete any P11D and P11D(b) forms, without the risk of erroneous calculations and financial penalty.
P11D Form FAQs
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Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert professional advice should be sought.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
