Under English law every employer has to report any benefits in kind that they have paid to their employees. They do this by filing a P11D form. And it’s important to know what the P11D covers, and what the penalties are if you’re not in compliance.
For those employers not offering benefits in kind, then payroll taxes can be handled entirely through the payroll system You don’t need to submit a P11D form for an employee if you’re paying tax on all their benefits through your payroll. It also means you can deduct and pay tax on most employee expenses through your payroll (sometimes called ‘payrolling’) as long as you’ve registered with HMRC before the start of the tax year (6 April).
There are many benefits that companies can offer their staff. They include (but aren’t limited to):
- Company cars
- Loans for rail season tickets
- Other loans
- Health insurance
- Assets provided to an employee that have significant personal use
- Self assessment fees paid by the company
- Non-business travel expenses
- Non-business entertainment expenses
If you offer any of these then you need to make sure you report them using the P11D form.
There are some key exemptions that it pays to be mindful of. For instance, directors’ loans. As a director, you don’t need to pay interest on the money you owe to the company – provided the loan is less than £10,000.
If your director’s loan account (DLA) is overdrawn by more than £10,000 at any point in the tax year, the Revenue will charge interest on the total overdrawn amount. This should be charged at the HMRC published rate of interest (2.25% for the 2021/22 tax year) and will need to be paid by the relevant director.
The overdrawn amount is effectively a loan from the business to the director, is treated as an employment-related benefit and must be included on the relevant director’s P11D Form.
It’s important to note that P11D filings aren’t dependent on your company year, and must all be filed by 6th July following the tax year in question. So, the P11D for the tax year running 6th April 2020 to 5th April 2021 must be filed by 6th July 2021.
Of course, as with any compliance activities, HMRC do understand if mistakes are made, and, provided you demonstrate adequate effort to correct the error, will tend to take a more charitable approach. HMRC recently published a list of typical mistakes they commonly see on P11D forms, so it’s worth checking any submission against this list to make sure you’re doing it right.
Common mistakes:
- Submitting duplicate P11D information on paper where P11D information has already been filed online to ensure ‘HMRC have received it’. These duplicates can cause processing problems.
- Using a paper form that relates to the wrong tax year – check the top right hand corner of the first page.
- Not ticking the ‘director’ box if the employee is a director.
- Not including a description or abbreviation, where amounts are included in sections A, B, L, M or N of the form.
- Leaving the ‘cash equivalent’ box empty where you’ve entered a figure in the corresponding ‘cost to you’ box of a section.
- Not correctly completing the declaration on the final FPS/EPS submission (for those employers operating PAYE in ‘real time’) or the box in Part 5 of form P35 (Employers Annual Return) to indicate whether or not P11Ds are due.
- Where a benefit has been provided for mixed business and private use, entering only the value of the private-use portion – you must report the full gross value of the benefit.
- Not completing the fuel benefit box/field where this applies. This means an amended P11D has to be sent in.
- Incorrectly completing the ‘from’ and ‘to’ dates in the ‘dates car was available’ boxes. For example entering 06/04/2013 to 05/04/2014 to indicate the car was available throughout that year. If the car was available in the previous tax year, the ‘from’ box should not be completed and if the car is to be available in the next tax year, the ‘to’ box should not be completed i.e. left blank.’
If you’re in need of advice or support in this or any other area, we’re right here for all your needs. You can contact us for help from tax and payroll to accounting and banking.