Everything you ever wanted to know about P11d
In this blog we try to explain P11d and why all employers and companies need to pay attention to it, bearing in mind that there are quite large penalties attached to failing to do them or failing to do them correctly - £100/month.
We will cover:
What is a P11d?
Do I need to do a P11d?
What do I need to include on a P11d?
What is Section 336 form?
How can P11d easier?
What benefits escape tax on P11d?
What are P11ds?
If P11ds are painful to deal with, the business community perhaps has itself to blame because they close a loop-hole of enjoying perks exploited by companies for many years.
The basic concept to understand is that an employer can include whatever it likes as part of its remuneration package for Directors and employees. Obviously the most important part will be money, but it can include anything else - gym membership, company car, trips to Disneyland, the only limit is the imagination of the HR department.
Whatever these costs are become tax deductible for Corporation Tax because they are part of the cost of employment which is a cost of the business. At the same time they do not appear in PAYE earnings so they did not (until P11d) attract Income Tax or National Insurance for the employee or Director that benefited. What that meant was that, until P11ds, employees and particularly Directors had found a way to earn money without getting taxed.
So in a nutshell P11ds are a way to apply PAYE and NI to benefits to employees and Directors so that they pay tax the same as if they had received the cash equivalent.
Do I need to do a P11d?
The basic principle here is that you do if you have received a non-cash benefit of being a Director or employee. The problem is that there is no exhaustive list of what might constitute a benefit because as we said earlier the only limit to possibilities is the creativity of employers.
There are also some benefits that do not require reporting because the government is happy for them to be offered to employees tax free (eg childcare). Finally to make matters worse there are a few expenses that require reporting but do not require tax to be paid.
So the complete answer to the question is that a P11d is required if you have no benefits or expenses that require reporting and the only way to establish that is to go through all your benefits and expenses and see if any of them need to be reported on the P11d.
If that sounds arduous we must be thankful that since 2016-17 tax year the amount of expenses that have no benefit but must be reported has reduced dramatically because we only need to report on benefits/ expenses if part of them resulted in a taxable benefit to the employee/ Director.
What do I need to include on the P11d?
You will have to report all of these benefits or re-imbursed expenses if they result in a taxable benefit to the employee or Director. Unfortunately each type of expense or benefit has it's own rules about what constitutes a benefit that must be reported. The only way to know is to identify the areas where you might need to report and then refer to HMRC's guidance on that specific area. We are given this A-Z of areas by HMRC: https://www.gov.uk/expenses-and-benefits-a-to-z.
Typically you are required then to report the type of benefit and the cash equivalent involved.
What is Section 336 form?
If this was not confusing enough, P11d information eventually needs to appear on a Director's Self Assessment. Here we hit a problem because the Self Assessment asks us to total all the employment benefits and expenses paid to the employee in order to pay personal Income Tax. However a few of these expenses may not have been of benefit to the Director/ employee.
Essentially the Section 336 form lets the Self Assessment department of HMRC know that some of the expenses reported on the P11d do not result in a taxable income. A Section 336 form should be sent if there are expenses or benefits on the P11d being reported that do not result in taxable income.
How can I make P11d easier?
Probably the best way to make P11d easier is to avoid giving Directors and employees any benefits. At Co- we have a once a year conversation with clients to establish if there is anything to report and if so what sums there are to report.
What benefits escape tax on P11d?
As small number of benefits escape Income Tax and National Insurance essentially because the government wishes to promote their use. We have listed the most important ones here:
Childcare - up to a £55/wk limit, with Ofsted registered providers and when offered to all employees
Bicycle expenses - as long the the scheme is open to all employees
Death in Service payments - but not life insurance
Environmentally friendly cars - depending on the environmental credentials some car benefit is escaped
Mobile phones where the contract is in the company name (one per employee)
