P11D and Benefit in Kind

What is a Benefit in Kind

Benefits in kind (BIK) are goods and services provided to an employee for free or at greatly reduced costs by the employer. Employers are legally obliged to provide their employees details of relevant benefits in kind they have received in a tax year. A Benefit in Kind (BIK) encompasses any non-cash advantage or service provided by an employer to an employee for personal use, which holds a monetary value. These perks aren't solely for business purposes, making them taxable BIKs.

Understanding the P11D Form

A P11D form is a mandatory submission to HMRC by employers annually, detailing taxable benefits and expenses provided to each member of staff, including directors. Unless benefits have been payrolled, a separate P11D form must be completed by the employer for each employee who has received taxable benefits and expenses during the tax year.

The P11D records the cash equivalent of each benefit or expense provided, ensuring accurate reporting to HMRC. Notably, no P11D needs to be completed for employees who have not received taxable benefits or expenses.

Examples of Benefits in Kind

Employees (including members of their family or household) may receive earnings in non-cash form, known as benefits-in-kind. These benefits can include the use of a company car, provision of private medical insurance, interest-free loans, or contributions to a pension scheme.

The taxable portion of these benefits, known as the 'cash equivalent' or 'taxable benefit', is subject to specific tax rules for calculation. For instance:

  • Company cars, vans, and fuel;
  • Living accommodation;
  • Cheap Loans;
  • Use or transfer of an asset;
  • Employment-related securities, such as shares and share options.

For benefits that don't have clear tax rules, the taxable amount is usually what it costs the employer to provide the benefit, minus any money the employee puts in ('makes good'). It's essential to remember that if an employee chooses to sacrifice some of their salary for a benefit, it doesn't count as them paying for it. When an employee 'makes good', they need to pay directly or have the cost deducted from their pay after taxes.

Tax Free Benefits

When it comes to taxes, not all the perks and payments individuals receive from their employer need to be declared on your P11D form. Here's why:

PAYE Settlement Agreement (PSA): This nifty arrangement sees an employer sorting an employee's Income Tax dues on specific benefits and expense payments.

Statutory Exemption or Extra-Statutory Concession: Some benefits or expenses fall under special exemptions or concessions, sparing an employee from tax obligations.

Here's a rundown of common exemptions and concessions:

  • Accommodation, Supplies, and Services on Employer's Premises: Provided for work purposes and not significantly used for private use.
  • Supplies and Services Provided off Employer's Premises: Used for work purposes without significant private use, excluding vehicles and certain building work.
  • Free or Subsidised Meals: Offered on business premises or in a staff canteen.
  • Expenses of Providing a Pension: Costs incurred for providing pensions or similar benefits.
  • Medical Treatment Abroad: Costs covered by the employer for necessary medical treatment abroad during work duties.
  • Medical Treatment to Aid Return to Work: Employer-funded treatment to assist your return to work, up to £500 per tax year.

Additional exemptions can be seen through HMRC's guidance.

Top Tips

Employers can navigate tax implications smartly when organising events for their teams. Here's how:

  1. Cost Management: HMRC provides a useful guideline – if the total cost per head (including VAT) remains below £150, there's no taxable benefit for employees. This rule applies to both physical and virtual events, even if employers send food and drink vouchers to employees' homes.
  2. Budget Allocation: Employers can distribute the £150 limit across various events throughout the year. For instance, if there are multiple functions, as long as the total expenditure stays under £150 per head, it remains tax-exempt. This flexibility allows employers to balance high-cost and low-cost events to maintain tax efficiency.
  3. Threshold Awareness: If a single event exceeds the £150 per head limit, the entire expense becomes taxable for employees, not just the excess amount. Staying mindful of per-person spending helps employers avoid unexpected tax obligations.
  4. Employers should be aware of the 'trivial benefit' rule, which allows them to provide tax-free benefits to employees. A benefit qualifies as trivial if it meets the following criteria:
  • The employer spends £50 or less to provide it.
  • It's not cash or a cash voucher.
  • It's not given as a reward for the employee's work or performance.
  • It's not mentioned in the employment contract.

Under this rule, known as a 'trivial benefit', employers are not required to pay tax or National Insurance contributions, and there's no need to inform HM Revenue and Customs (HMRC). It's a useful consideration for employers when offering benefits to their employees.

While there is no cap on the number of trivial benefits an employee can receive, it's important to note that repeatedly providing the same trivial benefit may lead to its disqualification.

However, directors of close companies are subject to a specific limit; they cannot receive trivial benefits exceeding £300 in a single tax year.

P11D Deadline Dates and NIC Rates

Employers must be aware of Class 1A National Insurance Contributions (NICs), which are mandatory contributions on taxable benefits provided to employees, including benefits from third parties. These contributions cover all taxable benefits, except for certain exceptions like tips. Reporting of Class 1A contributions is done on form P11D(b), due by 6 July following the tax year end. Payment to HMRC is required by 22 July after the end of the relevant tax year. As for the rates, employers are obligated to pay class 1 nic at the employer rate of 13.8%, which remains unchanged until the 2027-28 Tax Year.

P11D Penalties

Late filing of P11D forms can lead to penalties imposed by HMRC. Upon missing the deadline, HMRC issues a penalty notice, typically starting with an automatic fine of £100 for each 50 employees, for each full month the return is overdue.

Additionally, failure to pay the NIC by 22 August incurs a penalty of 5% on the outstanding amount. This penalty escalates to 10% after 6 months and 15% after 12 months. Interest charges apply to any overdue tax payments.

HMRC reserves the right to request a penalty of £300 per late-submitted P11D, with the possibility of escalation to £60 per day until rectified, subject to approval by the First-tier Tax Tribunal (FTT).

Get Assistance with Your P11D Reporting

For further information or assistance with P11D obligations and compliance, please contact Alan Rajah at Lawrence Grant. Our dedicated team is ready to offer expert guidance and tailored support to meet your individual requirements. As the P11D return deadline draws near, it's crucial to proactively assess tax liabilities and ensure timely and precise submission of returns.

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