With some contractors needing to report their expenses and benefits to HMRC via a form P11D. This blog explores how they should go about doing this and what it entails.
What is a P11D?
A P11D is used to report taxable benefits by directors and employees which have not been subject to PAYE tax. HMRC requires your company to declare these benefits for each director or employee after 5th April each year. There are penalties based on a percentage of lost revenue dependent on taxpayer behaviour.
What is a P11D (B)?
A P11D (B) is the form that is sent in to HMRC with the P11D showing the amount of any additional tax or Class 1A National Insurance due on the expenses and benefits. Where no benefits have been enjoyed during the tax year ending 5 April 2021 and a form P11D(b) or P11D(b) reminder is received, employers can either:
- submit a ‘nil’ return
- complete the ‘2020-21 Employer – No return of Class 1A’ form, to advise that they have no P11D to submit and no Class 1A return to make.
What type of benefits are required to be reported on a P11D?
Essentially taxable expenses and the cash equivalent of company assets provided for the private use of the director will still need to be reported on the form. Both are referred to as benefits in kind.
What are taxable expenses?
They are expenses which the business incurs directly but have a personal benefit to you. For example, this could be if the business has paid for expenses from which you derive personal enjoyment such as gym membership.
These expenses will either show in your company bank account or have been claimed as expenses by you.
What are benefits in kind?
As mentioned above, where the company incurs costs or provides assets for the private use of the director these normally result in a Benefit in Kind charge. In respect of taxable expenses, the amount to report on the P11d form is equal either to the amount of the expense or to the value of the personal use element. Where an asset is provided for private use, the amount to report on the form is the cash equivalent value –how this is calculated is dependent on the asset in use. Both are referred to as Benefits in Kind.
By reporting these amounts on the P11D, this means additional tax is payable personally and potential Class 1A National Insurance is payable by the company. Generally, Benefits in Kind falls into several categories and depending on the type of benefit there may be a Class 1A National Insurance Charge.
The following are examples of taxable benefits and expenses which you should tell us about:
- Assets paid for by the company and transferred to you at no cost or below market value e.g. Personal items paid for using company cheques or credit cards and money not refunded to company;
- Payments made on your behalf e.g. paying personal bills from company account or with a company credit card;
- Vouchers (in the case of child care vouchers any excess over £55 per week ) or credit cards e.g. using company credit cards to fund personal expenditure;
- Living accommodation – the cash value of the living accommodation is regarded as a benefit;
- Mileage Allowance – amounts in excess of the HMRC approved rates;
- Cars, vans and/or fuel provided by the company and available for private use (in the case of vans incidental private use can be ignored);
- Low or interest free loans, often referred to as director’s loans;
- Private medical or dental insurance paid for from the company account;
- Assets placed at your disposal, e.g. motorcycles, holiday homes;
- Professional fees, subscriptions – some subscriptions to professional bodies may be exempt;
- Training – only work-related training is allowable and only if paid for or reimbursed by the company;
- Telephones and mobile phones – unless the contracts are in the company’s name.
Does having a P11D mean I have additional tax to pay?
There is a requirement to report your Benefits in Kind on the form and record these benefits of employment on your self-assessment return, therefore there will be additional tax to pay in this respect.
If you believe that additional tax may be due relating to a particular expense, we suggest that you contact a member of the Intouch team to discuss whether or not you still wish to claim the expense through the company.
What if I only have reimbursable business expenses and no Benefits in Kind?
You will not require a copy of a P11D form as there are no benefits in Kind to report.
The company, however, is still obliged to confirm to HMRC that there are no Benefits in Kind to report and no Class 1A National Insurance to pay as part of the P11D process.
Will Intouch submit my P11D and P11D (B)?
Once you are satisfied that the information on the P11D is correct, Intouch, as your tax agents, will submit these forms on your behalf in time for the annual 6th July deadline.
What happens if I do not complete a P11D?
Completing a P11D for a director and employees who are in receipt of company benefits or expenses is a necessity and there are serious consequences for failing to comply including penalties based on a percentage of lost revenue.
What happens if my P11D is incorrect?
Intouch makes every effort to ensure that the details on the P11D are correct based on the knowledge we have of the expenses you have claimed from your company. However, you should be aware that there can be penalties for incorrect P11Ds.
To avoid such penalties, it is important that you advise us of any expenses or benefits we may not be aware of. For example, expenses which you have paid directly from the company without submitting a claim form that you believe should be reported. Remember it is ultimately your responsibility to provide accurate information to HMRC.
What are “allowable” expenses?
Allowable expenses are the costs incurred for the sole purpose of making profits for your business.
For expenses paid by the company to be allowable they must satisfy HMRC criteria that they are wholly and exclusively for the purpose of the trade. Similarly, expenses paid by you are only allowable if they are incurred wholly, necessarily and exclusively in the performance of the duties of your office or employment.
Allowable expenses are no longer required to be shown on your P11D form – but you do need to claim your expenses on an expense claim form for these amounts to be relieved against your company profits.
How would I know if any of the expenses I have claimed during the year are benefits in kind?
We may contact you if we consider that you may have incurred a Benefit in Kind and follow this up with advice explaining the full tax implications of claiming the cost. You will be given the opportunity to decide whether to go ahead and make the claim or not. However, it is important that you consider any of the categories above and whether the company has paid for any expenses from which you would have received personal benefit. If you are unsure, please contact us.
How are Benefits in Kind taxed?
The value of any benefits must be reported annually by means of a P11D.
The value of those benefits must also be declared on your self-assessment tax return and tax paid accordingly, HMRC may also seek to reflect the taxable value of those benefits in your PAYE tax code and collect tax through the PAYE system .
What is Class 1A National Insurance?
Certain benefits attract additional National Insurance contributions; this is known as Class 1A NIC. It is an employer liability which is a cost to your company but does not count towards your contributions for state benefits. For 2020/21 it is calculated at 13.8% of the total value of any benefits liable to Class 1A.
When do I have to pay this by?
The Class 1A NIC is payable to HMRC by 19th July 2021 (in the case of 20/21).
How can I pay the class 1A National Insurance?
As an employer you will be issued with a separate special payslip for paying the Class 1A due or it can be paid via an approved electronic method. Please refer to HMRC website.
Where can I find further information on expenses and benefits?
Detailed HMRC guidance on all of the above can be found via HMRC website or alternatively in the HMRC booklet ‘480(2018) ‘Expenses and Benefits – A Tax Guide’.
We understand that this can be confusing for contractors and you may have further questions on expenses and benefits. If this is the case, contact the Intouch team.