If you pay any expenses or offer employee benefits to your staff members, you must make sure that they are properly declared to HMRC and the right tax is paid on them. Many types of employee perks are taxable and if you don’t submit the right paperwork on time, you could end up with a hefty fine.
Some of the benefits and expenses that are included are:
- Travel expenses
- Entertainment expenses
- Childcare costs
- Company cars
- Employee health insurance
Reporting and paying
Depending on the type of benefits or expenses you give your employees, different rules apply for reporting them and paying tax on them.
Normally, you’ll submit a form to HMRC for every employee you’ve given expenses or benefits. The form is called a called a P11D and has to be submitted at the end of every tax year.
There’s a further form called a P11D (b) and this needs to be completed if:
- you’ve submitted P11D forms for any employees
- you’ve paid any of your employees’ expenses through your payroll
- you’ve been sent a P11D(b) form by HMRC
The P11D(b) just tells HMRC how much Class 1A National Insurance you must pay on the benefits and expenses you’ve given. You can let HMRC know that you don’t owe any Class 1A National Insurance by completing a declaration.
How to pay tax through the payroll
If you register with HMRC before 6th April it’s possible to deduct any tax on most employee benefits and expenses though the payroll. If you do this, and you pay tax on all of their benefits and expenses directly via payroll, you won’t have to fill in the P11D form. You’ll still have to complete and submit the P11D (b) to pay the Class 1A National Insurance.
What you need to report
Different types of expenses and employee benefits are all reported differently, and there’s an A-Z of different benefits available on the GOV.UK website which will help you choose the right way to report and pay it. https://www.gov.uk/expenses-and-benefits-a-to-z
For ‘minor’ expenses or employee benefits, you could be able make a one-off payment called a PAYE Settlement Agreement.
You can normally report using:
- commercial payroll software
- HMRC’s PAYE Online service
- HMRC’s Online End of Year Expenses and Benefits service
You can also download and fill in forms P11D and P11D (b) and send them to HMRC.
Be careful: If you’re late filing the information you could get a penalty of £100 per 50 employees for each month or part month your P11D (b) is late.
There are also penalties and interest if you’re late paying.
For deadlines – go to: https://www.gov.uk/employer-reporting-expenses-benefits/deadlines
Keeping accurate records
It’s very important to make sure that you keep accurate records of everything you give your employees by way of expenses and benefits. You must be able to prove to HMRC that your reports are accurate and that your end of year forms have been properly completed. Sometimes HMRC ask to see evidence of this, too.
Things you’ll need to make a record of include:
- dates and details of every expense or benefit you’ve given
- information about how you worked out the amounts to put on your end-of-year forms
- payments that your employees contribute themselves to an expense or benefit
You must keep these records for three years from the end of the tax year they relate to.
Some expenses and benefits don’t need to be reported, and they include;
- business travel
- telephone bills
- entertainment expenses relating to business
- tools or uniforms that are used for work
To qualify you must be paying a flat rate to your employee as part of their earnings – either a benchmark rate or a rate approved by HMRC, and paying the actual costs incurred by the employee.
For more advice and guidance, contact Emma Stevens Accountancy.
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