This article is a quick guide to the P11d, benefit in kind and dispensations system for the 2016/17 tax year.

P11d’s – what are they?

A P11d form is filed by an employer for each employee where employment benefits have been provided to that employee during that particular tax year.

These forms need to be completed and filed with HMRC by 6th July following the end of the tax year in question, for example, the 2016/17 forms will need to be filed by 6th July 2017.

Along with a form for each employee that has received a taxable benefit, the employer must also file a P11d(b) form that details the total national insurance due on the total benefits provided to all employees – this form of national insurance is called Class 1a and is charged at 13.8% of the total benefit provided to all employees. The payment to HMRC of Class 1a is due by 19th July.

The P11d form can be filed using HMRC’s online PAYE service or there are also various third party software choices available.

The P11d forms must be given out to the employees so that they are aware of their total taxable benefits for the tax year – they will need this if they file personal tax returns.

 

P11ds and Dispensations

What has changed for 2016/17?

There has been a significant change for the 2016/17 tax year – the end of requests for dispensations from HMRC for non-taxable expenses, such as qualifying business travel.

Previously employers would need to prepare a P11d even in instances where no actual taxable benefits arose – for example if they repaid their employees for certain allowable business expenses.

These expenses would get reported on the P11d form and the individual employees would then have to claim the equal amount as allowable expenses on their tax returns to avoid paying un-necessary tax.

As well as being an admin burden this would often cause issues with employees tax codes.

Before 2016/17, the way of getting around this was to ask HMRC for a dispensation, meaning you would not need to report these non-taxable expenses on the P11d in the first place.

From the 2016/17 tax year this ‘dispensation for expenses’ regime has come to an end – a very welcome simplification in our view.

As long as the expenses and your business meet the HMRC criteria, then no dispensation will be needed and the expenses will not need reporting on a P11d.

What will still need reporting on a P11d for 2016/17?

Typical employee benefits that still need to be reported on a P11d include:

  • Private medical insurance
  • Company cars and fuel
  • Interest free loans
  • Staff entertaining if above £150 per employee
  • Assets provided to the employee with a clear personal benefit

If I pay for an employee’s private healthcare costing £1,200 per year, how would the tax work?

In this instance the company would need to pay Class 1a national insurance over to HMRC at 13.8% of the benefit, which would total £165.60. This would need to be paid by the 19th July following the end of the tax year that it arose.

The employer is able to claim corporation tax relief for both the cost of the benefit provided (assuming the employer is a company) and the class 1a national insurance paid.

For the employee, the £1,200 would be taxed in the same way as employment income and attract a tax charge at the their marginal tax rate. For example, a higher rate taxpayer would pay £480 (40% of the £1,200) and a taxpayer paying basic rate tax would pay £240 (20%).

If the employee was required to file a personal tax return, these extra amounts would usually be payable via the tax return by 31st January following the end of the tax year. Where no tax return is required, the individual tax code will be amended by HMRC so that the extra tax is collected in subsequent periods through the employee’s salary.

Taxation around benefits in kind can be fairly complex and as such we recommend seeking the advice of a qualified & experienced accountant if you are considering offering benefits to your employees.