If you employ and pay staff, or give them anything other than their salary and/or dividends, you must complete a form P11D for each employee (including limited company directors) showing what they’ve received, by 6th July after the end of the tax year.
Does putting something on P11D mean you have to pay tax on it?
In some cases, items on a form P11D attract what’s called ‘Class 1A National Insurance’, payable by 19th July each year. This is NI on the total cash value of the benefit, which is usually the amount it cost you, the employer, to make that benefit available to the employee during the tax year.
Some items have to be reported on form P11D but there’s no Class 1A National Insurance to pay on them. Most reimbursed expenses fit this category.
And, other items have to be reported on form P11D but have National Insurance and/or tax deducted through regular payroll instead.
What are the most common items that go on a P11D?
There are two categories of items: expenses and benefits.
Firstly, expenses employees pay for themselves on the business’s behalf and the business then pays them back.
So long as these are genuine business expenses, there won’t be any Class 1A National Insurance to pay.
But do be careful with expenses like travel, where there’s often confusion over what constitutes business travel and what counts as private travel.
The second category is benefits you make available to staff as part of their employment package. Here are some common benefits you might need to report.
An employer is allowed to provide each employee with one mobile phone free of tax and National Insurance, to use for private and business calls, without needing to report it on P11D.
If the phone is a contract phone, the contract must be between the employer and the phone provider. If the phone contract is in the employee’s name, then there will be National Insurance, and potentially tax, to pay through the payroll.
And another common pitfall is that BlackBerries and iPhones aren’t mobile phones for this purpose – because these devices can do so much more than make and receive calls, they’re computers.
It’s much less common than it used to be for employers to provide their staff with company cars, because of the high tax and National Insurance charges.
But company vans for private use are becoming more common, because the charge they attract is much lower - £3,000 for the van and £500 for fuel.
But be careful. “Ordinary commuting” – travelling between home and work – does not count as private travel in this case. It usually does but not in the context of a company van!
And “insignificant” private use, like a “slight detour to pick up a newspaper on the way home”, also does not trigger the benefit charge.
If you throw a staff party, you may not have to report it on P11D.
If it’s an annual event, like a Christmas party or summer barbecue, open to all employees, and the cost per head is less than £150, you don’t have to report it or pay tax.
If you give both a Christmas party and a summer barbecue, then so long as the cost per head is less than £150 for both events combined, you still don’t have to report.
But if any of these conditions aren’t met, you have to report the cost of the party in full, dividing it between the P11Ds of each employee who attended.
And if it’s reportable because the cost was over £150 per head, you have to report the full cost – not the cost less £150 per head. The £150 per head is a limit, not an allowance. Nasty!
More common pitfalls
If you pay mileage for business travel using the employee’s own car at HMRC approved rates, you don’t have to report that on the form P11D at all.
And if your accountant raises you a bill that covers both your company’s accounts and tax return as well as your own personal tax return as a director, and the company pays that bill in full – the amount covering your personal tax return must be reported on your form P11D.
Can I make it easier?
Yes. To avoid reporting regular reimbursed expenses and some common benefits on P11D each year, you can apply to HMRC for a dispensation.
Larger employers might like to look at PAYE Settlement Agreements.
If you employ staff, and provide them with anything other than their salary, be careful as this may mean another form to fill. And it’s a form that’s very easy to get confused over! So do ask for professional advice if you think you need it.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.