Most benefits your company pays on your behalf are taxable on you and incur additional National Insurance. There are a few instances however, that are covered by current HMRC exemptions. These are addressed in the Business Expenses section, the most common being mobile phones and childcare costs. Some Benefits in Kind need to be reported on your tax return but will be covered by a counter claim as long as they are qualifying business expenditure.
A P11D is the form used to report expenses and benefits paid to directors and employees earning over £8500 a year that have not been subject to PAYE tax. HMRC requires your company to notify these expenses for each director or employee after 5 April each year. There are penalties of up to £3,000 for non-submission.
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. If there are no benefits or additional tax to report then you need to send in a “nil” return to avoid penalties for failure to submit the return.
All business expenses paid to you, or on your behalf, without being subject to PAYE must be included.
These include expenses you incur personally and then reclaim from the company without PAYE being operated, known as Reimbursed Expenses. They also include expenses the business incurs directly but have a personal benefit to you, for example, gym membership or a loan.
Please note that mileage claimed in accordance with HMRC rates is specifically excluded.
Having a P11D doesn’t necessarily mean you pay additional tax. It simply shows all expenses paid out which have not been subject to PAYE.
Completing a P11D for a director (and employees earning over £8,500) is a necessity and there are serious consequences for failing to comply including penalties up to £3,000 per return.
Allowable business 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, necessarily 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. You can read about these in our Business Expenses section.
Allowable expenses shown on your P11D do not carry any additional tax liabilities, but the relief from tax needs to be claimed rather than being automatic.
Benefit in Kind occurs where your company incurs costs or provides assets for the private use of the director. Additional tax is payable personally and potential Class 1A National Insurance is payable by the company. Generally Benefit in Kind falls into several categories and depending on the type of benefit there may be a Class 1A National Insurance Charge.
The value of any Benefit in Kind must be reported annually by means of a P11D. Any amounts that are incurred wholly for the purpose of the business are discounted in arriving at the taxable benefit or covered by a separate claim. These details are then duplicated on the employment pages of your personal tax returns to ensure that you pay tax on the correct amounts.
Any taxable benefits will also be reflected in your PAYE tax code to ensure that tax is collected throughout the year rather than ending up with tax underpaid at the end of the year.
Class 1A National Insurance
Certain benefits attract additional National Insurance Contributions, known as Class 1A NIC. It is an employer liability that is a cost to your company but does not count towards your contributions for state benefits. For 2014/15 it is calculated at 13.8% of the total value of any benefits liable to Class1A. The Class 1A NIC is payable to HMRC by 19 July 2015 (in the case of 14/15) .
As an employer you will be issued with a separate special pay slip for paying the Class 1A due, or it can be paid via an approved electronic method, see HMRC website.