If you’re an employer and provide expenses or benefits to employees or directors, you might need to tell HMRC and pay tax and National Insurance on them.
Examples of expenses and benefits include:
- Company cars
- Health insurance
- Travel and entertainment expenses
There are different rules for what you have to report and pay depending on the type of expense or benefit that you provide.
Reporting and paying
At the end of the tax year you’ll need to submit an end-of-year form to HMRC for each employee you’ve provided with expenses or benefits. This will either be a P9D or P11D form, depending on:
- Their earnings ‘at a rate’
- Whether they’re a director
You might also need to submit form P11D(b) to report the amount of Class 1A National Insurance due on all the expenses and benefits you’ve provided. You should do this if:
- You’ve submitted any P11D forms
- You’ve been sent a P11D(b) form by HMRC
What to report
Each expense or benefit is calculated differently. Find the type of expense or benefit you’ve provided to see what you’ll need to report and pay. For ‘minor’ expenses or benefits, you might be able to make a one-off payment at the end of the tax year, known as a PAYE Settlement Agreement.
How to report
The easiest way to fill in your end-of year forms is electronically, as many of the calculations are done for you. You can use any of the following methods:
- Commercial payroll software
- ‘Online Return and Forms – PAYE’ service (HMRC)
- ‘Basic PAYE Tools’ (HMRC)
You can also download and print paper versions of employers’ end-of-year forms from the HMRC website.
Correcting errors on forms
If you notice you’ve made an error on a P9D or P11D form after you’ve submitted it, contact HMRC – they will probably tell you to submit a new paper version of the form. If you need to amend form P11D(b) after you’ve paid your Class 1A National Insurance, you should submit a new form, and also submit new versions of any affected P11D forms.
When to report and pay
|What you need to do||Deadline|
|Submit your end-of-year forms (P9D and P11D) online to HMRC||6 July following the end of the tax year|
|Give your employees a copy of the information on your forms||6 July|
|Tell HMRC the total amount of Class 1A National Insurance you owe on form P11D(b)||6 July|
|Pay any Class 1A National Insurance owed on expenses or benefits||Must reach HMRC by 22 July (19 July if you pay by cheque)|
|If you have a PAYE Settlement Agreement pay tax and Class 1B National Insurance||Must reach HMRC by 22 October (19 October if you pay by cheque)|
|Pay any PAYE tax or Class 1 National Insurance owed on expenses or benefits||
Pay monthly through payroll
You’ll face penalties if you miss any of these deadlines.
You must keep a record of all expenses and benefits you provide to your employees.
Your records need to show that you’ve reported accurately and your end-of-year forms are correct.
HMRC may ask to see evidence of how you accounted for each expense or benefit at the end of the tax year.
What you should keep
You’ll need to keep a record of:
- The date and details of every expense or benefit you provide
- Any information needed to work out the reportable value you put on your end-of-year forms
- Any payment your employee contributes to an expense or benefit
You should also keep any correspondence you have with HMRC.
Records must be kept for 3 years from the end of the tax year they relate to.
Example - You reimburse an employee’s travel expenses – you’ll need to keep a record of when and why the employee travelled, and where possible keep receipts as evidence.
Calculate earnings ‘at a rate’
When reporting expenses and benefits, you’ll need to work out your employee’s earnings ‘at a rate’. This will affect which end-of-year form you submit.
- Take your employee’s earnings for the year.
- Add the value of any expenses or benefits you’ve given them.
- Work out the total pro rata – this is ‘at a rate’.
Example - Your employee works only half the week and earns £5,000 a year. You also pay them £1,000 a year towards travel. So they earn ‘at a rate’ of £12,000 a year: £5000 + £1,000 multiplied by 2 (because they only work half the week) = £12,000.
Some expenses and benefits are eligible for a dispensation, meaning you won’t have to report them to HMRC.
Dispensations can cover routine business expenses and benefits like:
- Phone bills
- Business entertainment expenses
- Company car fuel
Find the type of expense or benefit you’ve provided to see whether you can apply for a dispensation so you won’t have to report it.
There’s no time limit on dispensations, but HMRC reviews them regularly to make sure that they still apply.
You can only apply for a dispensation if you have a system in place to check expense claims. Your employees aren’t allowed to check their own expenses, so someone else within your company needs to do this to make sure that they are legitimate claims. If this isn’t possible, you’ll need to prove that your claims are covered by the dispensation. In most cases receipts will be enough, but you may be asked for more evidence if your receipts don’t include enough information.At Bizorb we aim to provide the most accurate and up to date information to you. This article contains public sector information licensed under the Open Government Licence v1.0. If you spot any errors in this article please let us know.