Sarah Bradford outlines the reporting obligations for employers in relation to benefits-in-kind.
If you (‘you’ meaning an employer) provided your employees with taxable benefits in the tax year 2023/24, which you did not payroll, you need to report those benefits to HMRC no later than 6 July 2024 on form P11D. You will also need to file a P11D(b), which is your employer’s declaration and your Class 1A National Insurance return by the same date.
As HMRC no longer accepts paper forms, these must be filed electronically. Penalties are charged if you file your returns late.
You must also provide your employees with a copy of their form P11D or details of the information that it contains on or before 6 July 2024.
When is a P11D required?
You will need to file P11D information for an employee for the 2023/24 tax year if, in that tax year:
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you provided taxable expenses and benefits to that employee, or to a member of the employee’s family or household;
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the benefit was provided by reason of the employee’s employment;
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you did not payroll the benefits; and
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you did not opt to meet the tax on the employee’s behalf by including the benefit within a PAYE settlement agreement (PSA).
Exempt benefits
You do not need to report exempt benefits. However, it is important to note that an exemption will only apply where the associated conditions are met.
Most exemptions are lost where the benefit is provided under a salary sacrifice or other optional remuneration arrangement (OpRA).
Payrolled benefits
Payrolled benefits do not need to be reported on the P11D, as the tax due on those benefits has been collected via the payroll from the employee’s cash pay. However, if you have payrolled some benefits but not others, you will need to file a P11D to report those benefits which have not been payrolled.
Currently, it is not possible to payroll the benefit of a cheap employment-related loan or living accommodation, and where these have been provided, they must be notified to HMRC on the employee’s P11D.
Payrolled benefits must also be taken into account when calculating your Class 1A National Insurance contributions liability for 2023/24 on your P11D(b).
Paid and reimbursed expenses
The exemption for paid and reimbursed expenses means that no tax liability arises where you either meet an expense on an employee’s behalf or reimburse an employee for an expense that they have incurred if the expense would be deductible by the employee if they incurred it personally. This will be the case if the expense is incurred wholly, exclusively and necessarily in the performance of the duties of the employment or is a travel expense for which a deduction is permitted (e.g., where it relates to business travel).
Expenses falling within the scope of this exemption are ignored for tax purposes and do not need to be reported to HMRC on the employee’s P11D.
Items included within a PSA
You can use a PSA to settle the tax liability arising on certain benefits on an employee’s behalf.
If you have a PSA in force for the tax year 2023/24, you will pay tax on the employee’s behalf on items included in the PSA – there will be no tax for the employee to pay. Consequently, items included within a PSA should not be reported to HMRC on the employee’s P11D.
A new PSA for 2023/24 must be agreed with HMRC by 5 July 2024. Once set up, a PSA remains in place until you cancel it or it is cancelled by HMRC.
Where you have a PSA already in place, you should review it before 5 July 2024 to ensure that it remains valid, and make any changes that are needed by this date. If your PSA is not needed for 2023/24, it should be cancelled by this date.
The taxable amount
While the information that needs to be supplied in respect of a particular benefit provided to an employee varies depending on the benefit, in all cases you will need to provide details of the taxable amount. Unless the benefit is made available to the employee under an OpRA, the taxable amount will be the cash equivalent value of the benefit.
Some benefits, such as company cars and vans, living accommodation and employment-related loans, have their own specific rules for calculating the cash equivalent of the benefit. Where there is a specific rule, this should be followed.
HMRC produces some useful worksheets which can be used to calculate the cash equivalent of certain benefits. These are available on the Gov.uk website at: www.gov.uk/government/publications/paye-draft-forms-p11d-working-sheets-2023-to-2024.
In the absence of a specific rule, the general rule is used to work out the cash equivalent of the benefit. Under the general rule, the cash equivalent value is the cost to the employer of providing the benefit, less any amount made good by the employee.
The cost to you of providing the benefit is the expense that is incurred in or in connection with its provision inclusive of VAT, regardless of whether this is subsequently recovered.
This rule is modified in certain cases.
Where an asset is made available for an employee’s use without transfer, the cost of the asset is the annual cost of the asset (less a deduction for any period when the asset was not available for the employee’s private use). The annual cost of the benefit is the higher of the annual value of the asset and the annual amount paid by the employer in rent or hire charges. You also need to take account of any additional expenses, such as any costs incurred in acquiring or renting the asset. If the asset is land, its annual value is its rental value. For any other asset, its annual value is 20% of the market value at the time when it was first made available as an employment-related benefit.
If an asset has been used or has depreciated before being transferred to the employee, the cost of the asset is taken to be its market value at the time of transfer. However, this figure is adjusted if the asset has previously been provided to any employee (not just the one to whom it is transferred) as an employment-related benefit.
For an in-house benefit, the cost of providing the benefit to the employee is the marginal cost.
Making good
Having determined the cost of the benefit, any amount ‘made good’ by the employee is deducted to arrive at the cash equivalent of the benefit.
‘Making good’ simply means giving something in return for a benefit. This will usually be in the form of cash, whether by salary deduction or by direct payment.
However, where the benefit is reported to HMRC on the employee’s P11D, for the amount ‘made good’ to be taken into account in calculating the cash equivalent value, the ‘making good’ must be done by 6 July following the end of the tax year (i.e., by 6 July 2024 for benefits provided in the 2023/24 tax year).
The alternative valuation rules
Where an OpRA, such as a salary sacrifice arrangement, is used to make a benefit available to an employee, the alternative valuation rules will apply to determine the taxable amount unless the benefit is one of a handful of benefits to which these rules do not apply. This is the case where the benefit in question is a payment into a pension scheme or employer-provided pension advice, childcare vouchers, workplace nurseries and directly-contracted childcare, cycles and cyclists’ safety equipment or a car with CO2 emissions of 75g/km or less.
Under the alternative valuation rule, the taxable amount is the amount of salary foregone, less any amount made good by the employee where this is more than the cash equivalent value calculated under the normal rules.
Online filing options
HMRC now only accepts P11Ds and P11D(b)s filed online. If you have 500 or fewer P11Ds to file, you can use either HMRC’s PAYE Online Service to file for free or a commercial software package.
If you have more than 500 P11Ds to file, you must use a commercial software package.
Class 1A NICs
Your Class 1A NICs liability must be paid by 22 July 2024 if you make your payment electronically, and by the earlier date of 19 July 2024 if you pay by cheque.
Interest is charged if you pay late.
Practical tip
Ensure that you are aware of your filing obligations in relation to expenses and benefits provided in the tax year 2023/24, and that you meet the 6 July filing deadline.
