Year end P11D forms – what employers need to know
As the end of the tax year approaches, we thought we’d remind you of the important changes made to the reporting of benefits under the P11D regime, so you can check your processes are in good shape.
The main changes took effect from the beginning of this tax year, 6 April 2016:
- P11D reporting dispensations were replaced by statutory exemptions.
- Reimbursed expenses deductible as business expenses, no longer need to be returned, or agreed under a dispensation.
- The £8,500 earnings threshold has been removed. This means that all employees’ expenses, whatever their level of earnings, must be reviewed as part of the end of year’s P11D process.
- The rules on reporting trivial benefits have been simplified.
- Taxable benefits can be put through your payroll if preferred.
Out with dispensations, in with exemptions
Before 6 April 2016, employers who reimbursed genuine business expenses had to report them on employees’ P11D forms, unless they received a reporting dispensation from HMRC. Dispensations were replaced by statutory exemptions at the beginning of the 2016/17 tax year. If you had a dispensations agreed between 6 April 2011 and 5 April 2016, you can continue to rely on these for up to five years after the date they were originally agreed.
Having said that, most expenses or benefits covered by dispensations should fall within the new exemptions. This means you no longer need to report them to HMRC or record them on P11D forms. These include:
- Business travel
- Subsistence expenses
- Business phone bills
- Business entertainment expenses
- Professional fees and subscriptions
- Allowable uniforms and tools for work
Some expenses or benefits may be only partially exempt under the new statutory exemptions, so may still need to reported (fully or in part) on the P11D form.
As a reminder, to qualify for the exemptions your company must either:
- Pay employees the actual costs they have incurred, supported by receipts and suitable internal approval processes for authorising and checking expenses (these should be checked periodically to ensure the process is being applied correctly); or
- Pay the exempted expenses to employees at a scale or flat rate. The flat rate must be an HMRC approved benchmark rate or an HMRC agreed special rate
You need to ensure you have “checking” systems in place if you are paying scale rates. To pay expenses at a special rate, you must apply to HMRC for an approval notice. For more information on paying expenses to employees please see our fact sheet.
You should check that your expenses policy has been updated to reflect these changes and communicated to staff.
Are you paying ‘Trivial’ benefits?
Since 6 April 2016, benefits you provide to your employees (or a member of their family or household) will be exempt from income tax if they meet all the following conditions:
- the cost of providing the benefit does not exceed an average of £50 for each employee who receives it;
- the benefit is not cash or a cash voucher;
- the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements); and
- the benefit is not a reward for particular services performed (or anticipated) as part of an employee’s duties.
These changes simplify the reporting of expenses and benefits.
Payrolling of benefits in kind
Employers now have the option to process benefits in kind through the payroll. As long as tax and National Insurance Contributions are also paid via the payroll there is no need to report these benefits on the year end P11D. This is an option that became available for the first time this tax year.
The types of benefits suitable for payrolling include company cars, private medical, taxable subscriptions and taxable fuel benefits.
Changes to salary sacrifice arrangements
There have been some changes to salary sacrifice arrangements which will prevent employees receiving nontaxable expense reimbursements, rather than taxable salary.
We recommend you seek a review if you have salary sacrifice arrangements in place for such items.
If you have company cars under this type of arrangement, please also see our article on changes to salary sacrifice car schemes.