What are taxable benefits?

The concept is that if you pay your employees a salary, both you and the employee will pay taxes on that salary. If you give your employees a lower salary but instead provide them with benefits then it’s only fair that you and the employee still pay taxes. These sorts of benefits are often referred to as benefits in kind. Common examples include:

• Company cars
• Private medical insurance or health cashback plans
• Gym membership
• Interest free travel loans
• Assets transferred

There are a number of exemptions in place so that many business expenses incurred by the employee and reimbursed by the employer don’t need to be declared on a P11D. This includes things such as business travel, business entertainment and certain fees and professional subscriptions.

What is a P11D?

A P11D is a form that employers need to prepare to declare the benefits received by their employees during the tax year 6 April – 5 April. There is one P11D per employee receiving benefits.

Employers also need to send a P11D(b) form which is a summary for the employer.

What taxes need to be paid?

As an employer you need to pay Class1A National Insurance. This is charged at 15.05% for 2022/23. So if you pay for private medical insurance for your employee which costs £1,000 per year then you also need to pay £150.50 of Class 1A National Insurance.

After HMRC receive and process the P11D the employee’s tax code will be amended by HMRC and the employee will therefore pay tax on the benefit.

How do I work out the value of the benefit?

The value will depend on the type of benefit. For something like insurance or gym membership, it is the cost to the employer of providing the insurance or gym membership.

In general you should include the amount including VAT, regardless of whether your company is able to recover the VAT. So if it would have cost the employee £120 but it really only cost your company £100 because you can recover the VAT, you include it as £120.

You can find more details about valuing specific benefits in HMRC’s guidance.

What is ‘making good’?

If an employee contributes to the cost of an upgraded benefit then you can deduct the amount that they contribute from the benefit value when calculating the Class1A due. For example if they upgraded their health insurance and it cost £1,500 a year, but the employee reimburses the employer for the extra £500, then the cost to the employer is really only £1,000 and so the Class1A is calculated on £1,000.

What is the deadline for P11Ds?

The P11Ds and P11D(b) must be filed with HMRC by 6th July. The same deadline applies for giving the P11Ds to your employees, they will need to use it to complete their self assessment tax return if they do one. Any payment of Class1A National Insurance must reach HMRC by 22nd July.

You’ll get a penalty of £100 per 50 employees for each month or part month your P11D(b) is late. You’ll also be charged penalties and interest if you’re late paying HMRC.

How can I avoid completing P11Ds?

You do not need to complete a P11D if:

• there are no taxable benefits for an individual
• the benefits have been taxed through your payroll

How do I tax benefits through payroll?

If you’re intending to payroll benefits and expenses, you must register them with HMRC using the payrolling employees taxable benefits and expenses service. You must do this before the start of the tax year.

Using the online service for payrolling benefits and expenses means that you will not have to submit a form P11D. You must tell HMRC which benefits you want to payroll during the registration process.

The tax codes for all employees receiving these benefits will be amended, unless you exclude any employees that you do not want to payroll benefits for in the online service.

You can find out more here:

https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll

https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll