As an employer, you might need to report any expenses or benefits you provide to employees. You may also need to pay tax and National Insurance on them.
Benefits-in-kind are assessed on all directors and employees. Remuneration by way of benefits is often attractive to employees, especially if they are paying the higher or additional rates of income tax, because the benefit may either be tax free or subject to less tax.
An employer is required to complete form P11D in respect of each employee and for company directors, unless the benefits have already been taxed through the payroll.
Provided the employer only reimburse allowable expenses to employees and the appropriate checks are made, these are no longer to be reported on form P11D, and the employee is no longer required to make a tax relief claim for them. As an employer you need to gain a good understanding of which expenses are allowable. You will need a good bookkeeping system in place for expense claims supported by receipts to justify the payment of expenses is tax free.
Employers are able to choose whether to tax benefits in kind, such as the provision of a company car, through the payroll, known as "Payrolling Benefits" with prior approval of HMRC.
This purely optional, but could mean the end of P11D reporting for some employers, and is likely to be increasingly popular over the next few years.
Non-taxable benefits
There are several benefits that are not normally taxable, although the benefits must generally not be provided in return for a reduction in salary, otherwise they are taxable in full. These can be substantial. The most significant are:
Contributions to registered pension schemes within the permitted limits (salary sacrifice acceptable)
Car, motorcycle or bicycle parking facilities at or near the workplace
Use of a pool cars
Certain bus services for journeys between home and work (Late at night journeys)
Use of cycles and cyclist's safety equipment used mainly for journeys between home and work (salary sacrifice acceptable)
Relocation expenses, up to £8,000
Trivial benefits such as Christmas presents up to a value of £50 (excluding cash and cash vouchers)
Annual events such as a Christmas parties or similar functions costing up to £150 per head inclusive of VAT, travel and accommodation per annum
Use of an employer-provided mobile telephone. (one mobile phone only per employee)
Payments towards household expenses incurred by employees working at home at the request of the employer (generally £6 per week, £26 per month)
Existing childcare vouchers schemes worth up to £55 a week (£243 a month) for basic rate taxpayers. The childcare vouchers scheme is no longer available to new entrants but you may be eligible for tax-free childcare instead
Compensation/termination payments up to £30,000
Welfare counselling services (with restrictions)
Staff canteen and dining facilities, where they are available to all directors and employees
Sports facilities where they are available to all directors and employees
Long-service awards (provided they are an established practice within the firm or are in the employees' contract) up to specified limits
Awards under suggestion schemes (but there are restrictions)
Approved share incentive plans
Retraining expenses and courses
The processing of P11D forms has an important role to play in ensuring employees pay the right amount of tax on their benefits at the right time.
Under the present circumstances the annual P11D submissions for benefits in kind and expenses will be affected by certain Corona virus measures. Here are some of the key issues to consider.
As the Corona virus lockdown has changed the way that many people work, this will impact the benefits and staff support that employers provide. So what are the items that need to be reported on P11D Returns for 2020/21?
Employer-provided Covid-19 testing for employees
The costs of such tests are not to be treated as a benefit liable to tax and NIC. Similarly, the cost of PPE provided to employees relating to their work is non-taxable and need not be reported on P11Ds. In contrast, where employers reimburse the costs of a normal flu vaccination, this is a benefit in kind that must be reported if not dealt with by way of a PAYE settlement agreement.
Home working costs
Where employees work from home as part of a home working policy, an employer can pay an allowance of up to £6 per week (£26 per month) from 6 April 2020 in respect of the additional costs of working from home, where certain tests are met. Alternatively, HMRC has confirmed that employees may claim tax relief to the same value directly from HMRC while the current situation continues. In either scenario, it is not necessary to record such qualifying payments on the P11D Return.
Home-working equipment
There is a specific benefit in kind exemption which applies to ‘employer-provided’ supplies and services in the employee’s home. In order for the exemption to apply, there are two primary conditions which must be met:
a) the sole purpose for the provision is to enable the employees to perform the duties of their employment, and
b) any private use by employees is insignificant.
‘Employer-provided’ means the employer arranges and pays for the equipment such as monitors, keyboards, desks and chairs, etc. The equipment remains the property of the employer, and should subsequently be returned. However, if ownership is transferred to employees, a taxable benefit will arise and must be recorded on the P11D Return (although the value of some second hand items may be minimal).
Ordinarily, where any items are purchased by employees and the cost is reimbursed by the employer, the reimbursement would not qualify for this exemption and would trigger a reportable benefit. However, in May 2020, the Treasury announced the introduction of a temporary tax and national insurance contribution (NIC) exemption that will cover any home office equipment purchased by employees and reimbursed by employers as a result of the coronavirus pandemic. This measure applies retrospectively from 16 March 2020, and will continue until the end of the 2020/21 tax year.
In order to be eligible for this temporary exemption, the reimbursed expenditure must meet two conditions:
a) the equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus pandemic; and
b) the provision of the equipment would have been exempt from income tax under the existing exemption had it been provided directly to the employee.
Under this temporary exemption, a taxable benefit will not arise if the equipment is retained by the employee rather than being given to their employer.
Mobile phone costs
Where employees will not have access to their work phone, they may have to use their mobile phones more frequently during 2020/21. Where the mobile phone has been provided by the employer and the contract is between the employer and the service provider, no benefit arises and there are no reporting obligations, provided this is the only mobile phone provided by the employer. Additional mobile phones provided by the employer are fully taxable.
Where employees are using their personal mobile phone:
a) where an employee is claiming for itemised business calls, texts and data only (and this is evidenced), the cost reimbursed is not taxable.
b) where an employee is claiming for their fixed call plan inclusive of calls, data, etc, the cost will always be taxable through payroll.
c) where an employee is claiming for costs over and above the fixed call plan, if they can demonstrate that the additional cost relates to 100% business use, the cost reimbursed is not taxable.
d) where there is no justification for the costs being claimed, and so the business use and personal use cannot be determined, the total claim will be taxable through payroll.
Broadband
Where an employee needs a broadband connection installed as a result of needing to work from home during the pandemic, and the service contract is between the employer and the service provider, then the costs can be tax free and not reportable on the P11D Return.
For employees that have an existing broadband connection, if it is not possible to split the business use and personal use, any reimbursement will give rise to a benefit in kind, and the whole payment will be taxable. As with mobile phones, if employees can split their bill and claim only for the business use element, for example additional data requirements, etc, a reimbursement can be made with no tax implications.
Unused company cars
HMRC originally took a firm line on cars, saying that a benefit in kind continues as they remain available for private use during the coronavirus lockdown if they are still with the employee, regardless of whether or not the car is actually used. However, during the coronavirus pandemic, where a hire contract has expired, HMRC will accept that the benefit ceases immediately if the keys are returned to the employer/hire company at the employer’s instruction so that it cannot be driven.
Travel and subsistence expenses - temporary workplaces
HMRC has advised that if an employee was furloughed when they were travelling to a temporary workplace, the period of furlough is classed as a period of continuous work. A period of working from home will also be classed as a period of continuous work, i.e. the clock continues to run for the 24-month test.
However, the workplace stops being temporary from the date that attendance there is expected to be more than 24 months. Tax and NICs will then become liable and reportable on any payments of travel and subsistence expenses.
P11D and P11D(b) Returns are to be submitted to reach HMRC by 6 July after the end of the tax year. What are the penalty relating to the late submission?
Penalties for late form P11D
If the P11D Returns are not received by HMRC by 6 July after the end of the tax year, penalties for late filing can be charged for a maximum initial penalty of £300 per Return. HMRC needs to make an application to the First Tier Tribunal who can decide whether to impose these penalties.
Section 98(1)(ii) of the Taxes Management Act 1970 provides for continuing penalties of a maximum of £60 per day thereafter, until the failure has been remedied. These penalties can only be considered after an initial penalty has been imposed by the tribunal.
In view of this procedure, it is rare for HMRC to charge any penalties for late submission of P11D Returns.
Penalties for late form P11D(b)
If the P11D(b) Return of Class 1A NIC due on Expenses Payments and Benefits in Kind is not received by HMRC by 6 July after the end of the tax year, a penalty for late filing of form P11D(b) will be charged. There are two types of penalties. For both penalties, an appeal can be made if there is a reasonable excuse for the delay.
Penalty for first 12 months of lateness
This is a fixed penalty charged under Regulation 81(2)(a) Social Security (Contributions) Regulations 2001 which imposes a penalty of the ‘relevant monthly amount’ for each month of failure to file.
The relevant monthly amount in the case of a failure to make a return is:
a) where the number of earners in respect of whom particulars of the amount of any Class 1A contribution payable should be included in the return is 50 or less, £100; or
b) where that number is greater than 50, £100 for each 50 such earners and an additional £100 where that number is not a multiple of 50.
The total penalty payable shall not exceed the total amount of Class 1A contributions payable in respect of the year to which the return in question relates. Therefore, if there is no Class 1A NIC liability, there can be no penalty.
If HMRC is expecting a P11D(b) Return, this penalty will be issued automatically by HMRC’s system, and will be charged from the day the form P11D(b) is first late until the date it is received by HMRC.
This penalty is also charged if failure to submit a form P11D(b) is discovered as part of a HMRC compliance check. The date of receipt of form P11D(b) is usually then taken as the date the failure is discovered by HMRC. The penalty will then either be included in an informal contract settlement or a letter of offer or a formal penalty assessment.
This penalty is fixed in legislation. Reduced amounts cannot be negotiated as part of a contract settlement with HMRC.
Penalty for over 12 months of lateness
Regulation 81(2)(b) Social Security (Contributions) Regulations 2001 provides for a further penalty where the P11D(b) submission failure continues beyond 12 months.
As the penalty is based on the Class 1A NIC payable, there can be no penalty if there is no liability.
The maximum penalty before abatements/reductions is equal to the amount of Class 1A NIC payable. So, the penalty starts at 100% of the Class 1A NIC payable. The penalty percentage can then be reduced for disclosure, co-operation and seriousness of the case, i.e. size and gravity.
HMRC has discretion over whether to charge this penalty and should keep a sense of proportion when considering this penalty. An HMRC manager will decide what constitutes ‘proportionate’ on a case by case basis.
This guide is for general information only and does not substitute specific advice. You should not rely on it as specific advice and Peria & Co cannot accept any liability for its contents. If you need guidance please contact us at info@peria.co.uk or call us on +44 (0)1932 849023.