P11Ds are the annual forms used to tell the taxman about any benefits in kind or reimbursed expenses paid to employees (including directors).
National Insurance contributions (NICs) need to be paid by the employer on benefits in kind.
The deadlines for the year ended 5 April 2011 are:
- P11D (and P11D(b)) forms need to be filed by 6 July 2011
- NICs need to be paid by 19 July 2011
Benefits in kind include things like company cars, medical insurance and interest-free loans.
Reimbursed expenses are any business expenses that the employee pays for personally and that are subsequently paid back to them by the employer – e.g. train fares and business lunches.
Note that payments on a company credit card or out of a ‘float’ provided by the employer also count as reimbursements.
How to avoid doing P11D forms
It is too late to do anything about the 2010/11 year now, but you may be able to avoid having to do P11Ds in future.
Any P11Ds that just have reimbursed expenses on them may be avoided by getting a ‘dispensation’ from the taxman. You are usually granted this dispensation if you can show that your internal controls of paying expenses are robust.
Even if you get a dispensation, you still need to file P11Ds for employees with benefits in kind. However, a few benefits are exempt from tax and don’t need to be reported on P11Ds, such as:
- mobile phones
- bicycles under the Cycle to Work scheme
- medical check-ups
- eye tests and even glasses in some cases
- training courses, even if they are not work-related
- parking spaces
- working from home allowance of up to £3 a week per employee
- entertainment/meal worth up to £150 a year per employee
- pension contributions
Some of these exemptions are subject to special rules and conditions, so please take advice before acting on this!
The other option is to use a PAYE Settlement Agreement (PSA), where the employer pays the tax on behalf of the employees.
When are P11Ds a good thing? Some tax-saving ideas
It may be worth the effort if there are tax or NIC savings to be made overall. Even though the employer pays NIC, there is still no employee’s NIC. Some examples of tax-efficient benefits in kind are:
- Company cars with low CO2 emissions. This can work particularly well for cars used by younger family members who may have high mileage and insurance bills. Note that you can have multiple company cars for several family members
- Anything that is cheaper when bought in ‘bulk’; e.g. group medical insurance policies can be a lot cheaper than when individuals buy their own
- Interest-free loans. Lending surplus cash in the company to employees, including directors, can be a great way to make better use of that money while interest rates are so low. For example, you can borrow the money from the company and put it in a mortgage offset account to avoid personal mortgage interest. If the interest rate is 6% and you are a 40% taxpayer, this is an effective return of 10% on the surplus cash. (This is a tricky area and you should take more advice before acting. For example, for directors/shareholders, these loans must be repaid at or soon after company year end date to avoid a 25% tax payment on the whole of the loan)
If you need help with P11Ds, or filing returns, please call Susan Kemish on 0118 923 5811. If you have any queries on the tax planning points, please contact Andy Scott on 0118 923 5807.
- P11Ds are not used for employees whose total salary and benefits package is worth less than £8,500 in the tax year. This exemption does not apply to directors. There are different procedures for anyone earning less than this
- A copy of the P11D should be given to the employee
- The P11D(b) form shows the Class 1a National Insurance contributions due on the benefits
- For 2011/12, the Class 1a NIC rate is 13.8%, for benefits and PSAs
- For guidance on how to pay the NIC, click here: HMRC