They say that nothing in life is free and that’s exactly what HMRC had in mind when they came up with the legislation surrounding expenses and benefits.

Obviously, when you pay an employee for the work that they’ve done, it is subject to an income tax deduction. You get a tax-deductible expense and HMRC get their share of tax from the employee – #winwin.

But what if you’ve provided your staff with private medical insurance and a gym membership as part of their very attractive remuneration package? In this instance, you’re getting the tax-deductible expense, but HMRC aren’t immediately getting their slice of the pie. This is where Expenses and Benefits come into play and we need to consider the annual P11D reporting requirements.

Many routine expenses that you pay on behalf of employees are exempt from having to be reported – below are a few examples:

• Reimbursing an employee’s business travel (i.e., traveling to a course).
• Paying for an employee’s mobile phone provided the contract is between you and the supplier.
• Lending or hiring bikes to employees provided they are available to all and are mainly used for getting to work.
• Reimbursing an employee for their annual professional fees provided the organisation is on HMRC’s approved list (i.e., GDC; BADN; BSDHT; etc.).
• Small irregular gifts that you provide to your employees that are less than £50 in value (known as “Trivial benefits”)

However, there are several other expenses that would need to be reported to HMRC. Some of the more common examples are discussed in more detail below:

Private Dental Treatment or Insurance
You’ve just provided an employee with a beautiful new smile free of charge and they’re beaming! Unfortunately, this is a reportable benefit, and the employee would pay tax on the cost of the treatment. Similarly, paying for an employee’s private medical or dental insurance is likely to be a reportable benefit.

Loans to Employees or Directors
If you’ve made a loan to an employee or borrowed money from your own company, a P11D may be required. However, this benefit can be avoided if the loan is less than £10k and interest is charged on the loan at a rate that is equal to or greater than HMRC’s official interest rate (currently 2%).

Company Cars
So far, I’ve made specific mention to employees but in the case of limited companies, we also need to consider what benefits have been provided to the directors. Over the past few years, with advancements in technologies, zero-emission vehicles have become a more viable option for those doing longer journeys and the Government tax reliefs are also very appealing. We have seen an increase in the number of directors that have taken advantage of the reliefs available and purchased new, unused electric cars through their businesses. Such vehicles attract an income tax charge of just 2% of the list price – so a £60k car could cost you as little as £240 if you’re a basic rate taxpayer. Any vehicles purchased through the business and used by an employee or director for non-business related journeys, would need to be reported on a P11D form.

P11D forms are due to be filed at HMRC by 6th July after the end of the tax year. Every business is different so there may be specific expenses that you pay on behalf of your employees which don’t fall into the examples above. If we run your payroll, please get in touch with your account manager to discuss your specific circumstances and we’ll be able to advise whether a P11D is required.

If you’d like further information regarding reporting on expenses and benefits or about our payroll services in general, please get in touch.