Imagine you’re a boss and you’re feeling generous. You decide to treat your hardworking employees to some nice perks like a company car, gym membership or private health insurance. But before you can pat yourself on the back, you realise that the taxman wants to know about all the goodies you’ve given out.
That’s where the P11D form comes in – it’s like a big report card that tells the taxman about all the taxable benefits-in-kind (BIK) and expenses you’ve dished out to your staff. It’s not the most exciting form to fill out, but it’s important to make sure you’re not breaking any tax rules or making your employees pay more than they need to.
Oh, and unfortunately it’s not just your employees that have to pay on their benefits – you (as the employer) are gonna have to put a few quid in the pot too.
So, while the P11D might not be as fun as a company car or a day out at the races, it’s still an important part of being a good boss and keeping the taxman happy.
What’s taxable – and what’s not?
Great question. Let’s start with the good news – there’s a LOT of cool stuff (and some boring stuff) you can provide to your staff without having to worry about the taxman wanting a slice of the action. Fab!
To find out more about these, head over to our Blog page and search for “Tax Free Expenses”
But, assuming you can’t squeeze your perks into one of those tax-free categories, then you’re going to need to declare the benefits to HMRC on Form P11d. Sorry about that…
To give you a flavour of what to look out for, do you provide your staff with any of the following, which are likely (but not always – check with your accountant) taxable benefits:
- Access to a car or van
- Interest-free or low-interest loans
- Free or subsidised meals
- Private health insurance or treatment
- Gym membership
- Gifts or gift vouchers over £50
What goes on the P11d?
You’ll need to complete a separate P11d for each employee, setting out the taxable benefits each one has received, and the value of each. You then send all of those to HMRC along with a summary form called “P11d(B)” which basically tallies up the taxable benefits for every employee, to give a total for the year.
That total is then multiplied by an oddly-specific rate of National Insurance of 13.8%, which is what you’ll have to pay to HMRC, on top of any tax payable by the employee.
The employee will pay income tax of either 20% or 40% (or 45% if they earn mega bucks) on their own BIK value. But you don’t need to worry about this, they’ll pay it direct to HMRC – it won’t be a cost to your business.
There’s 14 categories of taxable benefits on the P11d form. In reality, most of them are pretty niche and we find the vast majority of benefits fall into one of these categories:
Section F: Company cars provided to employees
Section G: As above, but for vans.
Section H: Interest-free loans provided to employees
Section I: Private medical / health insurance
For each employee, you then need to work out the cost of each benefit. This is generally pretty easy – it’s what it costs, such as a monthly gym membership or health insurance. Simple.
But if for example, you are an optician and you provide your employees with a free pair of sunglasses which sell for £200 but cost you £80 to make…the benefit in kind value is £80, because that’s the cost to you (regardless of what you might have sold them for).
Remember, the lower the value, the better for tax 👍
There’s one BIG FAT EXCEPTION to the “cost to employer” rule, and that’s company cars and vans. Here, the value of the benefit is based on a combination of the LIST PRICE of the car (regardless of whether you own it or lease it, or what you actually paid for it) and its EMISSIONS, in grams of CO2 per KM.
Let’s take an example of a fully electric Nissan Leaf. The list price of these is around £31,000.
You then multiply that by 2% (being the rate for electric vehicles) and that gives a benefit in kind value of just £620. The employee will pay tax on that at their normal rate of tax, and you as the employer pay a flat 13.8% on this, or about £86. Bargain!!
So compared to giving the employee some additional salary to purchase and run their own vehicle, the notional amount of £620 seems pretty damn cheap. And that’s exactly what the gov’t what you to think, to encourage electric or very fuel-efficient vehicles over dirty or sporty ones.
Speaking of dirty and sporty… let’s look at the Range Rover sport. The absolute bottom-of-the-range version is just under £62,000 – so double the cost of the Leaf. But don’t think for a second it means double the BIK. Oh no!
The emissions for the Range Rover start at 164g/km. This gives us a multiplier not of 2% but of…wait for it…37% 😯
Take your £62K, multiply by 37% and you’ve got a big fat £23,000 benefit value!! That’s another £23K on which the employee pays 20% or 40% tax (so, could be up to £9,200), PLUS for you as the employer, that £86 on the Leaf now becomes a whopping £3,180.
You get the message here – expensive cars and thirsty cars are a disaster for tax purposes, and it might even be better just to give the employee a pay rise to allow them to fund the car privately. But if you can offer them an electric vehicle, or even a hybrid, you might both be quids in.
We haven’t touched on fuel for the vehicle, but needless to say if you pay for the employee’s fuel then there’s a whole other level of tax on that too 🙈
The benefits rule for company vans is much simpler, and might even be £nil depending on the amount of private use. The line between “van” and “car” is a moveable feast, so speak to your accountant before buying a “van”, even if the nice man at the showroom swears blind it’s a commercial vehicle. He might, just, be telling porkies to meet his sales target.,
The deadlines for getting all this sorted aren’t as terrible as you might think. You need to have filed your P11d forms -and the P11d(B) – by 5th July, i.e. THREE MONTHS after the end of the personal tax year. That’s the same for all employers, regardless of when your own tax year might finish.
You won’t be surprised to know that these forms can only be filed online – you can’t send in paper copies any more. So either you can use HMRC’s online systems (they really are awful!) or you can purchase commercial software to make it less painful.
Or – and I would say this, of course – just get your accountant to deal with it. They can make sure all the forms are done for the right staff at the right time, and they’ll also deal with working out the BIK values for everyone – no mean feat where there’s cars and fuel involved, I can tell you! Especially where vehicles change mid-year.
This isn’t about taking over your whole payroll – we sort out P11d forms for lots of clients who run their own payroll in-house month-to-month. The cost is in the region of £100 per employee per year +VAT, which is money well spent if you want to get on with running your business, making money and sleeping well at night knowing it’s all taken care of 😴