Annual P11D Cycle need to knows

The annual P11D cycle. It always comes around fast.

The tax form (P11D) used to report ‘Benefits in Kind’ which employees or directors receive from their employer, needs to be filed by 6th July 2023 for the 2022/23 period.

This year, employers (except for the digitally excluded) must submit both the original and amended reports online. Paper returns won’t be accepted.

In this blog, we’ve outlined some of the need-to-know facts about the annual P11D cycle and its significance for both employers and employees alike.

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what’s a p11d?

The P11D form’s an official HM Revenue and Customs (HMRC) document that employers must complete and submit for every relevant employee. It gives details of any expenses, benefits, or allowances that aren’t subject to tax deductions via the payroll system. Examples of these reportable benefits include company cars and private medical insurance.

P11Ds were introduced in 1976 as a mechanism to prevent employers disguising remuneration to their employees, and over the years, has undergone changes to align with evolving tax regulations and reporting requirements.

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WHAT ARE THE REPORTING PERIOD AND DEADLINES?

• The P11D cycle runs annually from 6th April to 5th April of the following year.
• Employers are required to submit the P11D forms to HMRC by the 6th July following the end of the tax year.
• Employers must also provide a copy of the P11D form to each employee by the same deadline.
• Penalties for missing or incorrect P11Ds are based on lost revenue and can be anything up to 100%.

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WHAT ARE THE RESPONSIBILITIES OF EMPLOYEES?

It’s essential for employees to ensure that all benefits and expenses included in the P11D form are correct to prevent any potential tax complications.

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TAXATION OF BENEFITS

Certain benefits and expenses provided to employees are taxable, which means they need to be included in the calculation of the employee’s tax liability. The value of each taxable benefit should be reported on the P11D form, and the employer’s responsible for deducting the appropriate tax amount from the employee’s wages.

Some trivial benefits can be ignored that cost less than £50 per employee.

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cLASS 1A NATIONAL INSURANCE CONTRIBUTIONS (NICS)

Employers are required to pay Class 1A NICs on the taxable benefits provided to their employees.

These contributions are calculated based on the total value of taxable benefits reported on the P11D form. The payment deadline for Class 1A NICs is 19th July following the end of the tax year (or 22nd July if paid electronically).

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ACCURATE RECORD KEEPING

Employers must maintain accurate records of all expenses and benefits provided to employees throughout the tax year. These records should be kept for a minimum of three years from the end of the tax year to which they relate. It’s crucial to have organised records for auditing purposes.

Employees should also check their tax codes when issued to them by HMRC to ensure their benefits are reflected correctly.

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POINTS OF INTEREST AND MISUNDERSTOOD AREAS

• If your company pays for your tax return to be completed, the fee’s a taxable benefit and this will need to be included on your P11D.
• If your company lends you money and charges you no interest or interest below the notional rate, there’s a taxable benefit. However, there’s an exemption if the loan doesn’t exceed £10,000 throughout the tax year. From the company’s perspective, if the loan’s to a participator or director of the company, there’ll also be a s455 liability due on the loan if it’s not repaid within 9 months of the company year end. This is often missed/ignored!
• A loan includes an overdrawn director’s account where dividends have been taken and there are not adequate reserves.
• You can’t simply decide you’ll process your taxable benefits through the company payroll – you require HMRC approval to do this before the tax year starts. We see this mistake quite often.
• An electric car needs to be reported on a P11D even though it may have a very small charge.
• At Fortus, communication between our Accounts/Audit teams and Tax team is vital. Teams who are looking through records on behalf of clients will be able to pick up on any relevant payments or expenses that the client may not have identified independently.
• The P11D form may look short and simple, but the calculations behind it are often not. People regularly underestimate the time involved and the fee required, not to mention the small 3-month timeframe in which all forms need to be prepared and filed!