Taxable expenses and benefits: a guide for UK business owners
Calculating and reporting taxable expenses and benefits for employees can be time-consuming and complex for business owners. In this article, Consilium Tax expert Kirsty Boal offers a concise guide on how SMEs can calculate how much and when to report benefits in kind to HM Revenue and Customs (HMRC).
Taxable expenses and benefits occur when a business provides its directors and/or employees with goods and services for free or at a discounted rate. As the business is covering at least some of the cost of the expense or use of a company asset, there is a personal benefit to the individual and a resulting tax charge for both the employer and employee.
What kinds of expenses and benefits are taxable in the UK?
Potentially taxable expenses and benefits include, but are not limited to, the following:
- Assets transferred to employees
- Payments made on behalf of the employees
- Vouchers and credit cards provided
- Living accommodation
- Company car or van provided for private use
- Mileage allowances in excess of HMRC-approved rates
- Interest-free or low-interest loans
- Private medical insurance
- Assistance with relocation expenses.
How to report taxable expenses and benefits to HMRC
When a business provides its employees with taxable expenses and benefits, these must be reported to HMRC on a form P11d(b) and forms P11d:
- A form P11d(b) is the employer’s declaration that all necessary benefits and expenses have been reported correctly and is used to declare the Class 1A National Insurance contribution (NIC) that is payable by the employer to HMRC.
- A form P11d must be completed for each director and employee that receives a benefit. The figures reported will be equal to the costs incurred for taxable expenses, however where an asset is provided, the cash equivalent value will be calculated.
What are the deadlines for submitting P11d forms to HMRC?
The deadline for submission to HMRC of taxable expenses and benefits via the P11d(b) and P11d’s for the tax year ended 5 April 2023 is 6 July 2023. Employers are also legally required to provide details of the benefits in kind reported to their employees by 6 July 2023.
The deadline for payment of the Class 1A National Insurance contribution due by the business on the benefits provided for the tax year ended 5 April 2023 is 22 July 2023 (or 19 July 2023 if paying by cheque).
What if I pay employee benefits through payroll?
If the benefits in kind have been payrolled throughout the year, there is no requirement to submit individual P11d’s for each director or employee. However, the business is still required to report the taxable benefits and expenses on form P11d(b) by 6 July after the end of each tax year.
Businesses are also obligated to ensure employees are aware of the details of the benefits they have been taxed on via the payrolling arrangement by 1 June after the end of each tax year.
Be mindful that benefits in kind for beneficial loans and living accommodation cannot be payrolled and will require a P11d.
Taxable expenses and benefits: what are HMRCs new requirements for 2022/23?
In terms of the tax year 2022/23, the following updates have been applied by HMRC:
- Class 1A NIC will be payable at 14.53%
- Car fuel benefit multiplier is £25,300
- Van benefit is £3,600 if unrestricted private use
- Van fuel benefit is £688 if unrestricted private use
- Zero emission vans have no benefit from 2021/22 onwards
- From 6 April 2023, HMRC will no longer accept new informal payrolling benefit arrangements. If an existing informal arrangement is in place, the employer should look to formalise this agreement with HMRC and register to payroll benefits and expenses in future tax years
- From 6 April 2023, all form P11d(b)’s and form P11d’s (including amendments) are required to be submitted to HMRC online. This move away from manual submissions is in keeping with HMRC’s push to move all aspects of its dealings into a digital system
- Employees will be eligible to claim working-from-home tax relief at £6 per week for the full tax year, even if the individual was only required to work from home for part of that year. However, if the employee chooses to split their time between working in an office and at home, they will not qualify.
Are there penalties for failing to submit P11d forms to HMRC?
Failure to submit the P11d(b) by the deadline can result in a penalty of £100 per every 50 employees (or part of 50) per month. Penalties can also be charged for late filing of P11d’s at £300 per form initially, plus £60 a day whilst they remain outstanding.
Late payment of Class 1A NIC due of more than 30 days will result in a penalty of 5% of the liability. If the liability remains unpaid six months after the due date, there will be a further 5% penalty, with an additional 5% penalty levied if the payment is still outstanding 12 months after the due date.
In addition, late payment of Class 1A NIC will incur interest immediately from 22 July 2023 (or 19 July 2023 if paying by cheque).
Helping SMEs achieve their goals
At Consilium we help business owners achieve their goals. Whether that is to develop effective tax planning for their business or simply to save them the time and hassle of tax reporting to HMRC, our expert team are ready to help.
To arrange an informal appointment with one of our Tax team, please contact Kirsty Boal. In-person and virtual meetings are available.