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Mar 4 2024

Reporting benefits in kind to HMRC

As a business, if you provide benefits and/or expenses it’s important to keep in mind that they will be subject to tax. Therefore, at the end of the tax year, you will have to report your benefit in kind to HMRC to ensure you pay the right amount of tax and National Insurance on them. In this guide, we’ll be discussing everything you need to know about reporting benefits in kind to HMRC, as there are different rules for what you need to report based on the type of expense or benefit you provide.

 

Firstly, what are benefits in kind?

A benefit in kind can be anything that benefits employees other than their wages, bonuses, or anything that is monetary based. They can form part of a rewards package for employees and offer significant value to both businesses and staff. Common examples of benefits in kind include:

  • Private medical insurance
  • Workplace pension
  • Death-in-service benefit
  • Share options
  • Company car
  • Childcare vouchers
  • Cycle-to-work schemes
  • Voucher and discount schemes
  • Gym membership
  • Subsidised or free meals
  • Employee counselling services

As well as being subject to tax on the business, some benefits can have a tax charge on the employee too. It’s important to know which benefits are taxable and which are tax-free and to check that your employees are happy to pay tax to have a specific benefit.

 

Reporting and paying

You can report benefits in kind to HMRC either through your payroll or online at the end of the tax year. Furthermore, you are required to declare the amount of Class 1A National Insurance due on all benefits and expenses you’ve provided and settle any remaining balances you may owe. Each benefit is calculated differently, so you will need to confirm the amount you owe. For ‘small’ costs, you could make a single payment, referred to as a PAYE Settlement Agreement.

Paying benefits in kind through your payroll

By reporting benefits in kind via your payroll software, you can distribute the tax payment over the year instead of submitting it in a lump sum at the close of the tax year. However, even if you pay your benefits in kind through payroll, you will still be required to report the Class 1A National Insurance you owe by submitting the online form P11D(b).

However, employers should note that they only have to worry about submitting P11D’s until April 2026, as this is when the new rules around mandatory payrolling will kick in. The aim of HMRC is to reduce the amount of administrative work businesses and by extension accountants have to do in payrolling benefits in kind.

Reporting benefits in kind at the end of the tax year

If you don’t pay your benefits in kind via payrolling, you should fill in an online form known as a P11D and submit it to HMRC at the end of the tax year. The form should be completed for every employee that you have provided benefits to, where these benefits have not been payrolled. Again, you will still have to submit the P11D(b) form to report Class 1A National Insurance you owe.

If your company employs fewer than 500 people, the necessary paperwork can be completed and submitted via HMRC’s PAYE Online portal. If your business has more than 500 employees, the forms should be completed and submitted through your payroll software. As specialist accountants for small business, the team at Jan McDermott Chartered Accountants can help make sure you benefit in kind are reported efficiently and accurately.

 

What should be included on a P11D form?

As mentioned above, what you have to report on will vary depending on the type of benefit you provide. For example, if you have a company car, you will need to report on the fuel provided to employees as part of a salary sacrifice agreement. Salary sacrifice is when an employee agrees to reduce their gross salary so that they can have the benefit. In this case you might need to pay National Insurance on the calculated value of the benefit.

It’s essential to maintain records of all benefits or expenses you provide to your employees, including relevant dates and receipts related to that benefit. This verifies that the figures you are reporting to HMRC are accurate. Records should be kept for three years from the end of the tax year they relate to. The benefits you must include on a P11D form include:

  • Travel allowances
  • Vouchers
  • Living accommodation
  • Discounted goods or services
  • Low cost loans
  • Professional fees and subscriptions
  • Devices (such as phones) that are available for personal use
  • Training fees

Certain benefits like the employer contributions to a workplace pension do not have to be included on the P11D form. Your accountant can advise on reporting your benefits in kind, many businesses opt to payroll benefits and expenses to make the process more efficient for them.

 

Conclusion

Hopefully this guide has given you a greater understanding of benefits in kind and how to pay them. The team at Jan McDermott Chartered Accountants are experienced chartered accountants in Wirral, supporting businesses with all their accounting needs. If you’re looking for a reliable, professional, and friendly accountant we can help. Contact us today to book a free consultation and learn more about how our services can benefit you and your business.