QUESTION: I have been lucky to run a very successful local business and we now have more than 300 employees. My finance team spend a lot of time gathering and preparing benefit in kind claims and reporting them on form P11D each year. I know the deadline is approaching but are there other ways that employee benefits can be reported?
ANSWER: The P11D return was introduced in the early 1960s, when the salary threshold was a mere £200. It is interesting to note that when introduced the legislation covering it did not apply to civil servants and local authority employees!
Clearly those days are long gone and, since that time, we have seen a number of significant changes, most notably in recent years in relation to the changes to company car calculations (from being based on mileage to being based on list price and CO2 emissions) in 2002, as well as the introduction of optional remuneration arrangements in 2017.
The P11D return is a form where employers submit to HMRC each tax year the value of reportable benefits they have provided to employees and directors, where the benefits are not covered by a formal payrolling arrangement with HMRC, or are not dealt with under a PAYE Settlement Agreement (‘PSA’).
The deadline for submitting P11Ds is July 6 following the tax year and a copy of each employee’s form P11D, or the information it contains, must be given to the employee by the same date.
HMRC can charge penalties where P11Ds are submitted late or incorrectly. HMRC can also charge interest and penalties where Class 1A NIC, the employer’s NIC due on chargeable benefits, is paid late. Class 1A NIC is due by July 19 or 22 following the tax year, depending on how the payment is made.
Furthermore, where taxable benefits have not been correctly reported to HMRC on P11Ds, HMRC will often ‘invite’ the employer to settle the income tax due on those unreported benefits. Where the employer agrees to this, the tax is calculated on a grossed-up basis because, when the employer bears this on behalf of the employee, the tax itself is treated as earnings. The employer will also be held responsible for the Class 1A NIC underpaid, together with HMRC interest charges and penalties. Substantial liabilities can therefore arise where a benefit has not been correctly reported, especially when the error has arisen over multiple years and multiple employees.
Currently employers can choose to payroll certain benefits rather than report them on forms P11D. To do this, employers must register the particular benefit or benefits online before the start of the tax year they first want to payroll the benefit(s) from. If, therefore, an employer would like to payroll employees’ benefits for the tax year 2023/24 it must formally register with HMRC before April 6 2023.
Once registered, the employer must then add the correct cash equivalent value of the payrolled benefit to employees’ taxable pay under PAYE, and HMRC should then exclude the value of the benefit from the employees’ tax codes.
The main advantages of payrolling benefits is that it reduces the employer’s post end-of year P11D administration and it enables employees to pay tax on their benefits in real time. However employers should not lose sight of the fact that the they will still need to include the value of the payrolled benefits on a form P11D(b) by July 6 following the end of the tax year to enable the Class 1A NIC due on those benefits to be declared and paid to HMRC.
Payrolling of benefits in its current form is not appropriate for all employers, due to limitations of their payroll software. Additionally, not all benefits can be payrolled; currently, employer-provided living accommodation and low or interest-free employer-provided loans are excluded from the payrolling service. Therefore ‘legacy’ P11D returns may still need to be completed for certain benefits.
As with any significant change to the relevant procedures and systems, the correct employee communication and staff training is vital. Employers should seek professional advice to ensure that payrolling is a success.
:: Malachy McLernon (m.mclernon@fpmaab.com) is partner at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies .
