Watch out for 4 common benefit in kind errors affecting your employees
Although the P11D filing deadline has long since passed, this year’s P11D season has highlighted some common issues that employers need to be wary of.
Since payrolling benefits was introduced on 6 April 2016 some companies have taken advantage of this new way to report benefits. However a common misconception is that if benefits are payrolled nothing needs to be reported to at the end of the tax year. This is incorrect.
Payrolling benefits enable employees to pay the tax on the benefits throughout the year, however where employer’s Class 1A National Insurance contributions are payable on the benefits, a form P11D(b) still needs to be completed and submitted in order to calculate the liability. We have encountered several clients who did not think to provide any information in respect of the benefits they had payrolled when they were providing us with their other P11D information.
Section 336 claims
Since 6 April 2016 it has not been necessary to report reimbursed business expenses on forms P11D if the expenses are wholly business related. However some clients are forgetting this and are continuing to report the expenses on forms P11D: we have then seen their employees have personal tax issues when the accompanying section 336 claim is not submitted. Remember, only mixed business/private expenses still need to be reported on forms P11D, with the business items included on the section 336 claim.
Payment of pecuniary liabilities
It is important to remember that if an employer pays for a pecuniary liability on behalf of an employee, for example, a private insurance premium or the gas and electricity bill at the employee’s home, careful consideration needs to be taken as to whether these payments need to be included in payroll for PAYE tax and/or Class 1 National Insurance. The way these payments are subject to tax and National Insurance depends on how the goods/services are arranged and how the bills are paid.
It is important to get this aspect right from the start, because any PAYE tax and/or Class 1 National Insurance should, strictly speaking, be collected in the earnings period in which the pecuniary liability is discharged. A recent HMRC Webinar has highlighted the importance that employers get this right. If your company is paying for personal bills on behalf of employees, please check with us whether the arrangements they have in place are correct.
Reimbursement of expenses by foreign employers
For companies with an overseas presence, another common mistake that we see is that foreign employers are reimbursing their employees for many expenses which, although may be paid tax free in the country in which the foreign employer is resident, may not be in the UK.
This arises because from a UK tax perspective the expenses are private and not incurred wholly, exclusively and necessarily in the course of the performance of employment duties. Invariably, the reimbursement of these expenses should be treated as if receiving cash and put through the payroll and subject to PAYE tax and Class 1 National Insurance.
If you would like more advice and guidance on these or any other payroll or P11D issues, call Anneka Griffiths or Margaret Schofield on +44 (0)330 124 1399, or email Anneka here.
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