Expenses and benefits for employers
Are you an employer and you provide expenses/benefits to employees or directors. Here is some advice, you might need to tell HM Revenue and Customs (HMRC) and pay tax and National Insurance on them.
Examples of expenses and benefits include:
- company cars
- health insurance
- travel and entertainment expenses
Reporting and paying
At the end of the tax year you’ll usually need to submit a P11D form to HM Revenue and Customs (HMRC) for each employee you’ve provided with expenses or benefits.
You’ll also need to submit a P11D(b) if:
- you’ve submitted any P11D forms
- you’ve paid employees’ expenses or benefits through your payroll
- HMRC have asked you to – either by sending you a form or an email
Your P11D(b) tells HMRC how much Class 1A National Insurance you need to pay on all the expenses and benefits you’ve provided.
If HMRC have asked you to submit a P11D(b), you can tell them you do not owe Class 1A National Insurance by completing a declaration.
Paying tax on benefits through your payroll
You can deduct and pay tax on most employee expenses through your payroll (sometimes called ‘payrolling’) as long as you’ve registered with HMRC before the start of the tax year (6 April).
You do not need to submit a P11D form for an employee if you’re paying tax on all their benefits through your payroll.
You’ll still need to submit a P11D(b) form so you can pay any Class 1A National Insurance you owe.
What you need to report
Each expense or benefit is calculated differently. Find the type of expense or benefit you’ve provided to see what you’ll need to report and pay.
For ‘minor’ expenses or benefits, you might be able to make a one-off payment, known as a PAYE Settlement Agreement.
You need to keep a record
You must keep a record of all expenses and benefits you provide to your employees.
Your records need to show that you’ve reported accurately and your end-of-year forms are correct.
Here is what you need to keep
You’ll need to keep a record of:
- the date and details of every expense or benefit you provide
- any information needed to work out the amounts you put on your end-of-year forms
- any payment your employee contributes to an expense or benefit
You should also keep any correspondence you have with HMRC.
You must keep records for 3 years from the end of the tax year they relate to.
Expenses covered by an exemption you do not have to report certain business expenses and benefits like:
- business travel
- phone bills
- business entertainment expenses
- uniform and tools for work
To qualify for an exemption, you must be either:
- paying a flat rate to your employee as part of their earnings – this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC
- paying back the employee’s actual costs
Need to apply for an exemption?
You do not need to apply for an exemption if you’re paying HMRC’s benchmark rates for allowable expenses.
You only need to apply for an exemption if you want to pay bespoke rates to your employees.
You’ll have to give HMRC evidence that the rates you’re suggesting are based on your employees’ actual expenses.
Checking your expenses
You must have a system in place to check payments you make at benchmark or bespoke rates.
Your employees are not allowed to check their own expenses, so someone else within your company needs to do this to make sure they’re legitimate.
Tell your employees to keep proof of their expenses, for example receipts or bills, in case you need to check them.
Tax on trivial benefits
You don’t have to pay tax on a benefit for your employee if all of the following apply:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract
This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.
You have to pay tax on any benefits that don’t meet all these criteria.
Need help with clarification around claiming expenses and benefits? Book in a call with Lucy below, at a time that suits you.