Expenses and benefits for employers
If you’re an employer and provide expenses or benefits to employees or directors, 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
There are different rules for what you have to report and pay depending on the type of expense or benefit that you provide.
At the end of the tax year you’ll need to submit an end-of-year form to HM Revenue and Customs (HMRC) for each employee you’ve provided with expenses or benefits.
The form will either be a P9D or a P11D, depending on the expense or benefit.
You may need to submit form P11D(b) to report the amount of Class 1A National Insurance due on all the expenses and benefits you’ve provided. You should do this if:
- you’ve submitted any P11D forms
- you’ve been sent a P11D(b) form by HMRC
If you don’t submit any P11D forms, you can tell HMRC that you don’t owe Class 1A National Insurance by completing a declaration.
What 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.
How to report
You can use any of the following methods:
- commercial payroll software
- HMRC’s PAYE Online service
- HMRC’s Online End of Year Expenses and Benefits service
Correcting errors on forms
Use HMRC’s P9D or P11D forms to correct an error for an expense or benefit reported in any tax year.
Put all the benefits and expenses for the tax year on the form, not just the benefits you want to correct.
ExampleYou sent a P11D form showing a medical benefit of £300 and a car benefit of £2,100. The car benefit is correct but the medical benefit should be £500. Send a new P11D form showing both the medical benefit of £500 and the car benefit of £2,100.
You must submit a paper form, even if you originally submitted online.
The forms will show the most recent tax year. Write a different tax year on the form if you need to report for a different year. You must write:
- that you’re using the form to correct an error made in a different year to the one printed on the form
- the tax year you’re making the amendment for
Send the form to:
HMRC NIC and EO
Benton Park View
Newcastle Upon Tyne
|What you need to do||Deadline|
|Submit your end-of-year forms (P9D and P11D) online to HMRC||6 July following the end of the tax year|
|Give your employees a copy of the information on your forms||6 July|
|Tell HMRC the total amount of Class 1A National Insurance you owe on form P11D(b)||6 July|
|Pay any Class 1A National Insurance owed on expenses or benefits||Must reach HMRC by 22 July (19 July if you pay by cheque)|
|If you have a PAYE Settlement Agreement pay tax and Class 1B National Insurance||Must reach HMRC by 22 October (19 October if you pay by cheque)|
|Pay any PAYE tax or Class 1 National Insurance owed on expenses or benefits||Pay monthly through payroll|
You’ll get a penalty of £100 per 50 employees for each month or part month your P11D(b) is late. You’ll also be charged penalties and interest if you’re late paying HMRC.
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.
HM Revenue and Customs (HMRC) may ask to see evidence of how you accounted for each expense or benefit at the end of the tax year.
What you should 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.
Records must be kept for 3 years from the end of the tax year they relate to.
You reimburse an employee’s travel expenses – you’ll need to keep a record of when and why the employee travelled, and where possible keep receipts as evidence.
When reporting expenses and benefits, you need to work out your employee’s earnings ‘at a rate’. This affects which end-of-year form you submit.
To work out earnings at a rate:
- Take your employee’s earnings during the year.
- Add the value of any expenses or benefits you’ve given them during the year.
- Work out the full-year equivalent if they didn’t work the full year.
ExampleYour employee starts work on 6 October 2013 and earns £5,000 to the end of the tax year. You also pay them £500 in that period towards travel.
They earn at a rate of £11,000 a year: £5,000 x 2 (the equivalent of a full year’s earnings) + £500 x 2 (the equivalent of a full year’s travel contribution).
For part-time employees, don’t gross up earnings to a full-time equivalent when calculating at a rate.
ExampleYour employee works part-time two days a week and earns £5,000 a year. You also pay them £1,000 a year towards travel.
They earn at a rate of £6,000 a year: £5000 pay + £1,000 towards travel.
Some expenses and benefits are eligible for a dispensation, meaning you won’t have to report them to HM Revenue and Customs (HMRC).
Dispensations can cover routine business expenses and benefits like:
- phone bills
- business entertainment expenses
- company car fuel
There’s no time limit on dispensations, but HMRC reviews them regularly to make sure that they still apply.
You can only apply for a dispensation if you have a system in place to check expense claims.
Your employees aren’t allowed to check their own expenses, so someone else within your company needs to do this to make sure that they are legitimate claims.
If this isn’t possible, you’ll need to prove that your claims are covered by the dispensation. In most cases receipts will be enough, but you may be asked for more evidence if your receipts don’t include enough information.