If you’re a small to medium-sized business (SME) owner with employees, and you provide expenses or benefits to these employees outside of their regular pay, there’s a good chance that you’re required to report on these payments to HM Revenue and Customs (HMRC), paying tax and National Insurance on them where necessary.
How to Report Employee Expenses and Benefits
Employee expenses and benefits need to be submitted at the end of each tax year using form P9D or P11D, depending on the expense or benefit in question. The Government has provided a detailed list of common expenses and benefits online, clicking through to each of which will tell you which form you need, and how you should calculate what you owe.
You’ll need to submit a separate form for each employee; so if, for example, two full-time employees are provided with a mobile phone each for work, you’ll need to complete a separate P11D for each employee. If you submit a P11D you’ll also be required to submit a P11D(b), reporting what Class 1A National Insurance is due on your expenses and benefits payments. You can complete an online declaration if you didn’t submit a P11D, to ensure HMRC won’t contact you about it.
All forms should be filed through either HMRC’s PAYE Online service, your own payroll software, or by downloading the form online and posting it to the address you send your paper tax return to.
If you under-report on your employee expenses and benefits and, therefore, pay less tax than is required of you, you’ll likely be charged a penalty by HMRC if they believe your under-reporting to have been deliberate or due to carelessness. You may be asked to show evidence of how you accounted for each expense or benefit; records must be kept for three years.
PAYE Settlement Agreements
Here at Tax Agility we’ve spoken at length about PAYE Settlement Agreements in the past.
In short, if you only pay small, irregular, and impracticable expenses or benefits to your employees you can simplify your tax and National Insurance Contributions by applying to receive a PSA so you only have to make one annual payment to cover all and any payments owed.
Calculating Employee Earnings
Each employee expense or benefit will need to be calculated at a rate. The Government recommend you do this by adding the value of all expenses and benefits an employee has received over a given tax year to that of their annual salary (if they haven’t worked a full year with you, calculate the full-year equivalent of their salary and all expenses and benefits received).
Experienced Tax Accountants
To speak with a professional to discuss whether you need to start paying tax on your employee’s expenses and benefits, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.