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published on 27 october 2022 | reading time approx. 4 minutes
P11D declarations are submitted to HMRC after the end of each tax year and represent the value of company benefits an employee has received in addition to their salary and other remuneration.
Common examples include the use of a company car, mobile phone, health insurance and other perks such as free gym memberships.
The tax office treats benefits in kind as a form of income and will take these values into consideration when calculating the appropriate tax code to assign.
There are several common issues related to tax codes and P11D submissions. Still, the basic concept is that anybody who receives company benefits from their employer other than a financial payment is taxable as a result.
After the end of each tax year, and by 6th July, employers must submit a P11D quantifying the value of benefits in kind provided to each employee. There are several potential inclusions, which could comprise:
Some benefits attract a Class 1A National Insurance charge to the company, declared through a P11D (B) form. Employers required to submit more than one P11D must also submit a P11D (B).
The calculation looks at the value of benefits and expenses provided and adjusts the total for elements not liable for Class 1A National Insurance before submission to HMRC.
If a business receives an instruction from HMRC to submit a P11D, they must return this, even if it is a nil return - failure to report will result in a fine.
HMRC regards benefits as additional income, taxed in the same way as they would if the employee had received a pay rise.
The employee's tax code will normally reduce when a P11D is filed, which means that the tax-free allowance for that taxpayer is diminished, and they will pay a higher amount of tax in their PAYE deductions.
For example, a tax code of 1257L reflects a basic personal allowance of £12,570, and a tax code ending in M indicates that a spouse or civil partner has transferred a proportion of their personal allowance to you.
The figure is the personal allowance, less the final zero.
Larger benefits such as company cars for personal and business use often mean that HMRC assigns a K tax code, meaning no allowance remains.
Minus allowances occur when an individual receives benefits that reduce their allowances to more than the original tax-free amount. Negative allowances are accounted for with a K tax code, with the last digit removed and one subtracted - a tax code of K296 reflects minus allowances of £2,970.
When HMRC alters a tax code, it must issue a notice of coding that shows how company benefits have been accounted for.
It is essential that the employer and individual check this carefully because if benefits have been reflected in their tax code incorrectly, they may underpay or overpay tax, and HMRC must be informed as soon as possible.
Employers can register with HMRC to payroll taxable benefits before the start of a new tax year and avoid the need to submit a P11D.
HMRC will adjust tax codes accordingly, accounting for any benefit in kind, excluding interest-free or low-interest loans and living accommodation the employer provides, which must always be reported on a P11D form.
If, for example, the business furnishes all employees with health insurance worth £600 a year, they will payroll an expense of £50 per month per member of staff and deduct income tax according to the tax code provided.
Taxable benefits are usually split evenly between the 12 months of the year. They can also be calculated pro rata based on working days for employees paid irregularly or according to a pay period if this is not linked to the calendar month.
An employee with a salary of £30,000 and a company car with a cash equivalent of £6,000 will be paid £2,500 a month, plus a twelfth of the taxable benefit (£500) included on their payslip. Payroll records both the total pay and the taxable benefit.
Employees may find that if their tax code has been calculated according to outdated taxable benefit information, it could be incorrect.
This scenario can happen when taxable benefits have changed, such as switching to a new company car, or when an employee changes employment and the employer does not submit updated information to HMRC.
A P46 (Car) form is used to submit changes concerning company vehicles, which allows the tax office to issue a new coding notice if a company car is provided, withdrawn or replaced with a different vehicle.
An employee should receive a copy of their P11D from the employer by 6th July after the end of the tax year, showing the taxable benefits in kind received and the value.
Some benefits have an obvious cash equivalent value, but others need to be calculated by the payroll officer, so the figures should be checked.
It is also important to confirm that the benefits stated on the P11D match the benefits received from the employer.
P11D Working Sheets are a useful resource for employees verifying the values included on their P11D and can be used for employers to calculate the correct benefit in kind to declare on their P11D submissions.
HMRC will also send an employee a P800 tax calculation form, against which they can verify the information within a P11D.
Directors paying minimal income tax against a tax-efficient salary and dividend tax against distributed profits may also require a P11D form and pay tax owing according to their tax calculation.
Company car benefits are more liable to manual error than others because the value determined as taxable depends on several factors, beginning with the original list price of the vehicle when first registered.
Employers need to include:
For other benefits, the value received is calculated as the cost to the employer, including VAT, less any contributions made by the employee.
Mariam Suleman
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