The preparation of forms P11D for reporting employee Benefits and Expenses to HMRC can be a time consuming annual task. This is an area where mistakes subsequently identified by HMRC on an Employer Compliance Review can prove costly. Here are a few tips and traps on the correct approach to adopt in respect of some common benefits.
The benefit calculation for company cars is based on the retail value of the car when it is first registered; this may be different from the price paid for the car, which could have included a discount. The cost of any accessories has to be added to the retail price of the car.
The benefit is the total value of the car as calculated above multiplied by a % which is based on the CO2 emissions of the car. The %s have increased in recent years so that for the employee, the benefit in kind will increase each year, even though the car is decreasing in value.
HMRC have announced that Company Car Tax %s will be frozen for 3 years from 2022/23 until 2024/25.
Tip: Check the manufacturer’s list price for the date on which the car was first registered and ensure that the cost of additional accessories is added to this before calculating the benefit in kind. Check that the correct CO2 emissions figure is used from the vehicle’s registration document.
Fuel for Company Cars
The full fuel benefit is applied if any fuel is provided for private use. For the year to 5 April 2022, the benefit is calculated by multiplying the relevant % applicable to the CO2 emissions of the car by £24,600. If the % is 20%, then the benefit will be £4,920, giving a tax bill of £1,968 for a higher rate taxpayer. Where the employee’s private mileage is low, the benefit could exceed the cost of the fuel.
An alternative would be for the employee to claim reimbursement for business mileage, using the Advisory Fuel Rates published on the GOV.UK website; these are regularly updated to reflect changes in the cost of fuel. The employer can reclaim input VAT on the fuel costs.
Tip: If the cost of private fuel is less than the benefit in kind, the employee would be better off paying for all fuel and claiming reimbursement for business mileage using the Advisory Fuel Rates.
The benefit levels for company vans are considerably lower than for cars, and there is a full exemption if the van is only used for business journeys and home to work travel. HMRC will accept that the exemption is still available if the van is used for the occasional private journey, but this should be the exception rather than the norm. It is crucial to be able to demonstrate that the van falls within the exemption, for example by including specific conditions regarding the use of the van in the employee’s contract of employment.
Tip: If the van is intended to be used for business journeys and home to work travel only, include this in the employee’s contract of employment.
Not all vehicles marketed as vans will meet the definition of a van in the employment tax legislation, which is a “vehicle designed primarily for the conveyance of goods”. HMRC recently won a tribunal case in which they argued that a VW Transporter Kombi was not a van because there was not sufficient cargo space in the vehicle.
Tip: If it is intended to provide the employee with a van, ensure that the vehicle meets the definition of a vehicle primarily designed for the conveyance of goods.
If the employer pays for an employee to take a customer out to lunch, this is business entertainment and there is no benefit in kind and no requirement to report the expense on the form P11D. However, there are cases where it may not be as easy to identify the business entertainment; for example, if an employer purchases football season tickets which are sometimes used by staff to take customers and business contacts to a match and on other occasions used only by staff members and their families. The former is business entertainment, and the latter is a benefit in kind.
Tip: For expenditure on items such as season tickets, theatre tickets and Golf days, keep a register of who attends, so that business entertainment can be clearly identified, and a benefit in kind calculated for other occasions.
If the employer pays for one or more functions, which are open to all staff, such as a Christmas party and a summer Barbecue, and the total costs of the events are less than £150 per head, then the benefit is exempt, and there is no reporting requirement. However, if the combined cost of the events exceeds £150 per head, only one event will be covered by exemption rather than the costs in excess of £150.
Tip: Keep records to identify the numbers attending each staff event, and ensure that all relevant costs (inclusive of VAT) are taken into account when assessing whether or not the costs fall within the £150 per head exemption.
If the employer reimburses employee’s personal expenses such as mobile phone costs, home telephone and broadband costs, the expenditure has to be reported on the form P11D. However, this expenditure is liable to Class 1 Employer’s and Employee’s National Insurance contributions which have to be collected through the payroll in the month in which the employee is reimbursed.
As an alternative, if employees are required to have a mobile phone for business use, then if the employer makes the contract with the mobile phone provider, there is no benefit in kind and no reporting requirement. If employees use their home telephone and broadband for business, the employer could agree to reimburse an appropriate amount for the business use, in which case there will be no National Insurance liability.
Tip: Make use of the exemption for mobile phones which applies to phones provided by the employer,
Finally for tips and traps, remember the key deadlines for P11D reporting:
- 6 July – submission of forms P11D and P11D (b) to HMRC
- 19 July (cheque payments) or 22 July (BACS payments) – payment of Class 1A National Insurance
Automatic penalties are charged where forms are filed late, starting at £100 per month.
If you’d like to learn more simple tax tips and traps, check out our tax page or contact a member of our team today.