P11D and P11D(b) forms must be filed online by July 6

P11D and P11D(b) forms from April 6, 2023, now need to be filed online by July 6 following a rule change from HMRC. If employers need to make amendments to any returns that have already been filed, these should also be made online through a new form via the expenses and benefits for employers page.

If any employer now files their P11D and P11D(b) returns on paper, they will be rejected as not having been submitted correctly. This notification will include details about how to file the forms correctly going forwards. This can take time and cause delays for a business, so it is better to use the correct method in the first place.

If you fail to file the P11D or P11D(b) return by the July 6 deadline, you could face a penalty.

File Class 1A National Insurance Contributions info by July 6 too

Any Class 1A National Insurance Contributions (NICs) will also need to be flagged by employers to HMRC by July 6, and any payments due must reach the tax office on or before July 22 this year.

So your payment is correctly allocated, HMRC advises companies to use their 13-character accounts office reference number without spaces, followed by 2313.

HMRC stated: “Adding 2313 is important because 23 tells us the payment is for the tax year ended 5 April 2023, and 13 lets us know the payment is for Class 1A National Insurance contributions.”

You can find more information about how to pay employers’ Class 1A National Insurance at Gov.uk.

How you submit your P11D and P11D(b) electronically

To file either of these returns online, you can use commercial payroll software or HMRC’s PAYE Online service. You must submit all your P11D and P11D(b) forms online at the same time in a single submission. You can find more information online at Gov.uk relating to expenses and benefits for employers.

Employers must submit a P11D for every employee who gets any benefits or non-tax-exempt expenses, unless the employer registered that they would be taxed on these benefits through payroll before April 6, 2022. Any benefits not dealt with through the payroll for any reason need to be included on a P11D.

Any employer who wants to avoid dealing with P11Ds can register for all benefits to be payrolled for the 2024/2025 tax year.

We can help you meet your obligations

If you are unsure whether dealing with all benefits-in-kind through your payroll or through the filing of P11D and P11D(b) forms is best for your business and your employees, then please get in touch with us and we will advise you on the best course of action.

Should your business declare the cost of the Christmas party?

Christmas parties or even regular summer BBQs, or annual team building events may need to be declared to HMRC for the current 2022/23 tax year if they do not meet certain rules, so you need to be sure you meet all the relevant rules for the exemption.

The key conditions are that the party should be exclusively for business purposes, be open to all employees and cost less than £150 a head to qualify. You can offer more than one regular event to employees over the year, but the combined cost of each must be no more than £150 per person, otherwise the employer may have a National Insurance liability. One-off events do not qualify.

Events costing more than £150 per head across the year

However, if you hold several regular events in a year and the total combined cost of these is more than £150 per person, then you would need to report it as a benefit-in-kind and a tax and National Insurance charge may apply.

For example, if your company has a Christmas party at £100 per head and then a summer party which is £80 per head, these combined breach the £150 limit. So, you would have to choose which you want to be exempt. It makes more sense to exempt the Christmas party which had the higher per head value.

If an event exceeds this £150 limit, then the tax and NI charge applies to the entire amount of the benefit provided, not just the excess. You can include close family members as guests in the party, but the cost of their food, drink, accommodation and so on as part of the party must still not exceed £150, the same as any of the employees.

Events not open to all employees

If there is a specific regular event that is only open to a smaller number of staff, such as directors of the company only, then this would not be exempt under this legislation, and the cost of this would need to be declared to HMRC as a benefit and the relevant tax and NI paid.

Do the same rules apply to virtual functions?

If your staff are in a variety of locations, or primarily work from home, then some employers might have decided to provide a virtual Christmas party. This is fine, and it would in theory work in the same way and with the same caveats as an in-person Christmas party.

You would still not be able to exceed a total cost of £150 for each employee attending, and you would also need to ensure that all staff have been offered access to the party, virtual or otherwise. If this is the case, then you should be able to provide the party without any additional tax or NI liabilities.

The complication here is how to ensure your employees are provided with, say, food and drink for the virtual party without the employer simply giving money to the employee. It could be difficult to prove to HMRC that this money was solely used for the party if an audit was undertaken. So, instead the employer should consider providing the food and drink in a specific way to all employees attending, which would allow the cost to be identified centrally.

This could be done by, for example, sending a food and drink parcel or hamper to every employee in advance of the event to be consumed while everyone is at the online party.

You can find out more about what needs declaring on Gov.uk.

We can help you

If you have concerns about whether your annual Christmas party or summer BBQ needs to be declared to HMRC, then speak to us and we will work with you to ensure you do not fall foul of the rules.

PAYE round-up – what’s new and what you need to know

Dealing with PAYE is one of the main roles of any accounts department, and HMRC has been busy in this area over the past month, meaning there is plenty for businesses to know for the months ahead. One of the most pressing issues is that PAYE Settlement Agreements are due to be completed by October 22 – or October 19 if you want to file and pay by post – and there is a new digital form to help employers meet their obligations.

Employers need to complete this form if they have employees who have “minor, irregular or impracticable” benefits according to HMRC. These could include incentive awards for long-service, telephone bills, non-business expenses for travelling overnight or staff entertainment.

What does this new form do?

The new PAYE Settlement Agreement form (PSA1) has been designed to make it easier for employers to file digitally, which is the preferred method for HMRC. The form provides standardised reporting, improved accuracy, faster processing times which should all result in fewer queries, again according to HMRC.

The new form should create a more streamlined process for employers who need to file returns for employees in this position. For example, in the past a separate paper form would need to be filled in for each employee in a different location. But the new digital form allows you to file a single form for all employees no matter where they are.

Tell HMRC what you need to pay

Using the form means it is also easier for you to tell HMRC what you need to pay. Remember, if you do not do this, then HMRC will do the calculation and you could end up paying more. If you have not got access to the new PSA1 form, then you should contact HMRC as soon as possible and it will tell you what the process is so you can use the new form, which should make filing much simpler.

Don’t be late

It is important to be sure you calculate any money due under the PSA1 and make the payment before the October 22 (or October 19 for paper returns) deadline. If you are late filing, you could face a penalty and pay interest on any amount owed. In the current climate, where energy prices and higher inflation is affecting not just households but also businesses, you should make sure you are not facing any additional charges as a result of poor admin. These are fees that can be completely avoided with the relevant planning.

Pay your PAYE bill through a new variable direct debit plan

Employers can also now take advantage of a new variable direct debit plan which will be available from September 19 onwards. Once it has been set up, you can pay bills including your Full Payment Submission, your Employer Payment Summary, the Construction Industry Scheme, the Apprenticeship Levy, Class 1A National Insurance, and the Earlier Year Update.

Remember to leave yourself enough time for the payments to be taken the first time. You need to leave five working days for the first direct debit to be taken, and then three days for each subsequent direct debit payment. So, get in touch with HMRC as soon as you can if you want to benefit from this plan.

Contact us

If you need any assistance with your PAYE, then contact us and we will give you all the help, support and information you need.

NI to increase by 1.25% this April to fund the Health and Care Levy – what you can do about it

The Government is set to increase National Insurance Contributions (NICs) by 1.25% from April to fund the Health and Social Care Levy, and while this may be a laudable aim, it is going to hit all of us in the pocket.

Costly increase when finances are being squeezed

The NICs hike means that someone earning £30,000 a year will pay an additional £255 into Government coffers – equivalent to 10% more than they are currently paying – while someone earning £50,000 will pay an extra £505. The lowest earners are set to be hit hardest because of the point at which NICs is applied on lower wages.

Despite numerous calls to delay this rise, especially as the cost of living is increasing at rates not seen in nearly 30 years – the Consumer Prices Index rose to 5.5% in January – the Government has insisted it is ploughing ahead with the change.

What can you do?

Unless we see a change of heart in the Spring Statement, this further reach into the pocket of employers and employees is going to sting. But there are some things you can do. For example, as the NICs are paid on your salary, if your employer has – or can offer – the option to do salary sacrifice for another benefit, you may be able to reduce the impact this has.

Salary sacrifice schemes involve your employer cutting your salary in return for paying the equivalent amount into benefits which have both tax and NICs benefits. These can include pensions, pension advice, car leasing schemes, and even cycle to work schemes.

While you get less money in your hand at the end of the month, overall you will be better off because you are getting benefits that make up that value difference, and you will pay less tax and NICs.

Dealing with a benefit in kind

For example, if you leased an electric car through your employer, the payments can be made direct from your gross salary, which means your salary is reduced, cutting the cost of the 1.25% rise. The other benefit is that there will be less income tax to pay too, while you benefit from the use of the car.

There is, of course, the benefit in kind cost to consider. But for electric cars this is only 2% from April 2022, compared to as much as 25% for even a relatively low-emission non-electric car, according to calculations from Loveelectric.cars. So, it might make financial sense to explore this with your employer or employees.

While electric cars can be expensive, the salary sacrifice scheme can make them more appealing. For example, a higher-rate taxpayer earning £60,000 a year chooses a Tesla Model 3 with a lease term of 48 months and annual agreed mileage of 5,000 miles.

Typically, the lease price would be around £524 per month, but combining the price of a lease with salary sacrifice could reduce this to £267 per month, making it much more affordable.

Company owners or directors who may not be primarily paid via a salary can use a business contract hire option which allows them to deduct the full cost of a rental from profits and then recover half of the VAT paid if it is used for personal use, or 100% if it is solely used for business purposes.

Contact us

If you are interested in taking advantage of salary sacrifice or discussing other ways you can mitigate the impact of the 1.25% rise in NICs, please get in touch with us.

Company cars and vans

A tax charge may arise if an employee is able to use a company car or van for private use. A further charge will arise if you provide the fuel for any private use. The taxable amounts that will apply for 2022/23 have now been announced.

Company cars

Where an employee has a company car, if that car is available for their private use, they are taxed on the benefit of that private use.

The amount that is charged to tax is a percentage (the appropriate percentage) of the car’s list price and any optional accessories (as reduced for any capital contributions up to £5,000). The charge is reduced where the car is not available for the full year, and also for any private use contributions made by the employee.

The appropriate percentage depends on the car’s carbon dioxide (CO₂) emissions. A supplement of 4% applies to diesel cars not meeting the RDE2 standard. The appropriate percentage is capped at 37%.

The appropriate percentages applying for 2022/23 are available on the Gov.uk website.

Electric cars

For 2022/23, electric cars are taxed on 2% of their list price, regardless of the date of first registration.

Fuel charge

If the employee is provided with fuel for private journeys, a separate fuel benefit charge applies. The taxable amount is the appropriate percentage used to calculate the car benefit charge multiplied by the set figure for the tax year. For 2022/23, this is £25,300.

There is no charge if you pay for electricity for private use of an electric company car.

Company vans

If you provide an employee with a company van, and they have unrestricted private use of that van, unless the van is an electric van, a tax charge will arise. For 2022/23, the taxable amount is £3,500. If you also provide fuel for private journeys, a separate fuel charge arises. For 2022/23, this is valued at £688.

There is no charge where an employee uses an electric company van for private use.

Get in touch

We can help you understand how to provide tax efficient company cars and vans to your employees.

Amending a PSA for COVID-19 benefits

You can use a PAYE Settlement Agreement (PSA) if you wish to settle the tax liability arising on the provision of a benefit-in-kind or an expense on an employee’s behalf. This can be useful if you wish to preserve the goodwill nature of a particular benefit.

Nature of a PSA

Where a PSA is in place, the employer pays tax and Class 1B National Insurance contributions on the items included within the PSA, while the employee enjoys the benefit free of tax and National Insurance.

A PSA is not suitable for all benefits-in-kind. To qualify for inclusion, the benefit must fall within one of the following categories:

• it is minor;
• it is provided irregularly; or
• it is provided in circumstances where it is impractical to apply PAYE or to apportion the value of a shared benefit.

As payment of tax on an employee’s behalf is itself a taxable benefit, the amount of tax that you must pay on items included within your PSA is grossed up to reflect the marginal rates of tax of the employees to whom the benefits are provided. The relevant Scottish and Welsh rates are used for employees who are Scottish and Welsh taxpayers.

You must also pay Class 1B National Insurance contributions at 13.8% on items included within your PSA in place of the Class 1 or Class 1A liability that would otherwise arise, and also on the tax due under the PSA. The tax and Class 1B National Insurance must be paid by 22 October if you make the payment electronically, or by 19 October if you pay by cheque.

Setting up a new PSA

If you do not already have a PSA in place and want to set one up for 2020/21, you need to do this before 6 July 2021. Guidance available on the Gov.uk website explains what you need to do.

An enduring agreement

Once you have set up a PSA, it remains in place until it is cancelled or amended by you or by HMRC. Therefore, if you already have a PSA set up, you should review it to make sure that it is still valid. This should be done in sufficient time for any changes to be made before 6 July 2021.

Adding in COVID-19 benefits

The COVID-19 pandemic changed the way in which many employees worked, and you may have changed the benefits that you provided to your employees during the 2020/21 tax year as a result. If you have provided taxable benefits as a result of the pandemic, and you want to include them within your PSA, you will need to do this by 6 July 2021.

To amend your PSA, you will need to send details of the changes that you would like to make to the HMRC office that issued your PSA. Normally, HMRC will send you a revised P626 (the PSA). However, where the changes relate only to benefits provided as a result of the COVID-19 pandemic, they will instead add an appendix to your existing PSA.

Remember, you do not need to include exempt benefits within your PSA. There are a number of time-limited exemptions for Coronavirus-related benefits, such as those for employer-provided and reimbursed antigen tests.

Speak to us

Talk to us about whether a PSA is for you, and about what you need to do if you want to meet the tax liability on benefits provided to employees during the COVID-19 pandemic.

Reporting expenses and benefits for 2020/21

If you are an employer and you provided taxable expenses and benefits to your employees during the 2020/21 tax year, you will need to report these to HMRC on form P11D, unless all benefits were payrolled or included within a PAYE Settlement Agreement. You will also need to file a P11D(b). Both forms must reach HMRC by 6 July 2021.

Form P11D

A form P11D is needed for each employee to whom you provided taxable expenses and benefits in the 2020/21 tax year (which ended on 5 April 2021) and which you need to report to HMRC. You do not need to include any benefits or expenses which have been dealt with through the payroll, or those which you have been included within a PAYE Settlement Agreement. Likewise, you do not need to report any benefit or expense that is fully exempt. However, remember that an exemption only applies if all the associated conditions have been met.

The information that you will need to provide depends on the nature of the benefit. Some sections of the P11D are relatively brief, requiring only details of the cost of providing the benefit, any amount made good by the employee, and the taxable amount, while more information is required in respect of certain benefits, most notably company cars and employment-related loans.

Taxable amount: the cash equivalent value

Where the benefit is made available to an employee other than through a salary sacrifice or other optional remuneration arrangement (OpRA), the taxable amount is its cash equivalent value. The calculation of the cash equivalent value depends on the particular benefit. Some benefits have their own benefit-specific rules for calculating the cash equivalent value. Where the benefit or expense is of a type for which there is no specific rule, the cash equivalent value is calculated in accordance with the general rule. This is the cost to the employer, less any amount made good by the employee.

HMRC produce working sheets that can be used to calculate the cash equivalent value for some benefits in kind.

Taxable amount: alternative valuation rules

Where the benefit or expense is made available through an optional remuneration arrangement (OpRA), such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. Under the alternative valuation rules, the taxable amount of the benefit is determined by reference to the salary given up, less any amount made good by the employee, where this produces a value that is higher than the cash equivalent value. The alternative valuation rules have the effect of negating any associated exemption. They do not apply to childcare and childcare vouchers, pension contributions and advice, employer-provided cycles and cyclists’ safety equipment, and low emission cars with CO2 emissions of 75g/km or less. These benefits continue to be taxed according to their cash equivalent value and retain the associated exemptions where the qualifying conditions are met.

Under transitional arrangements, the alternative valuation rules do not apply for 2020/21 to living accommodation, school fees or cars with CO2 emissions of more than 75g/km which are provided under an arrangement that was in place on 5 April 2017 and was not renewed, varied or amended prior to 6 April 2021. Variations as a result of the COVID-19 pandemic are ignored for these purposes. The transitional arrangements came to an end on 5 April 2021, and the alternative valuation rules apply for 2021/22 and later years.

Making good

Any amount that the employee is required to contribute (‘make good’) to the cost of the benefit is taken into account in calculating the taxable amount, as long as the amount is ‘made good’ by 6 July 2021. This can be done by deducting the relevant amount from the employee’s salary, or by the employee making a payment direct to you.

Form P11D(b)

You must file a P11D(b) by 6 July 2021 if you provided taxable expenses to your employees in the 2021/22 tax year which have either been payrolled or reported to HMRC on your employees’ P11Ds. Form P11D(b) serves two functions – it is your declaration that all required P11Ds have been submitted to HMRC, and also your Class 1A National Insurance return. You will need to file a P11D(b) even if you have no P11Ds to file because you have payrolled all taxable benefits and expenses that you provided to your employees during the 2020/21 tax year. Payrolled benefits need to be taken into account in working out your Class 1A National Insurance liability.

If you did not provide any taxable benefits in 2020/21, but have been sent either a paper P11D(b) or a reminder letter to complete one, you will need to make a nil declaration online to avoid being charged a penalty. This may be required if you provided taxable benefits in 2019/20 as HMRC’s expectation is that they were also provided in 2020/21.

Filing options

There are various ways in which you can file forms P11D and P11D(b). They can be filed online using HMRC’s Online End of Year Expenses and Benefits Service, HMRC’s PAYE Online Service (up to 500 employees only), or via a suitable commercial software package. You can also complete paper forms and send them to HMRC by post.

Forms for the 2020/21 tax year must reach HMRC by 6 July 2021. You must also give your employees a copy of their P11D (or details of the taxable expenses and benefits provided to them in 2020/21) by the same date.

You must pay your Class 1A National Insurance by 22 July 2021 if you make your payment electronically. If you opt to pay by cheque, this must reach HMRC by 19 July 2021.

We can help

We can help you meet your filing obligations and help you minimise the risk of receiving a penalty for late or incorrect returns.

Taxation of company cars in 2021/22

If you are an employee with a company car, you will be taxed on the benefit derived from the car being available for your private use. If you are an employer who makes company cars available to your employees, they will be taxed on the associated benefit. The amount that is charged to tax depends predominantly on the list price of the car and its appropriate percentage. There are some changes to the appropriate percentages for 2021/22.

You can find details of the appropriate percentages applying for 2021/22 here.

Electric company cars

For 2020/21, it was possible to enjoy the benefit of an electric company car tax-free as the appropriate percentage for zero-emissions cars was set at 0%. The appropriate percentage for zero-emission cars is increased to 1% for 2021/22. Although a tax-free company car is no longer an option for 2021/22, an electric company car remains a very attractive benefit. The cash equivalent value (the amount on which tax is charged) for an electric car with a list price of £30,000 is only £300 for 2021/22, costing a higher rate taxpayer £120 in tax and a basic rate taxpayer £60 in tax. If you are an employer, your Class 1A National Insurance hit will be £41.40.

Cars first registered on or after 6 April 2020

The way in which CO2 emissions are measured changed for cars first registered on or after 6 April 2020. From that date, the car’s CO2 emissions are determined using the Worldwide harmonised Light Vehicle Test Procedure (WLTP). For cars first registered prior to that date, the car’s CO2 emissions were determined in accordance with the New European Driving Cycle (NEDC).

For 2020/21, the appropriate percentage for cars first registered on or after 6 April 2020 (and whose CO2 emissions are determined using the WLTP), was two percentage points lower than that for cars first registered prior to 6 April 2020 (and whose CO2 emissions were determined using the NEDC).

The differential is reduced by one percentage point for 2021/22. This means that, subject to the maximum charge of 37%, the appropriate percentage for cars first registered on or after 6 April 2020 is one percentage point higher than its 2020/21 level. Thus, where the appropriate percentage was, say, 15% for 2020/21, it is 16% for 2021/22. The increase will mean that if you have a company car which was first registered on or after 6 April 2020, you will pay slightly more tax in 2021/22 than in 2020/21.

The diesel supplement remains at 4% for diesel cars not meeting the RDE2 emissions standard (subject to the maximum charge of 37%).

Cars first registered before 6 April 2020

There is no change to the appropriate percentages for cars first registered prior to 6 April 2020. This means that if you have a company car that was registered before this date, your tax bill for 2021/22 will be the same as for 2020/21.

Talk to us

If you are thinking of changing your company car or making changes to your company car fleet, we can help you understand the associated tax costs.

Virtual Christmas parties and tax-free gifts

The COVID-19 pandemic has meant that the traditional Christmas party could not happen in 2020. If, instead, you held a virtual event, you will be pleased to know that this too can benefit from the tax exemption for annual parties and functions. There is also good news if you opted to give your staff a seasonal gift, as this may fall within the scope of the trivial benefits exemption.

Virtual Christmas parties

The tax exemption for annual parties and functions means that your staff can enjoy a Christmas party without having to worry about an associated benefit-in-kind tax charge as long as the cost per head (including VAT) is £150 or less and the event is open to all staff (or all staff at a particular location).

The COVID-19 pandemic has meant that large in-person events are off the menu this year. If, like many other organisations, you chose not to forgo the Christmas party entirely and held an online event instead, your virtual event will fall within the scope of the exemption for annual parties and functions, as long as the associated conditions have been met. HMRC have confirmed that where the event is provided using IT, the exemption will cover the costs of the event, including the provision of equipment, entertainment and refreshments, as long as they are provided principally for the enjoyment or consumption by employees during the event.

If a virtual event is not for you, the exemption will also apply if you delay the Christmas party and hold a later event instead, as long as it is held before the end of the current tax year.

Where the conditions for exemption have been met, you do not need to report the virtual event to HMRC on your employees’ P11Ds, or include it within a PAYE Settlement Agreement.

Seasonal gifts

If, as a gesture of goodwill, you gave your employees a Christmas gift, as long as the cost of providing that gift is not more than £50, it will fall within the scope of the trivial benefits exemption. This is good news; there is no tax to pay and you do not need to report the gift to HMRC.

The choice of gift is up to you, and traditional seasonal gifts, such as a turkey or a hamper, can be given within the scope of the exemption, as long as they do not cost you more than £50 to provide. If you provide gifts to a number of employees and it is impracticable to work out the individual cost, the average cost can be used instead.

There are, however, some points to watch. The exemption does not apply to gifts of cash or cash vouchers, or to those given as a reward for the provision of services or where the employee is contractually entitled to the gift. Care must also be taken when giving gift cards if these can be topped up; in this case, HMRC regard the cost to be the total cost in the tax year, rather than the cost of each individual top-up. Similar considerations apply to the use of apps to buy goods and services and to season tickets.

Get in touch

Talk to us to find out whether your Christmas events and gifts for employees are exempt from tax.

Benefit-in-kind charge on electric vans

A tax charge arises under the benefit-in-kind rules where an employee enjoys unrestricted private use of a company van. The taxable amount is a set amount, with a reduced charge applying to electric vans. However, the charge for zero-emission vans is to be reduced to zero from 6 April 2021.

Taxation of company vans

Employees who enjoy the private use of a company van are taxed for the privilege. For 2020/21, the standard charge is set at £3,490. The charge does not apply where the ‘restricted private use’ condition is met. This is the case where private use, other than home to work travel, is insignificant.

A lower charge applies to electric vans.

The charge is reduced to reflect periods of unavailability and payments for private use.

Electric vans

Since 2015/16, the charge for a zero-emission van has been a percentage of the full charge. That percentage has been steadily increasing. For 2015/16, zero-emission vans were charged at 20% of the standard charge; by 2020/21 it had reached 80% of the standard charge and was due to increase to 90% for 2021/22 before being aligned with the standard charge from 2022/23.

For 2020/21, the benefit-in-kind charge for an electric van is £2,782 (80% of £3,490). By contrast, an employee can enjoy the benefit of an electric company car tax-free.

At the time of the 2020 Budget, it was announced that the tax charge for zero-emission vans would be reduced to zero from 6 April 2021 to encourage employers to move to using electric vans. This change has now been enacted.

A move to electric vans will benefit your employees, who from 2021/22 will not pay any tax if the van is available for private use. You will also benefit as there will be no employer’s Class 1A National Insurance to pay either.

Is it a car or is it a van?

For the purposes of the benefit-in-kind legislation, a vehicle is a ‘van’ if it is a mechanically propelled road vehicle which is a goods vehicle and which has a design weight not exceeding 3,500 kilograms, and which is not a motorcycle.

However, as the long-running Coca-Cola case has demonstrated, just because something looks like a van does not mean that it is, at least for tax purposes. The Court of Appeal have held that modified crew-cab vehicles are cars rather than vans for the purposes of the benefit-in-kind legislation, and as such the taxable benefit should be worked out using the company car rules rather than van benefit rules. In this case, the vans in question were panel vans with a second row of seats behind the driver’s seat.

Separate charge for fuel

If an employer meets the costs of fuel for private journeys in a company van, a separate fuel benefit charge arises. The benefit is valued at £666 for 2020/21.

However, HMRC do not regard the provision of electricity as a ‘fuel’ for these purposes. Consequently, no tax charge arises if the employer meets the cost of electricity for the private use of an electric van.

Help and advice

We can help you work out the benefit-in-kind charge on company vans and plan ahead for the changes to come.

Expenses and Benefits Returns for 2019/20

Employers who provided taxable expenses and benefits to their employees during the 2019/20 tax year will, as usual, have to tell HMRC about these by 6 July 2020. This obligation is unchanged despite the COVID-19 pandemic.

Form P11D

Form P11D is used to tell HMRC about taxable benefits and expenses provided to employees where these have not been payrolled or included within a PAYE settlement. If the employer has payrolled some benefits but not others, only those benefits which have not been payrolled should be included on the P11D.

Exempt benefits

Benefits and expenses which are covered by a tax exemption do not need to be shown on the P11D. However, exemptions are only available if all the associated conditions are met. Remember, where provision is made via an optional remuneration arrangement, for most benefits the exemption is lost and thus the benefit should be notified on the P11D.

Taxable value

The taxable value of the benefit is its cash equivalent value, unless provision is made via an optional remuneration scheme. Where a benefit-specific rule exists, as is the case for company cars and employment-related loans, the cash equivalent value is calculated in accordance with the relevant rules; where there is no specific rule, the general rule applies. This is the cost to the employer less any amount made good by the employee (which must be by 6 July after the end of the tax year). HMRC produce worksheets which can be used to work out the cash equivalent value for some benefits. These can be found on the Gov.uk website.

If the benefit is made available under an optional remuneration scheme, such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. In this case, the taxable amount is the ‘relevant amount’. Broadly, this is the salary foregone where this is more than the cash equivalent value. The alternative valuation rules do not apply to pensions or pensions’ advice, childcare, employer-provided cycles and cyclists’ safety equipment under cycle to work schemes, and cars with CO2 emission of 75g/km or less, and transitional rules apply in certain cases.

P11D(b)

The P11D(b) is the employer’s declaration that all required P11Ds have been filed, and also the Class 1A National Insurance return. Remember to take account of payrolled benefits when working out the Class 1A National Insurance liability.

A P11D(b) is still required even if you have no P11Ds to file because all benefits have been payrolled.

If you provided benefit and expenses in 2018/19 but not in 2019/20, you may need to make a nil declaration. This will be required if HMRC sent you either a P11D(b) or a reminder letter. The notification can be made online.

How and when to file

Expenses and benefits returns (P11D and P11D(b)) can be filed online using HMRC’s Expenses and Benefits Online Service, PAYE for Employers or commercial software. Paper returns can also be submitted.

Returns for 2019/20 must reach HMRC by 6 July 2020. Employees must be given a copy of their P11D or details of the information that it contains by the same date.

The Class 1A National Insurance liability must reach HMRC by 22 July 2020 where payment is made electronically. Where payment is made by cheque, the deadline is 19 July; however, as this falls on a Sunday this year, the cheque must be with HMRC by Friday 17 July.

How we can help

Discuss with us what you need to do in order to meet your filing obligations during these challenging times.

Expenses and benefits provided to employees during the COVID-19 pandemic

HMRC have recently published guidance for employers on how to treat certain expenses and benefits which may be provided to employees during the COVID-19 pandemic. The guidance is available on the Gov.uk website.

They have also relaxed the rules for a limited period where an employer reimburses an employee for the cost of equipment purchased to enable them to work from home.

Mileage costs

Particular issues can arise where an employer supports employees who are undertaking volunteer work during the pandemic, such as delivering prescriptions or PPE.

Volunteers driving a company car

If the employee has a company car and you refund the fuel costs where the car is used for volunteer duties using the advisory fuel rates, this will be a taxable benefit as the reimbursed mileage is not business mileage. If you wish to meet the tax and National Insurance on behalf of your employees, you can include it within a PAYE Settlement Agreement. If not, the reimbursement is taxable and liable to National Insurance.

If, as an employee, you pay for the petrol when undertaking volunteer duties using you company car, you are not able to claim tax relief as the expense is not incurred wholly, exclusively and necessary in the performance of your job.

Volunteers driving their own car

Where an employee undertakes volunteer driving using their own car and, as measure of support, you reimburse the cost using the approved mileage allowance rate, again, this will be taxable and liable to National Insurance. However, you can instead settle the associated liability on behalf of your employees by including it within a PAYE Settlement Agreement.

If the employee pays the mileage costs associated with volunteer driving, they cannot claim mileage allowance relief as the journeys are not business journeys.

Company car availability

During the lockdown many employees have been furloughed or are working from home. As a result, if they have a company car, they may be using it only rarely or not at all.

A taxable benefit arises in respect of the provision of a company car when that car is ‘available’ for private use – it does not matter whether the car is actually used or not, it is the ‘availability’ that triggers the tax charge. HMRC have confirmed that during the lockdown, a company car should still be treated as being ‘available for private use’, even if the employee has been:

• instructed not to use the car;
• asked to keep a record of the mileage to prove the car has not been used (i.e. photographs of the mileage at the start and end of the period); and
• unable to return the car or arrange for its collection.

However, where it was not possible for the car to be handed back or collected as a result of the restrictions on movement, where the contract has been terminated, HMRC will accept that the car ceased to be available from the date that the keys (including tabs or fobs) are returned to the employer or relevant third party. If the contract has not been terminated, the car will be treated as unavailable after a period of 30 consecutive date from the date on which the keys have been returned. HMRC accept that where the employee no longer has access to the keys, they cannot drive the car, even if the car remains at their home.

The company car tax rules are strict and it important to appreciate the difference between a car being available for use and a car actually being used by the employee when it comes to calculating the taxable benefit.

Homeworking relaxations

An employee may have purchased office equipment to enable them to work at home. HMRC have, temporarily, relaxed the rules where the employer reimburses the cost. Under the normal rules, where an employee purchases a capital item, such as computer, to enable them to work from home, any reimbursement by the employer is taxable. Likewise, the employee is unable to claim tax relief.

However, where an employee has purchased equipment to work at home because of Coronavirus, if the employer reimburses the costs on or after 16 March 2020 and before the end of the 2020/21 tax year, the reimbursement will be tax-free. If the employee purchases equipment in this period and the cost is not met by the employer, the employee can claim a tax deduction, either on form P87 or via their self-assessment return. They should retain evidence of the expenditure

HMRC have also confirmed that employees can claim tax relief for additional household expenses of up to £6 per week (£26 per month) without the need for supporting evidence.

Other benefits

HMRC’s guidance also covers other benefits that may be provided to employees during the pandemic. We can help you ensure that these are provided in a tax-efficient manner.