Directors and employee’s remuneration is often made up of more than basic salary. Companies frequently provide additional benefits or cash equivalents which contribute to your income. These benefits may be taxable and must be recorded on P11D and P11D(b) forms for each tax year.
Benefits In Kind
P11D forms are required to be submitted to HM Revenue and Customs (HMRC) by 6th July for the previous tax year, and the Class 1A National Insurance contribution calculated on these benefits is payable by 22nd July. A taxable ‘Benefit In Kind’ (BIK) is identified as anything provided by your employer which benefits you personally, and isn’t “wholly, exclusively and necessary” for the purposes of your business.
As an employer you are required to submit a P11D form for each employee you’ve provided with expenses or benefits. This document details the cash equivalent of any benefit in kind or expenses which you have paid out over the course of the financial tax year.
Companies are required to operate a system for validating employee expense claims, so it is important to ensure all directors and employees keep an expense claim record and present all receipts for validation.
Tax On Company Cars
Tax is payable on company cars if you or your family use the car for non-work related journeys (this includes commuting). The value is reduced if:
you only use the car on a part time basis
if you contribute towards the cost
if the vehicle has low CO2 emissions.
Tax liability is calculated by using the P11D value, the CO2 emission tax band and your income tax rate. The P11D value uses the vehicle list price plus the delivery price (excluding road tax and registration fee).
Company car tax is calculated by multiplying your P11D value by the CO2 emission tax band percentage of the vehicle – this is the ‘Benefit In Kind’ (BIK). Once you have calculated the BIK this is multiplied by your income tax rate percentage as shown below:
Income Tax Rate
(as at 6th April 2021)
Basic Rate 20%
£12,570 - £50,270
Higher Rate 40%
£50,271 - £150,000
Additional Rate 45%
More than £150,000
To reduce your tax liability on a company car it is advisable to choose car with a lower P11D value, or lower emissions - you may even qualify zero emission mileage if you drive a hybrid car.
Tax on fuel is charged separately if your employer covers fuel usage for private use.
Tax On Medical Insurance or Gym Membership
If you benefit from medical insurance as part of your remuneration package you will usually pay tax on the insurance premiums.
If you are working abroad or attend an annual check-up this is a tax-free benefit.
Tax On Loans
If your employer has provided you or a member of your family with a low-interest or interest-free loan of over £10,000 this is considered a taxable benefit.
Tax is payable on the difference between the interest rate set by the Bank of England and the interest rate set by your employer.
Tax On Living Accommodation
Some employers provide living accommodation – if you or a relative live in accommodation provided by your employer this may be a taxable benefit. Tax on living accommodation is calculated on the value of the accommodation.
If you have to live in employer accommodation in order to carry our your job you may not be required to pay tax. A professional accountant will be able to advise on what is applicable to your businesses and employee
National Insurance On Company Benefits
In some instances an employer is required to pay National Insurance on company benefits an employee receives from their job. Benefits that are paid in cash are treated as earnings, as are gifts that can be sold on.
Tax-free Company Benefits
There are some company benefits you can enjoy without being taxed. Since 6 April 2016 qualifying business expenses are not required to be reported on P11D submissions to HMRC.
Meals in a staff canteen
Health screening and medical check ups
Hot drinks and water at work
Childcare support schemes – including childcare vouchers
Christmas parties (if below £150 per head and open to all employees)
Employer contributions into a pension scheme (within annual and lifetime allowance)
Incidental overnight expenses (within allowance)
Employer funded training
Long service awards (meeting set criteria)
Sports facilities provided for sole use of employees and their family members.
Due to the complicated nature of taxable benefits many companies outsource P11D calculations to a professional accountancy company. Calculating P11D benefits in kind can seem daunting and complicated - the penalty for late submission is £100 per 50 employees for each month that the return is late. Outsourcing P11D calculations is an option many businesses and large corporations choose to ensure submissions are on time and accurate.
At Styles & Associates we can provide full accountancy services, or a bespoke package to cover specific accounting requirements such as P11D reporting.
Get in touch today to see how we can help your business.
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