Offering benefits in kind, or BiKs as they call them in the biz, can be a way for businesses to provide additional perks to employees and directors. These so-called fringe benefits have tax implications though, starting with a P11D form, so it’s important to understand how they affect the way you report income and pay tax. We’ll start with the basics.
What is a P11D?
A P11D is the form used to tell HMRC about any staff perks, known as benefits in kind, so that employers and workers pay the right amount of tax.
What are benefits in kind?
Benefits in kind are non-cash benefits which employees and directors receive, that aren’t part of their wages. You might sometimes also hear them called P11D benefits, perks, or fringe benefits.
Benefits in kind can cover all sorts, from a company car to private healthcare or gym membership. Just to make things confusing though, not all company benefits are subject to tax. For instance, childcare, or a company van which is only used for work.
Although these benefits don’t take the form of cash, they still have a financial value which means they basically increase the your salary. As such, they’re still subject to income tax and National Insurance, which is why a P11D form is used to report benefits to HMRC.
Are business expenses a benefit in kind?
Payments which are to reimburse expenses don’t count as a benefit in kind, as long as they’re not for personal use. For example, if an employee or director goes to an off-site client meeting and the company reimburses their parking costs, this doesn’t count as a benefit in kind.
Sticking with the travel theme, giving an employee an interest free loan to buy a travel season ticket should go down as a benefit in kind. This is because it’s a payment from the business, for the direct benefit of the employee.
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Why do I need to pay tax on benefits in kind?
Receiving benefits in kind effectively increases the value of what you receive from the business as an employee or a director. Because they have a cash value, and benefit you personally rather than the business, HMRC need to know about them.
How do I report benefits in kind with a P11D?
It’s important to keep detailed records of all the perks that employees and directors receive from the company. These should show the date, and include information about the benefit’s value.
You’ll need to use this information to tell HMRC about the benefits that each employee receives. Submit this information to HMRC using a P11D form at the end of the tax year.
You can submit P11D forms either:
Through your payroll software
Using HMRC’s PAYE Online service (which allows submissions for up to 500 employees), using the same account that you use to report other PAYE information.
By downloading a P11D form and sending the completed form to HMRC through the post
If you already deduct and pay tax on employee benefits through your payroll (similar to deductions you make for staff wages) you won’t need to submit a P11D for them.
The business must also submit a P11D(b) form to tell HMRC how much Class 1A National Insurance it needs to pay. This is because employers make National Insurance Contributions (NICs) on the value of benefits they give to employees, including company directors.
You’ll still need to submit a P11D(b) even if you deduct and pay tax on benefits through your payroll.
Do I need to give employees a copy of their P11D?
It’s good practice to give employees a copy of the information you provide to HMRC about benefits in kind. If they’re self-employed on the side (which you might not know about!) or a company director, they’ll need that information for their Self Assessment tax return. They can also ask HMRC for a copy of the information which you submit.