The one constant for payroll professionals, even globally, is adapting to change. The second constant is the need to meet deadlines.
Ensuring that employees are paid on time and in accordance with the contractual pay date drives global payroll professionals’ actions every day, but in addition to contractual deadlines, we also face statutory deadlines such as those in the United Kingdom:
- Submission dates for the Full Payment Submission (FPS)
- Submission dates for the Employer Payment Summary (EPS), if applicable
- Payments dates for remittances to HM Revenue and Customs (HMRC)
- Payment dates for pension contributions
- Payments deadlines for many other remittances and reports
Another important annual deadline date for U.K. employers is that of the annual submission date for Forms P11D, which can be made online or by post.
6 July Annual Deadline
6 July is the deadline for the submission of Forms P11D, which are in essence the annual reports that inform HMRC what expenses and benefits have been provided to or on behalf of each employee during the preceding tax year that will have ended on 5 April.
HMRC will have an expectation of receiving them due to the declaration that the employer will have made when submitting the final FPS for the preceding year.
Amounts reported on a Form P11D will more commonly see the tax amounts that become due being collected from the employee by an adjustment to their tax code.
P11D Expenses, Benefits 2018-2019, Supporting Working Sheets
Details must be provided of all benefits and expenses that are made available to employees or to members of an employee’s family and household. This is normally defined as an employee’s spouse or registered civil partner, children and their spouses, parents, domestic staff, dependents, and guests.
The full amount of any VAT paid in respect of benefits and expenses provided must be included in the P11D return. This applies whether or not VAT is subsequently reclaimed from HMRC.
Employers are required to calculate the “cash equivalent,” also referred to as the taxable benefit, of all expense payments and benefits in kind (BIKs) provided, and to record the amount on each individual P11D. Generally, this will be the higher of either the second-hand value or the marginal cost of provision, but for many benefits the cash equivalent is calculated according to a specific formula, such as cars that are provided by reason of the employment.
The current reporting year, working to a deadline of 6 July 2019, is for the 2018-2019 tax year, which began on 6 April 2018 and ended on 5 April 2019.Utilizing sections A through N, the employer must complete the return and report on all benefits and expenses that have been provided.
A copy of the P11D does not have to be provided to the employee, but the details do (amounts that are being reported and for what reasons, e.g., company car and fuel, medical health insurance, etc.). While there is no specific deadline in this instance, as soon as possible would be recommended to enable the employee to check and query any amounts they don’t understand or agree with.
Working sheets do not have to be used, and indeed many employers use technology as a more effective way of calculating the cash equivalent amounts. However, when working sheets are used, it is recommended that a copy of each form be retained as it may prove to be useful to show amounts reported.
The following working sheets are supplied to help guide the employer to calculate reportable amounts for the following:
- P11D Working Sheet 1, Living accommodation
- P11D Working Sheet 2, Car and care fuel benefit
- P11D Working Sheet 2b, Car and car fuel benefit provided under optional remuneration arrangements
- P11D Working Sheet 3, Vans available for private use
- P11D Working Sheet 4, Interest-free and low interest loans
- P11D Working Sheet 5, Relocation expenses payments and benefits
- P11D Working Sheet 6, Mileage allowance payments
P11D(b), Class 1A National Insurance Contributions
Since 6 April 2000, Class 1A National Insurance Contributions (NICs) are charged on the cash equivalent value of most, but not all, taxable benefits reported in the P11D return. The P11D is colour coded to help highlight which values will be subject to the Class 1A NIC.
Reporting of the total amount due for Class 1A NIC is made on a Form P11D(b), Return of Class 1a National Insurance Contributions. Employers must total the cash equivalent of all benefits, liable to Class 1A NICs shown in their P11D returns and enter the total figure in the return P11D(b). This is then multiplied by the Class 1A NICs rate, which is 13.8% for 2018-2019 to arrive at the annual amount of Class 1A NICs due.
Class 1A NICs must be paid by 19 July following the end of the tax year using the payslip provided specifically for that purpose by HMRC. Payments made electronically may be made by the 22nd of the month.
Class 1A NICs are not due on any payment that is liable to Class 1 NICs. So, if Class 1 has been paid through PAYE, no Class 1A NICs are due.
For many years, the authoritative guide to educate employers as they traverse the minefield, otherwise referred to as expenses and BIKs, has been the HMRC Pub. 480, Expenses and benefits – A tax guide, which continues to be updated in PDF format and helpfully highlighted to show the sections and subjects that have been updated.
The Class 1A National Insurance contributions on benefits in kind (CWG5) guide provides information and guidance to inform employers about Class 1A NICs. It explains when Class 1A NICs are due and how they’re worked out, reported, and paid.
Each year a guide is published alongside Forms P11D and subsequent working sheets that seeks to provide a brief summary of how to complete each section of the P11D. The P11D guide points out that employers need only to complete a P11D where there are taxable expenses, payments, or benefits to be returned for an individual.
One of the inevitable consequences of mandatory deadlines is that they hail a starting point for a penalty provision where the employer fails to submit on time. A penalty regime for late submission or inaccurate submission exists for both P11D and P11D(b).
The filing date for the return is 6 July. If by 19 July, HMRC has not received the submission, a penalty may be applied, which as a starting point would be £100 per month or part month of lateness, for every 50 or part-batch of 50 employees provided with benefits.
Penalties will be applied for careless or inaccurate returns being submitted.
Since 2016, a formal process has existed for employers that wish to rid themselves of the burden of P11D submission and collect tax due from the BIKs directly through the payroll.
Not all BIKs can yet be payrolled, and two exceptions remain:
- Employer-provided living accommodation
- Interest-free and low-interest (beneficial) loans
These items must still be reported on a P11D, even if there are other benefits being payrolled for the same employees.
The employer must register its intention to payroll by registering on HMRC’s Payrolling of benefits in kind service before the tax year that they wish to begin to use the service, unless they are a new employer or an employer that is new to providing expenses and BIKs, and can begin to use the service straight away.
What the Future Holds
Legislation that governs the taxation of expenses and BIKs has existed since the 1940s and is regularly reviewed and updated as politics demands. But what remains constant are the deadlines. They form the basis of a structure that is necessary to encourage and enable employers to comply with what is arguably becoming one of the most complex areas of U.K. taxation–that of employment income.
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Samantha Mann, MAAT, MCIPPDip, Senior Policy and Research Officer for the Chartered Institute of Payroll Professionals (CIPP).