Employee benefits, expenses and P11D reporting

A UK employee is taxed on almost anything of value their employer provides, not just on pay. Private medical cover, a company car, gym membership, a phone the family uses, an interest-free loan above a threshold, accommodation, and the entertaining that goes with a sales role are all in scope. The reporting sits outside the normal payroll cycle, on a form due every July.

The two ways to report a benefit

• Payrolling. The taxable value is added to pay each period and taxed through PAYE as it goes. Registration has to happen before the start of the tax year, and once done it removes the annual form for those benefits entirely. This is the direction UK payroll is moving and for most benefits it is now the cleaner option.
• The annual return. A P11D for each employee and a P11D(b) for the employer, both due by 6 July following the end of the tax year. Class 1A National Insurance is payable by the employer on the total, due shortly after.

What is exempt

Not everything is taxable. A mobile phone provided by the employer, one per employee. Genuine business expenses reimbursed at approved rates. Certain relocation costs up to a limit. Workplace parking. Annual staff events within a modest cost per head. A small number of trivial benefits within tight rules that groups either ignore or abuse. Knowing which of your existing global benefits already fall inside a UK exemption is usually worth more than restructuring the package.

The PAYE settlement agreement

For minor, irregular or impracticable items, staff entertaining, small gifts, incidental costs, an employer can agree with HMRC to settle the tax itself in one annual payment rather than reporting each item on each employee's record. The employer bears the tax and National Insurance, grossed up, which costs more in cash but removes an administrative problem and an unwelcome tax bill for the employee. Most subsidiaries with a sales team carry it.

Benefits provided by the parent

A global benefits package extended to the UK team is provided by the parent and often paid for centrally, so no invoice reaches the UK company and nothing reaches the UK payroll. The liability accrues from the first month it is provided, and unwinding it later carries tax, interest and penalties, with the charge falling on the employee.

What we do

We review what your UK employees receive, including anything provided by the parent, test it against the UK rules, and tell you what is taxable and what is already exempt. We register for payrolling where that is the better route, file the P11D and P11D(b) by 6 July, calculate the Class 1A liability, and put a settlement agreement in place where the small items justify one. We also write the expenses policy, because most of this is prevented at the point of spending rather than fixed at the year end.