Expenses and benefits – what to report

Understanding PAYE end of year tasks

For those that have not done so, contractors will need to consider what expenses and benefits they need to report to HMRC by 6th July 2017.

The expenses and benefits regime underwent a transformation as from 6th April 2016 which saw:

• Scrapping of the notion of a lower-paid employee, i.e. those earning £8,500 or less in a tax year. As such the benefits regime applies to all employees regardless of level of earnings.
• Forms P11D to be used for all employees as forms P9D (lower-paid employees) are no more. The same rules apply to employees and directors.
• Introduction of a statutory framework for voluntary payrolling of benefits-in-kind. Employers can opt to payroll all benefits other than vouchers and credit tokens, living accommodation and beneficial loans. Where this is the case, then employers do not have to report such benefits and expenses on form P11D. However, Class 1A NIC, where applicable, must be reported and accounted for.
• Certain paid or reimbursed expenses are exempted, provided the payment or reimbursement is not made as part of a salary sacrifice arrangement. The exemption also applies if employees are paid a scale rate in respect of a qualifying expense provided there is a system in place for checking that an allowable expense is actually incurred. Scale rates can either be those prescribed by HMRC or a rate agreed with the Revenue. These expenses do not have to be reported on form P11D.
• PAYE dispensations replaced by the statutory exemption mentioned above. The exemption applies if the expense paid for or reimbursed by the employer would qualify as an allowable expense against employment income.

Where an employee is provided with a mix of expenses, some of which are payrolled and some of which are not, then it is necessary to report the non-payrolled benefits on form P11D.

Forms P11D and P11D(b) for 2016/17 must be filed with HMRC by no later than 6th July 2017. Class 1A NIC must be paid by 19th July or 22nd July, if paid electronically. Remember, that regardless of whether or not expenses/benefits have been payrolled, form P11D must be completed. Penalties are charged for late and incorrect returns and interest charged for late payment of Class 1A NIC.

Where there is no Class 1A NIC payable in 2016/17 but there was in the previous tax year, or if HMRC have issued a notice to file a P11D(b), then a nil return should be filed to inform HMRC that no Class 1A NIC is due.