Taxable employment benefits & expenses

The remuneration of many directors and employees is made up of more than just a basic salary. This factsheet gives guidance on some of the main types of benefits and expenses which may have taxation implications.

Reporting requirements

Employers are required to notify HMRC of benefits provided to employees and directors by completing forms P11D and P11D(b) on an annual basis.

The deadline for filing these forms is 6th July following the end of the tax year and the Class 1A National Insurance contribution calculated on these benefits is payable by 19th July.

As a general guide, the penalty for late submission of the forms is £100 per 50 employees for each month that the return is late. There are more severe penalties for incorrect forms and so it is very important that you understand your responsibilities as an employer.

Taxable Benefits

Below is a list of common types of benefits which are provided to employees. This list is not intended to be an exhaustive guide so please get in touch to discuss any issues you may have:-

Employer provided cars

The taxable amount is calculated based on a percentage of the manufacturer’s list price, the CO2 emissions of the car determining the percentage.

A separate charge applies where private fuel is provided, unless the employee reimburses the employer for all private mileage (including travel between home and work). The taxable benefit is based on a fixed figure (£23,400 for 2018/19) which is multiplied by the same percentage as above.

Vans

No benefit arises as long as the private use of the van is restricted to ordinary commuting only (travel between home and work).

If the private use is not restricted, the taxable benefit of an employer provided van for 2018/19 is £3,350. If fuel is also provided, an additional fuel charge of £633 applies.

Cheap or interest free loans

There is no taxable benefit if the total loans to an employee remain below £10,000 throughout the tax year.

For loans exceeding £10,000 (including overdrawn Directors Loan Accounts), the taxable benefit is the interest at the official rate (2.5% for 2018/19) which would have been payable on the loan, less any interest actually paid by the employee.

Medical Insurance & Gym Subscriptions

The cost of providing medical insurance and/or a gym subscription is a taxable benefit.

Telephones

Payment of private telephone bills, including line rental charges, and mobile phone contracts in the employee’s name, will usually be a taxable benefit, although reimbursement of business calls is covered by an exemption.

Living Accommodation

There are some exemptions for job related accommodation but generally, the provision of accommodation gives rise to a taxable benefit, usually based on the market rent of the property.

Private use of company assets

The taxable benefit is calculated at 20% of the asset’s market value when first made available to the employee.

Gifts/Awards

Any gift of cash is always taxable as earnings, subject to tax and NIC via the payroll.

Non-cash gifts are taxable on the employee, unless they are covered by one of the statutory exemptions (trivial benefits, long service awards, suggestions schemes).

Many employers choose to settle the employee’s liability in respect of these gifts via a PAYE settlement agreement (PSA).

Accountancy Fees

Personal accountancy fees paid by the company will constitute a taxable benefit.

Optional Remuneration Arrangements (OPRAs)

New rules were introduced in April 2017, changing the calculation of the taxable value of any benefits provided where there is also the option of a cash allowance. Flexible benefit packages with a cash alternative, and salary sacrifice and salary exchange schemes may also be caught under the new rules.

Exceptions

There are transitional provisions for benefits involving cars, accommodation and school fees, if the arrangement was entered into before 5 April 2017 and there has been no variation or renewal since that date.

The OPRA provisions do not apply to pension contributions, pension advice, childcare, low emissions vehicles (below 75g/km) or cycle to work schemes and salary sacrifice arrangements for holiday entitlement or flexible working are unaffected.

Examples

One of the most common examples would be an employee giving up salary or additional cash, in exchange for a car - If the cash given up (less a reasonable estimate of the maintenance and insurance of the vehicle) is more than the company car benefit calculated using the normal rules, then the cash equivalent will be the taxable amount. However, ‘cash is key’ so if the cash is taken, no comparison is required.

Impact

The OPRA provisions are of greatest significance for benefits provided via salary sacrifice, which were previously tax-free; for example employer provided mobile phones, car parking and season ticket loans.
In such cases, the taxable benefit is the higher of the salary foregone or the cash equivalent of the benefit (which is NIL as the benefit is exempt under normal rules).

If you think you may be affected, please get in touch for further advice.

Payrolling Benefits

It is now possible to account for the employee’s tax liability on most benefits via the payroll each month.

This removes the need for preparing P11Ds on an annual basis, although a P11D(b) return of the Class 1A NIC payable is still required at the end of the year. Benefits are taxed in real time, avoiding the likelihood of coding errors and unexpected tax bills for employees.

Employers need to register for this service in advance of the beginning of the tax year.

PAYE Settlement Agreement (PSA)

A PSA is an agreement between an employer and HMRC whereby the employer will bear the employee’s tax and National Insurance burden in relation to certain benefits provided.

The benefits which can be included must be minor, irregular or impracticable and common examples include staff gifts and vouchers and entertaining.

You cannot include high value benefits like company cars or any cash payments such as wages, bonuses or beneficial loans.

An application must be made to HMRC, describing the benefits expenses which the PSA should cover. Once agreed, the PSA remains in place until it is no longer required or until you need to change it.

After the end of each tax year, a form PSA1 will need to be submitted, setting out the total benefits for the tax year and including a calculation of the tax and national insurance payable. Payment must be made to HMRC by 22 October following the end of the tax year and there are penalties and interest for late payment.

Dynamic Coding

HMRC are increasingly using RTI submissions to make in-year adjustments to employee’s tax codes.

These adjustments rely on estimated annual pay, which can be significantly affected by one-off bonus payments and so it is a good idea to remind employees to check their code numbers regularly, which they can do using their personal tax account.

For help and advice on any of the matters raised, please call us and talk to one of our friendly experts.

Click here to download our Taxable employment benefits and expenses, and trivial benefits PDF

Get in touch today

​London office

45 Pall Mall
London
SW1Y 5JG

T +44 (0)20 7930 7797
F +44 (0)330 024 3300

Watford office

Radius House
51 Clarendon Road
Watford
Herts WD17 1HP

T +44 (0)1923 232938
F +44 (0)330 024 3300

Milton Keynes office

249 Silbury Boulevard
Milton Keynes
Buckinghamshire
MK9 1NA

T + 44 (0)1908 232020
F + 44 (0)330 024 3300

  • logo-02
  • ICAEW_CharteredAccountants_BLK_RGB1
  • logo-05
  • logo-06

Hillier Hopkins is a trading name of Hillier Hopkins LLP, which is registered as a Limited Liability Partnership in England & Wales, No. OC303707. Registered Office: Radius House, 51 Clarendon Road, Watford, Herts WD17 1HP. Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England & Wales. A list of members of the LLP is available at the above address. HH and Hi logos are trade marks belonging to Hillier Hopkins LLP. © Hillier Hopkins LLP.