If you provide your employees with anything other than pay, it may count as an expense or benefit. If so, you may have to report it to HM Revenue & Customs (HMRC) and pay tax and National Insurance contributions (NICs) on it.
What counts as an expense or benefit?
The basic rule is that if you provide an employee with anything other than pay it may count as an expense or benefit, and you will need to check whether you need to report it to HMRC and pay any tax or NICs on it to HMRC.
Common examples of expenses and benefits include company cars, health insurance, travel and entertainment expenses and childcare.
Expenses and benefits tax, NICs and reporting at a glance
Your tax, NICs and reporting obligations differ depending on the specific expenses and benefits you provide to your employees. In general, one of the following five requirements will apply in each instance:
· At the end of the tax year you report the item on the employee’s form P9D or P11D and – where a P11D is completed – pay Class 1A NICs on it.
· You treat the expense or benefit as if it were normal earnings, adding its value to your employee’s other earnings when working out PAYE tax and Class 1 NICs using your usual payroll procedures.
· You add the item’s value to your employee’s earnings for Class 1 NICs purposes only (not for PAYE tax) through your payroll. Then at the end of the tax year you report it on the employee’s form P9D or P11D.
· You have no tax or NICs to pay, but at the end of the tax year you report the item on your employee’s form P9D or P11D.
· You have no reporting requirements and no tax or NICs to pay.
To find out which of these requirements applies to a specific expense or benefit, you can follow HMRC’s A to Z link at the end of this section.
The effect of how you provide an expense or benefit
The type of expense or benefit you provide isn’t the only thing that affects your tax, NICs and reporting requirements. The way you provide a benefit can do so as well. For example:
· If you arrange and pay for medical insurance for an employee, you’ll have to report it on form P11D and pay Class 1A NICs at the end of the tax year.
· If the employee arranges the medical insurance but you pay the insurer directly for it, then Class 1 NICs will be due (through your payroll) and you’ll have to report on P9D or P11D.
· If the employee arranges and pays for their medical insurance but you reimburse them, then it counts as additional earnings and you’ll have to deduct and pay both PAYE tax and Class 1 NICs using your usual payroll procedures.
Where different scenarios like these apply to an expense or benefit, details are provided in the relevant A to Z entry – follow the link below.
If you have any further queries relating to expenses and benefits, please contact our office.