Avoid these P11D Pitfalls!

LWA June 2021 Blog - P11D Pitfalls - Photo by Austin Distel on Unsplash

HMRC’s P11D form submission and tax payment deadline for employee Benefits in Kind is fast approaching on 6th July. Every year at LWA we get asked common questions about what should and should not be included and we totally understand how confusing the completion of this form can be. We have worked with all of our corporate tax clients to complete all P11D submissions, however for any business struggling with their P11D, our latest blog aims to help!Mobile phone, broadband and home phone contracts

Mobile phones provided to employees by their employer are an exempt benefit with no PAYE or National Insurance Contributions (NICs) payable. However, there are tax implications if this is not the case, for example if you have your own mobile phone contract but your employer agrees to pay the bills or if the costs are reimbursed by your employer, you are liable to both tax and NIC. If this is the case, you may be able to claim tax relief for business use.

Where the employer pays your private home telephone bills, you are taxed on the payment unless the private use of the phone is minimal. The benefit is the total payment less any business calls, but not any part of the line rental. You will have to pay NICs on the amount paid by the employer for both line rental and private calls.

If your employer’s name is on the contract for your home broadband and phone, then the benefit to you is the cost of line rental and calls less any business calls and any amount made good by you to your employer.

If however, the telephone line is a secondary line and the employer ensures that private calls are minimal, it is possible you will not be charged for either the line rental or calls where the private use is minimal compared with the overall cost.

If your employer contracts directly with a supplier for broadband at home purely for business, and your private use is incidental, then provided the package cost is not affected by private use, you do not have a taxable benefit.

Company cars and Vans

If the use of a van is mainly for business use and there is incidental home use such as taking the vehicle home at night for use in the morning, then no benefit in kind will apply. You will need to have a private use agreement in place with your employer to ensure that this incidental use is within the vehicle pool policy.

Should you use the vehicle for personal needs outside of work, for example to go to the supermarket or drop the children at swimming, then a benefit in kind will arise.

Should the employer pay all the fuel and the vehicle is used privately which is not incidental, a fuel benefit will also arise. This can be very costly especially on high emission cars. It is therefore important to be clear when using a company vehicle how this will be treated on the employee.

Medical insurance cover

As part of your employment contract, you may be entitled to medical insurance cover. This is usually provided on a group policy along with other staff members. The benefit on the employee is the cost to the employer of the cover. This is the amount in which the employee will pay tax on at their relevant rate.

An employer can provide you with a maximum of one health screen and one health check-up per year up to a value of £500.00, certain criteria must apply for this benefit to be treated as exempt.

Where employees use a visual display unit and as part of the health and safety policy they must undertake an eye test, all costs in relation to the test or the provision of glasses is exempt on the employee.

Vouchers and trivial benefits

If the voucher provided can be converted to cash the full value of this voucher is treated as normal earnings under PAYE and subject to PAYE and NIC in the usual way.

Trivial benefits can be provided to employees and not be treated as a benefit on the condition that they are less than £50, they are not in the form of cash or converted to cash. Also, they are not a recognition of work done or services.

There is not a limit to the amount of trivial benefits that an employee can receive in a year unless they are a Director of a close company. For these there is an annual cap of £300.00.

Use of an employer’s credit card or payment by employer of a personal credit card

If you have use of your employer’s credit card then a benefit in kind arises to the extent the expenditure made is for your personal use, unless you re-imburse the value in full.

Where an employer pays a personal debt i.e. a credit card or bill this is known as settlement of a pecuniary liability. This is treated as normal earning through the payroll subject to PAYE and NIC.

Staff entertaining

Entertaining paid by the employer on behalf of the employees is exempt for the employee to the extent it is below £150.00 per head. Should the total value in the tax year for one function or event exceed this the whole of the cost is a taxable benefit in kind on the employee. If this is split over two events or functions, the first allocation per head is £100 and the second allocation per head is £60. The first function would be exempt and the second would be a benefit in kind.

General exempt benefits:

Apart from those mentioned above there are other benefits which can be provided by the employer which are exempt and have no tax or NIC implications for either the employer or the employee.

Certain circumstances and criteria apply as follows:

  • Pension contributions by employer
  • Incidental overnight expenses when working away
  • Certain re-training costs
  • Long-service awards
  • Suggestion Schemes
  • Counselling and welfare
  • Bicycle and safety equipment if provided to all employees
  • Removal expenses for relocation
  • Mileage allowances

If you’re struggling with the completion of your P11D form, please contact our Corporate Tax team in Manchester on 0161 905 1801 or in Warrington on 01925 830 830 – we’re here to help.

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