P11D’s are required when benefits are provided to:

Directors and certain other persons in controlling positions, whatever their earnings, but excluding directors who do not have a material interest in a company where - the director is a full-time working director, or - the company is a charity or non-profit making concern.

Employees, including any directors excluded above, who earn at a rate of £8,500 or more a year, including taxable benefits and expenses are required to complete a P11D.

Completing and submitting forms P11D can be both costly and time consuming, especially for larger businesses. HM Revenue & Customs might on application grant a dispensation so that routine expense payments and benefits that would not give rise to a tax liability need not be reported on forms P11D.

If the employer satisfies an officer of HM Revenue & Customs that all the expenses he or she pays and benefits he or she provides would be fully covered by an expenses deduction the officer may give a ‘dispensation’. That is to say, the officer may notify the employer that the special provisions will be reviewed from time to time, and may be withdrawn if the conditions are no longer satisfied.

To enable the officer to grant a dispensation you must be able to demonstrate that:

• No tax would be payable by the employees on the expense payments or benefits
• Expense claims are independently checked and authorised within your company
• Each claim is submitted with appropriate receipts

Types of Taxable Benefits

These include:

Assets Placed at the Disposal of an Employee

The initial cost of an asset used by an employee is not treated as remuneration if the asset remains the property of the employer or of the person making it available for the use of the employee. In such a case the annual value of the use of the asset (or the rent or hire charge paid for it if this is greater) plus any current expenditure met by the employer or the person making the asset available, will count as remuneration of the employee. The annual value is taken as 20% of the market value of the asset when it was first used to provide a benefit. Where an asset was first used to provide a benefit before 6 April 1980 the annual value is taken at 10% (not 20%) of its market value when first applied as a benefit.

Assets Transferred to an Employee

Where an employee (or member of the employee’s family or household) benefits from the transfer of an asset (other than a car, van, mobile phone or living accommodation) at less than its market value, the benefit for tax purposes is the difference between the sum (if any) paid for the asset by the employee and so on, and the higher of:

• the market value of the asset as at the date of transfer, or
• the market value of the asset when first applied as a benefit minus any sums already taken into account in taxing benefits derived from the use of that asset.

Where an asset not within the preceding paragraph (for example, a car, or something which had never been applied as a benefit) is similarly transferred and the asset has been used or has depreciated in value since its production or acquisition by the person transferring it, tax is charged on the market value of the asset at the time of transfer to the employee minus any amount paid for it by the employee.

Company Cars and Vans as Benefits

If you make a company car available to an employee or director for their private use, this is a taxable benefit. They will have to pay tax on their private use of the car and any fuel paid for by your company. You will also have to pay Class 1 National Insurance contributions (NICs) on the value of the benefit.

Your employee will usually have to pay tax on a percentage of the car’s list price and on the fuel. For most cars, the amount of tax will also depend on the level of carbon dioxide emissions and the type of fuel it uses.

The employee or director will not have to pay tax if private use of the car is specifically prohibited by agreement and they can demonstrate that there is no private use. However, it may be difficult to prove there is no private use. When the car is parked at or near the home, it is regarded as being available for private use by the employee or members of their family. If the employee uses the car to commute, this is defined as private use.

If a company van is made available to an employee, they only pay tax if they use it for private journeys, unless the private use is insignificant. There is no tax to pay if the van is available to them mainly for business travel and their only private use is occasional use beyond ordinary commuting.

If you make a car or van available as a pool vehicle, it must:

• be made available to, and actually used by, more than one employee
• not be ordinarily used by one employee to the exclusion of others
• be used only for business travel, except where private travel is incidental to the employee’s business travel - e.g. the vehicle is taken home overnight before an early business trip the next day.
• not normally be parked overnight near the home of any employee

The employees who use a pool vehicle will not be taxed on its use or on the fuel, provided all the HM Revenue & Customs (HMRC) pool vehicle conditions are met.

Please refer to our car benefit calculator for calculating your taxable benefit.

Medical Insurance for Employees

The provision of private medical insurance to any of your employees, and also to members of their family, is a valuable benefit. The employee for whom you provide the benefit will have to pay tax on it, even if it is the employee’s family or household members who make use of the medical insurance rather than the employee. Those who are entitled to benefit as family or household members include civil partners.

Where you set up the provision of medical insurance directly with a provider, you should record it on the employee’s P11D. You will be liable for payment of Class 1A National Insurance contributions (NICs).

However, if you directly pay any expenses for your employee’s medical treatment, or reimburse your employee for private health insurance that they have independently arranged, this may be treated as gross pay on which the employee would be liable for Class 1 NIC payments.

Living Accommodation for Employees

If you or another person - where the provision is by reason of the employment - provide an employee with living accommodation, that employee is liable to tax on the value of the accommodation provided.

However, there are exemptions. For example, no tax is payable if it’s essential that the employee lives in that accommodation to perform his or her job properly. Accommodation is also exempt from tax liability if it is customary to provide accommodation for a particular kind of employment and by providing the accommodation the employee can do his or her job better.

Mileage Allowances

Approved Mileage Allowance Payments (AMAPs) - See our travel table for rates

Employees using their own cars, vans, motorcycles or cycles for business travel can receive a tax-free amount (the approved amount for Mileage Allowance Payments) instead of being taxable on what they received and having to obtain a deduction for expenses incurred. These tax-free amounts are called Approved Mileage Allowance Payments, or AMAPs for short. AMAPs cover any general or mileage-related expenses in relation to the car itself (such as fuel, servicing, tyres, road fund licence, insurance and depreciation), plus interest on any loan to buy the vehicle. No additional deduction is available for expenses of that type.

They do not cover other expenses specific to the particular journey (such as parking charges, road tolls or accommodation) and the normal rules for deductions apply to expenses of this type. The approved amount (the maximum that can be paid tax-free) is calculated as the number of miles of business travel by the employee (other than as a passenger, and whether or not they are reimbursed for them) multiplied by a rate expressed in pence per mile. The tax-free amount therefore depends only on business miles travelled and is not related to the actual expenses incurred.

If you pay more than the maximum amount, the excess should be returned on form P11D. If you pay the exact amount, do not notify HM Revenue & Customs (HMRC) at all, whether on forms P11D, P9D or otherwise. If you pay less (or nothing at all), there is no equivalent to mileage.

Allowance Relief - the employee is not entitled to any deduction for the shortfall.

Beneficial Loans to Employees

If you provide an employee with a cheap or interest-free loan, they may have to pay tax on this benefit. Normally, the employee will be charged tax on the difference between the interest - at the published official rate for that year - and the interest paid, if any. Such loans are called beneficial loans.

The important things to note are that:

• if the total outstanding balance on all beneficial loans is £5,000 or less throughout the year of assessment, no tax is chargeable
• if the balance on all loans to an employee is above £5,000 you must, as the employer, report it on form P11D

To calculate the benefit that the employee has received, you can use the normal averaging method or the alternative precise method.

Averaging method

The normal averaging method of calculation is based on:

The average amount of the loan is calculated by reference to its maximum opening and closing balances at the beginning and end of the tax year. If the loan was not in existence throughout the whole year, the average is based on the maximum balances on the dates the loan was made or discharged and the average appropriate official rate of interest for the tax year, or for such shorter period as the loan was in existence.

Alternative Precise method

The cash equivalent of the benefit of most beneficial loans is calculated normally using the averaging method. However either the employee or the Inspector of Taxes can elect to use an alternative method, the precise method.

The calculation using the precise method is more complex. It does however give an exact result.

Broadly the precise method involves:

For each day in the tax year that the loan (or loans if they are to be aggregated) is outstanding dividing the official rate for that day by 365 and applying that to the maximum balance on the loan for that day (or the total of the maximum balances if loans are aggregated).

Any interest paid on the loan for the tax year is then deducted to arrive at the chargeable benefit for that year.