Expenses and benefits for employers
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1. Overview
If you’re an employer and provide expenses or benefits to employees or directors, you must usually:
- report them to HM Revenue and Customs (HMRC)
- pay tax and National Insurance on them
This guide is also available in Welsh (Cymraeg).
Examples of expenses and benefits include:
- company cars
- health insurance
- travel and entertainment expenses
- childcare
There are different rules for what you have to report and pay depending on the type of expense or benefit that you provide.
2. Reporting and paying
You must report taxable expenses or benefits you provide to your employees to HM Revenue and Customs (HMRC). You can do this either through your payroll or online at the end of the tax year.
You also need to report how much Class 1A National Insurance you owe on all the expenses and benefits you’ve provided and pay any outstanding National Insurance.
What to report
Each expense or benefit is calculated differently. Find the type of expense or benefit you’ve provided to see what you’ll need to report and pay.
For ‘minor’ expenses or benefits, you might be able to make a one-off payment, known as a PAYE Settlement Agreement.
If you pay expenses and benefits through payroll (‘payrolling’)
Report employee expenses and benefits through your payroll software and pay tax on them throughout the year.
You do not need to report expenses and benefits for each employee at the end of the tax year if all their expenses and benefits are payrolled.
At the end of the tax year, you must still report the Class 1A National Insurance you owe by submitting an online form called a P11D(b).
To start payrolling, tell HMRC before the start of the tax year (6 April).
If you do not pay expenses and benefits through payroll
You must fill in an online form called a P11D and submit it to HMRC at the end of the tax year.
Complete a P11D for each employee you’ve provided with taxable expenses or benefits that were not payrolled.
You must also submit an online form to HMRC at the end of the tax year for any Class 1A National Insurance you owe. This is called a P11D(b).
How to submit a P11D or P11D(b) form
If you have fewer than 500 employees, fill in and submit the forms through HMRC’s PAYE Online service.
If you have more than 500 employees, fill in and submit the forms through your payroll software.
Paper forms will not be accepted.
Correct an error
To fix an error or tell HMRC about any changes, fill in both online correction forms:
Example
You submitted a P11D showing a medical benefit of £300 and a car benefit of £2,100. The car benefit is correct but the medical benefit should be £500. Submit a P11D correction form showing both the medical benefit of £500 and the car benefit of £2,100.
If you’re correcting a P11D(b), include the total amount of Class 1A National Insurance you need to pay - not the difference from your previous version.
Example
You submitted a P11D(b) showing you needed to pay £10,000 of Class 1A National Insurance and you realise you forgot to add £500. Your amended P11D(b) should show the amount as £10,500.
Penalties
You may have to pay a penalty if you carelessly or deliberately give inaccurate information in your tax return that results in you:
- not paying enough tax
- over-claiming tax reliefs
3. Deadlines
| What you need to do | Deadline after the end of the tax year |
|---|---|
| Report expenses and benefits | 6 July |
| Give your employees a copy of the information | 6 July |
| Report the total Class 1A National Insurance you owe | 6 July |
| Pay Class 1A National Insurance | 22 July (19 July if paying by cheque) |
| Pay tax and Class 1B National Insurance if you have a PAYE Settlement Agreement | 22 October (19 October if paying by cheque) |
| Pay PAYE tax or Class 1 National Insurance if ‘payrolling’ | Monthly through payroll |
You’ll get a penalty of £100 per 50 employees for each month or part month your P11D(b) is late. You’ll also be charged penalties and interest if you’re late paying HM Revenue and Customs.
4. Record keeping
You must keep a record of all expenses and benefits you provide to your employees.
Your records need to show that you’ve reported accurately and your end-of-year forms are correct.
HM Revenue and Customs (HMRC) may ask for evidence of how you accounted for each expense or benefit at the end of the tax year.
What you should keep
You’ll need to keep a record of:
- the date and details of every expense or benefit you provide
- any information needed to work out the amounts you put on your end-of-year forms
- any payment your employee contributes to an expense or benefit
You should also keep any correspondence you have with HMRC.
You must keep records for 3 years from the end of the tax year they relate to.
Example
You reimburse an employee’s travel expenses - you’ll need to keep a record of when and why the employee travelled, and where possible keep receipts as evidence.
5. Exemptions and dispensations
You do not have to report some routine employee expenses to HM Revenue and Customs (HMRC). This is called an ‘exemption’.
Exemptions have replaced dispensations. You cannot apply for a dispensation any more.
Expenses covered by an exemption
You do not have to report certain business expenses and benefits like:
- business travel
- phone bills
- business entertainment expenses
- uniform and tools for work
To qualify for an exemption, you must be either:
- paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC
- paying back the employee’s actual costs
You must deduct and pay tax and National Insurance on all other expenses and benefits you give to your employees. Report them to HMRC as normal.
Apply for an exemption
You do not need to apply for an exemption if you’re paying HMRC’s benchmark rates for allowable expenses.
You only need to apply for an exemption if you want to pay bespoke rates to your employees.
You’ll have to give HMRC evidence that the rates you’re suggesting are based on your employees’ actual expenses.
If you had a dispensation from HMRC
Your dispensation will not apply after 5 April 2016, but the expenses covered by it should also be covered by the exemption.
If your dispensation included bespoke rates and was agreed after 6 April 2011, you can ask to use the same rates when you apply for an exemption.
You can only use the bespoke rates for up to 5 years from the date they were last agreed.
Checking expenses
You must have a system in place to check payments you make at benchmark or bespoke rates.
Your employees cannot check their own expenses.
Tell your employees to keep proof of their expenses, for example receipts or bills, in case you need to check them.