Expenses and benefits: the basics

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.

This guide explains the basics of the expenses and benefits system. It outlines what your obligations are, introduces the key forms for reporting expenses and benefits and provides links to sources of further information on specific topics in this area.

On this page:

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. For step-by-step guidance on the tax and reporting requirements for these and other types of expense and benefit, follow the A to Z link below. The rest of this guide provides an overview of the rules.

Expenses and benefits A to Z

Top

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, if applicable.
  • 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 system. At the end of the tax year you also 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, follow the 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
  • the employee arranges the medical insurance but you pay the insurer directly for it, Class 1 NICs will be due (through your payroll) and you'll have to report it on P9D or P11D
  • the employee arranges and pays for their medical insurance but you reimburse them, 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.

Expenses and benefits A to Z

Top

Form filling for expenses and benefits

There are a number of different forms that you may need to use to tell HMRC about expenses and benefits you've provided to your employees. The following list provides an overview but use the links at the end of this section for more detailed guidance:

  • P11D - in general, complete this at the end of the tax year for company directors and for employees earning at a rate of £8,500 or more. File by 6 July.
  • P9D - a simpler equivalent of form P11D, generally used for employees earning less than the £8,500 rate. No Class 1A NICs are due on items reported on form P9D. File by 6 July.
  • P11D(b) - use this to declare your total Class 1A NICs liability at the end of the tax year. This total is calculated using the P11Ds you've completed. File by 6 July. If you have no return to make because you have no expenses or benefits of the type to be returned on forms P11D there is an online form you can use to tell HMRC - there's a link to the form at the end of this section.
  • P46 (Car) - this is for telling HMRC if you provide an employee with a company car for the first time, withdraw a company car or replace one. Notification of replacement cars is optional but P46 (Car) forms used to notify replacement cars must be submitted online. File at the end of the quarter in which the change takes place.
  • Employee's payroll record - expenses or benefits that go through your payroll should be recorded in the usual way on your employee's payroll record and sent to HMRC when you report your payroll information - on or before when the expenses or benefits are paid or provided. For more information about completing form P11D(b) follow the link at the end of this section.

Options for forms completion

There's a choice of ways to file, by using:

  • Your own payroll software if it includes end-of-year expenses and benefits forms - check with your payroll provider if you're not sure. You send the forms to HMRC through the Government Gateway.
  • HMRC's online End of Year Expenses and Benefits Forms 2013-14.
  • HMRC's PAYE Online service - you can use HMRC's free software.

HMRC recommends you use an online method which will allow you to accurately enter the correct information and submit the forms securely via an HMRC electronic channel.

Or you can use a printed form that you have manually completed - you can find copies of the forms to print by following the link below to 'End of Year Expenses and Benefits Forms 2013-14'.

If you're required to report an expense or benefit on form P9D or P11D, make sure you use the right form. This depends on whether the employee in question is a director of your company and on their earnings (including the value of any expenses or benefits they receive). For guidance on this important point, follow the link to 'Completing forms P9D, P11D and P11D(b)' below.

Completing forms P9D, P11D and P11D(b)

Reporting company cars on form P46 (Car)

Payroll - calculating, reporting and paying employees

End of Year Expenses and Benefits Forms 2013-14

Employer - No Return of Class 1A National Insurance contributions

Agent - No Return of Class 1A National Insurance contributions

Top

Simplify your form filling - dispensations and PSAs

Dispensations

A dispensation is a notice from HMRC that removes the requirement to report expenses and benefits on forms P11D or P9D. Also, if an item is covered by a dispensation, it means you don't have any tax or NICs to pay on it.

You can apply to HMRC for a dispensation - using form P11DX - to cover expenses or benefits for which your employee gets a full tax deduction. This includes many routine business expenses and benefits.

Applying for a dispensation is easy and it can be done online.

Dispensations

Go to form P11DX

PAYE Settlement Agreements (PSAs)

A PSA is a scheme you can use to make a one-off payment to HMRC to cover the tax and NICs due on three categories of expense and benefit:

  • minor items
  • irregular items
  • items it's impractical to operate PAYE on or to value for P9D/P11D purposes

If an item is covered by a PSA you don't need to include it on forms P11D or P9D, or on your Full Payment Submission (FPS) for items that would otherwise have had to go through your payroll.

To apply, write to your HMRC office explaining that you want a PSA and describing the expenses and benefits you'd like the PSA to cover.

PSAs

Top

Reporting any expenses and benefits that you have payrolled

The value of any expenses and benefits in kind that you have payrolled must be reported on your FPS - see the guide 'What to report'. There's a link to this at the end of this guide.  

You still have to send HMRC forms P11D or equivalent lists, even if you have entered into an arrangement to payroll benefits in kind and expenses. You may make yourself liable to penalties if you fail to do so.

Please follow the guidance below for submitting your P11Ds depending on which scenario applies to your circumstances.

You have payrolled all the expenses and benefits paid to your employees and you file P11D information online or by other electronic means

You must:

  • notify HMRC that you will be sending P11Ds for directors or employees where payrolling has taken place in that year, in order to avoid incorrect processing of the data - there's an online form you can use to do this or you can telephone HMRC's Employer Helpline
  • complete the 'amount made good or from which tax deducted' boxes (where this box is available for the relevant benefit)
  • complete the P11D(b) as normal, ensuring that the total expenses and benefits provided are included irrespective of payrolling

You have payrolled some expenses and benefits for some or all of your employees and you file P11D information online or by other electronic means

You must:

  • complete the 'amount made good or from which tax deducted' boxes (where this box is available for the relevant benefit)
  • submit P11D information
  • submit P11D information where the benefits that have been payrolled have a corresponding entry for 'amount made good or from which tax deducted'
  • submit separately on paper, P11D information for other payrolled benefits - these separate P11Ds and lists must be clearly marked 'PAYROLLED'
  • complete the P11D(b) as normal, ensuring that the total expenses and benefits provided are included, irrespective of payrolling

You have payrolled expenses and benefits for some or all of your employees and you submit paper P11Ds

You must:

  • clearly mark all relevant paper submissions 'PAYROLLED', whether they be individual P11Ds or in list format
  • complete the P11D(b) as normal, ensuring that the total expenses and benefits are included, irrespective of payrolling

PAYE - Employer Notification of Payrolled Benefits

Agent - Employer Notification of Payrolled Benefits

Top

Deadlines for forms and payments

The table below summarises the deadlines for key expenses and benefits tasks. It's important to keep to these deadlines. If you file or pay late, you'll be charged a penalty.

Task

Deadline

Notify HMRC that payrolling has taken place in that year either by:

  • using the online expenses and benefits form - there's a link to the form in the section 'Reporting any expenses and benefits that you have payrolled'
  • telephoning the Employer Helpline

At least a week in advance of any online or other electronic submission of your P11Ds

Submit forms P11D and P9D to HMRC - you should do this online if you can

6 July following the end of the tax year

Give your employees a copy of the information from their P11D or P9D

6 July

Submit form P11D(b) to tell HMRC the total amount of Class 1A NICs you owe, from all your P11Ds - you should do this online if you can

6 July

Payment of any Class 1A NICs owed on expenses or benefits you've provided

Must reach HMRC's bank account by 22 July (19 July if you pay by cheque)

Payment of any PAYE tax or Class 1 NICs owed on expenses or benefits you've provided

These should be paid during the year according to your usual monthly or quarterly payment schedule

Payment of tax and Class 1B NICs owed under a PAYE Settlement Agreement

Must reach HMRC by 22 October (19 October if you pay by cheque)

Making payments to HMRC

PAYE penalties for the tax years to April 2014

Top

More useful links

PAYE for employers - the basics

What to report

Contact HMRC's Employer Helpline

Top

Technical guidance

480: Expenses and benefits - a tax guide (Opens new window)

CWG5: Class 1A NICs on benefits in kind (Opens new window)

Top