Benefits & P11D
What are benefits?
A benefit (also known as a benefit in kind) is a “perk” that has been received by an employee or director from their company which should have had tax paid on it through their monthly payslips.
Some of the usual suspects in terms of benefits in kind are:
- Private medical insurance
- Company cars/vans
- Gym memberships
- Director loan accounts
How are benefits taxed?
So far, we know that:
- Employees can receive perks from their employer
- They are usually not taxed through employee payslips
- We need to pay tax on these benefits
The way we pay tax on these benefits is through something called a P11D.
Do you have to pay tax on all benefits? What about your company mobile?
Thankfully, no! Mobile phones, along with childcare vouchers and some other items are tax free from P11D. You can find the full list here
What’s a P11D? When does it need submitted?
A P11D is a form that needs submitted to HMRC annually every year by 06 July. It is submitted electronically through our accounting and tax software.
You only need to fill in a P11D if you have received any benefits during the year. For example, if the company owns a vehicle or it pays your private medical fees. If this does not apply to you then you don’t need to fill out a P11D and you can pretty much ignore the rest of the below.
How much tax do you have to pay on benefits?
Different benefits have different tax laws behind them so this would require a rather large blog detailing every single benefit and the specific rules that apply to them.
However, to use a simple example - let’s say you received £2,000 private medical insurance and your company paid for this on your behalf. This would be classed as a benefit as the shareholder/director is receiving a perk (private medical care - they could use the NHS which is free).
Two different taxes apply to benefits:
Company tax charge
The company pays something called Class 1A National Insurance which has a tax rate of 13.8%.
This means the company would pay £2,000 * 13.8% = £276
However, the benefit itself is a valid company expense for Corporation Tax, so:
Class 1A payment: £276
Less: Corporation tax: £276 @ 19% = £52.44
Total tax cost to company: £276 - £52.44 = £223.56
Self Assessment tax charge
If you were being tax efficient and staying below the higher rate tax threshold (£43,000 for Scotland and £45,000 for England) then your normal tax rate would be 20%.
Benefit in kind is simply: £2,000 @ 20% = £400 – this is paid through your Self Assessment tax return which is due for submission as normal on 31 January.
What about your normal company expenses?
Your normal company expenses like travel costs, computer costs etc. are not classed as benefits or perks so you don’t need to worry about them
Need more help?
Just e-mail your client manager and they will provide full tax efficient advice.