Employers often face complex obligations when remaining tax compliant with HMRC on employee benefits and expenses.
Two key areas to address are the accurate completion of P11D forms and also ensuring their PAYE Settlement Agreement (PSA) is up to date and covers the right benefits. While these processes can streamline compliance, errors or omissions may lead to significant risks of extra tax and National Insurance Contributions (NICs) to pay.
What can employers do to manage the process so that they do not have any future hidden liabilities?
What is the background?
Employers must either report taxable benefits and expenses provided to employees on the annual P11D forms or alternatively process them through the payroll. Whilst payrolling of benefits is voluntary at present, it will be mandatory for most benefits provided on or after 6 April 2027.
These P11D forms ensure that HMRC is aware of any non-cash perks, such as company cars, private healthcare, or other benefits so that they can ensure that employees pay tax on them. As an alternative to P11D forms, a PSA allows employers to settle tax on minor, irregular, or impracticable benefits for their employees. This is particularly useful where minor benefits, such as staff entertaining, are provided to employees, but it would be a disincentive for them to pay tax. By applying for a PSA, employers can account for the tax on a grossed-up basis and the associated NIC to avoid reporting these benefits individually.
What are the issues?
Navigating P11D forms and PSA calculations involves meticulous attention to detail. Errors, omissions, or late submissions can result in penalties and interest charges from HMRC. Misclassifying benefits or failing to account for them correctly risks reputational damage and could trigger more extensive scrutiny of your tax affairs. Additionally, complexities in calculating values for benefits in kind can lead to accidental non-compliance.
What do employers need to consider?
Employers should carefully assess their approach to reporting employee benefits:
- Completeness: Check that all benefits in kind have been identified. Benefits can be provided in a number of different ways, so it is important to have the full picture.
- What not to include: There are a number of tax concessions and exemptions in place that allow for certain benefits to be paid tax free. In particular, there is a valuable exemption for trivial benefits, but this can only be used in prescribed situations. These can be discounted where the conditions are met.
- Accuracy and timeliness: Ensure that all reportable benefits are correctly valued and submitted before HMRC deadlines (e.g. by 6 July for P11D forms). As well as your own data, you should also ensure that reporting that involves information provided by other parties, such as car and private medical providers, is complete and accurate so that the details reported match what the employees are provided with.
- Benefit classification: Understand which benefits require inclusion on P11D forms versus those suitable for PSA coverage.
- Cost and resources: Evaluate whether internal resources can handle these requirements or if external support is necessary.
- HMRC engagement: Familiarise personnel with HMRC guidelines on taxable benefits to avoid misinterpretation.
- Payrolling of Benefits: Importantly, for tax years 2026/27 onwards it may be worthwhile giving some thought early on as to how you will manage this change, including communication with employees.
How can UNW help?
Our specialist and multi award winning employment tax team can provide invaluable support by:
- Managing compliance: Reviewing benefits and expenses and completing P11D forms for employers to help with accurate reporting and adherence to HMRC rules.
- Streamlining PSA applications: Helping employers identify eligible benefits and calculate and submit PSA agreements efficiently.
- Mitigating risks: Offering guidance on audits or addressing HMRC queries to minimise penalties.
- Providing expertise: Keeping you updated on changes in tax legislation and how they may impact your obligations. We can help with application and calculation processes but, more importantly, we can help you understand the extent to which exemptions may apply and the conditions that need to be applied.
- Facilitating training: We can provide both face to face and online training on compliance with the tax treatment of benefits, including the changes to payrolling of benefits.
If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
