Expenses And Benefits For 2016/17 – Key Changes

Sarah Bradford explains the year-end reporting requirements for 2016/17 where taxable expenses and benefits have been provided to employees.

The expenses and benefits landscape changed radically from 6 April 2016. From that date, the £8,500 threshold – and with it, the concept of a `lower-paid employee’ — was abolished. As a result, for 2016/17 onwards the benefits code in its entirety applies to all employees, regardless of their earnings rate. 

Also, from 6 April 2016, the previous dispensation regime was replaced with a statutory exemption for expenses that would be deductible if the employee met the cost himself or herself. From the same date, employers had the option to report most expenses and benefits to HMRC via the payroll (a process known as ’payrolling’). 

These changes impact on the year-end reporting requirements.

Where an employer opted to payroll benefits provided to an employee during 2016/17, the payrolled benefits do not need to be returned on form P11D. Likewise, any benefits which are covered by an exemption can be ignored, as long as the terms of the exemption are met. This also applies to expenses paid at an approved scale rate.

Where taxable expenses and benefits have been provided, and are not dealt with under a PAYE settlement agreement, they must be reported to HMRC on form P11D. The form is now used for all employees, as form P9D is redundant for 2016/17 onwards. It is important to note that benefits that were not taxable before 6 April 2016 when provided to employees who earned at a rate of less than £8,500 a year may now need to be reported for the first time and shown on the P11D. Popular benefits that may fall into this category include private medical insurance, company cars, and fuel. 

Review benefits provided to lower paid employees to ensure that any benefits which are taxable for the first time are not overlooked, and are reported to HMRC on form P11D.

When reporting benefits-in-kind on form P11D, it is the cash equivalent value that is used. In the past, certain benefits provided to lower paid employees were taxed on their second-hand or money’s worth value. This is no longer the case. 

Where an employee is provided with several taxable expenses, some of which are payrolled and some of which are not (either because payrolling was not available for 2016/17 (such as for living accommodation, low interest, and interest-free loans) or because the employee or employer did not want to payroll all benefits), it is necessary to complete a form P11D for that employee. However, only the non-payrolled benefits should be included on the P11D.

Regardless of whether benefits have been payrolled or not, the employer needs to submit a Class 1A return (P11D(b)) and include all (payrolled and non-payrolled) benefits in the calculation of the Class 1A NIC liability. 

If there is no Class 1A NIC liability in 2016/17 and there was last year, or if HMRC have issued a notice to file a P11D(b), remember to file a nil return to advise HMRC that no Class 1A contributions are due. 

Forms P11D and P11D(b) for 2016/17 must reach HMRC no later than 6 July 2016. Employees must be given a copy of their form P11D by the same date.

The employer’s Class 1A NIC liability must be paid by 22 July if paid electronically, or by 19 July otherwise. 

There are various options for submitting expenses and benefit returns. Returns can be filed using commercial software, via HMRC’s PAYE online service, or by using HMRC’s online end of year expenses and benefits service. It is still possible to file paper returns. 

Make sure that you understand the changes to the expenses and benefits reporting for the tax year 2016/17. Penalties are charged for late and incorrect returns, and interest is charged where the Class 1A NIC liability is paid late.