Practical guide: P11D filing for 2023/24

Recap: the P11D

Where taxable expenses and benefits were provided to an employee in the 2023/24 tax year, these will need to be reported to HMRC if:

·         the benefit or expenses was provided to an employee or a member of their family or household by virtue of the employee’s employment

·         the benefit was not exempt from tax

·         the benefit was not payrolled

·         the benefit was not included in a PAYE settlement agreement (PSA).

HMRC uses the information provided on the P11D to adjust the employee’s tax code to collect the tax due on their taxable expenses and benefits.

Exempt benefits

You do not need to report exempt benefits to HMRC. However, the exemption will only apply where the associated conditions have been met.

Where the business has paid expenses on an employee’s behalf, or reimbursed an employee for costs that they have incurred, you do not need to report this to HMRC if the employee would be entitled to a tax deduction if they met the expense personally. This will be the case for expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment, and where the expense is deductible travel expenses, as would be the case if the employer met the cost of an employee’s business travel.

Unless the benefit is one of a handful to which the rules do not apply, the exemption will be lost where provision is made through an optional remuneration arrangement (OpRA) such as salary sacrifice. Where this is the case, the taxable amount is calculated using the alternative valuation rules by reference to the salary given up in exchange for the benefit.

Payrolled benefits

Rather than reporting taxable benefits to HMRC after the end of the tax year, your you can instead opt to deal with them through the payroll. This is known as “payrolling”. Where benefits are payrolled, the taxable amount is treated like extra pay which is paid to the employee in instalments with the same frequency as their salary or wages and included in gross pay for tax purposes. The tax is calculated on total gross pay and deducted from the employee’s cash pay. As most taxable benefits are within the charge to Class 1A rather than Class 1 NI, the taxable amount of the benefit is not included in gross pay for NI purposes.

All benefits, with the exception of employment-related loans and living accommodation, can be payrolled. However, you can only payroll benefits if you have registered to do so before the start of the tax year. Payrolling will be mandatory from 2026/27, and HMRC has launched a new service which will allow your accountant to register benefits for payrolling on your behalf.

If you have payrolled some benefits but not others, you will need to report the non-payrolled benefits on the P11D. Ensure you have a system in place to keep the two separate, or there is a risk of a double charge, i.e. via the payroll and via the P11D reporting.

Benefits included within a PSA

You can opt to pay the tax on certain benefits and expenses on an employee’s behalf by including them in a PSA. Items within a PSA do not need to be reported via payrolling or the P11D. Instead, you pay tax on the grossed up value of the benefit, as the tax paid by an employer is also a taxable benefit. You also pay Class 1B NI on items within the PSA which would otherwise be liable for Class 1 or Class 1A NI, and on the tax due under the PSA.

If you want to use a PSA for 2023/24 and do not already have one in place, you will need to agree it with HMRC by 5 July 2024. Once set up, the PSA remains in place until cancelled by the employer or by HMRC. Those with existing PSAs will need to review them to check whether they remain valid for 2023/24, and amend them or cancel them by 5 July 2024 if not.

Taxable amount

Unless the benefit is made available under a salary sacrifice arrangement or other OpRA, the taxable amount will be the cash equivalent value. Some benefits, such as company cars and vans, employment-related loans and living accommodation, have their own rules for calculating the cash equivalent. Where a benefit-specific rule exists, it must be followed. Where there is no dedicated rule, the general rule should be followed. This provides that the cash equivalent of the benefit is the cost to the employer incurred in its provision (including VAT regardless of whether this is subsequently recovered) less any amount made good by the employee.

Amounts made good are only taken into account in calculating the cash equivalent value where the employee has “made good” by 6 July following the end of the tax year. Where the benefit is payrolled, this must be done before 1 June after the end of the tax year.

Alternative valuation. Where the benefit is made available under an OpRA, the alternative valuation rules apply unless the benefit is one which excepted from the rules. Under the alternative valuation rules, the taxable amount is that given up in exchange for the benefit, less any amount made good by the employee. These rules do not apply to a payment into a pension scheme or employer-provided pension advice, childcare vouchers, workplace nurseries and directly contracted childcare, cycles and cyclists’ safety equipment or a car with CO₂ emissions of 75g/km or less.

HMRC produces a number ofP11Dworking sheets that can be used to work out the cash equivalent value of benefits provided to employees.

Class 1A NI and the P11D

Regardless of whether taxable benefits were payrolled or reported to HMRC on Form P11D, all employers must file a P11D(b). This is the declaration that all taxable expenses and benefits have been reported on FormP11D unless payrolled, and also the statutory Class 1A NI return.

The Class 1A NI liability is computed by applying the Class 1A percentage, which for 2023/24 is 13.8%, to the total value of all taxable benefits and expenses provided to employees in that tax year, whether payrolled or reported on the P11D.

You must pay your Class 1A liability by 22 July 2024 if the payment is made electronically. If you instead send a cheque to HMRC, it must reach HMRC by the earlier date of 19 July 2024.

Online filing only

HMRC no longer accept paper P11Ds and P11D(b)s. Consequently, you must file the 2023/24 returns online. This can be done using HMRC’s PAYE Online Service or commercial software. The forms must be filed by 6 July 2024 if a late filing penalty is to be avoided.

Employers with 500 or fewer P11Ds to file can use HMRC’s free PAYE Online Service. If they are not already signed up, they will need to register first.