In this section:
- Expenses and benefits: the basics
- Expenses and benefits record keeping
- Dispensation from expenses and benefits reporting
- PAYE Settlement Agreements (PSAs)
Expenses and benefits: the basics
If you provide your employees with anything other than pay, it may count as an expense or benefit and you may have to calculate and pay us 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 and makes it clear which areas of the system are for your employee rather than for you to deal with. It also introduces the key forms used for reporting expenses and benefits and it provides links to sources of further information on specific topics in this area.
On this page:
- What counts as an expense or benefit?
- Who pays NICs on expenses and benefits?
- Who pays tax on expenses and benefits?
- The key expenses and benefits tasks for employers
- Which forms to use
- Arrange a dispensation to make things simpler
- The importance of how you provide expenses or benefits
- Deadlines for expenses and benefits forms and payments
- More useful links
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, so you should check the position to see whether you need to report it and whether you need to pay us any tax or NICs on it. There’s a link to our A-Z of expenses and benefits reporting in the ‘More useful links’ section of this guide.
Common examples of expenses and benefits include company cars, health insurance, travel and entertainment expenses, and childcare. For step by step guidance on these and other types of expense and benefit, use the link at the end of this section.
Expenses and benefits are treated differently depending on whether they’re used for business, personal or mixed purposes. Many business-related expenses and benefits are exempt from NICs and tax, or can be included in a dispensation so you don’t have to report them to us. See the later section ‘Arrange a dispensation to make things simpler’.
Also bear in mind that providing similar expenses or benefits in different ways can change the way they’re treated for tax and NICs purposes. This is explained in the later section ‘The importance of how you provide expenses or benefits’.
Common expenses and benefits: tax, NICs and reporting requirements
Who pays NICs on expenses and benefits?
If any NICs are due on an expense or benefit you provide to an employee, you are responsible for calculating the amount owed and paying it to us.
Many expenses and benefits attract a Class 1A NICs liability (which is paid by employers only) while a smaller number attract a Class 1 liability (which has employer and employee elements). You will need to:
- Record the value of expenses and benefits on form P11D for almost all company directors and for employees earning at a rate of £8,500 or more per year - the P11D indicates which expenses and benefits attracts a Class 1A liability. At the end of the year you pay us the Class 1A NICs owed for all of your employees – it’s calculated as a percentage (currently 12.8 per cent) of the value of the expenses and benefits.
- If there’s a Class 1 liability, then you should add the value of the expense or benefit to the employee’s gross pay on form P11 Deductions Working Sheet when calculating both employer’s and employee’s Class 1 NICs for the pay period in question.
To find out whether a specific expense or benefit attracts a Class 1 or a Class 1A NICs liability, use our A-Z guide – there’s a link to it at the end of this section.
NICs for employees earning at a rate of less than £8,500
You don’t have to pay Class 1A NICs or record expenses and benefits on form P11D for employees earning at a rate of less than £8,500 each year. Instead, you complete a form P9D for them – this is explained in more detail in the section ‘Which forms to use’. You should also use form P9D for a small number of directors – the criteria are also explained in the section ‘Which forms to use’.
Making payment of NICs owed
Where Class 1 NICs are due, you pay them on an employee-by-employee basis through your year round payroll. By contrast, you pay us Class 1A NICs in a single payment covering all your employees and the full tax year – this amount must be declared to us on a form P11D(b) by 6 July after the end of the tax year, and your payment must reach us by 19 July (22 July if you pay by an approved electronic means).
Our A-Z list of expenses and benefits
Who pays tax on expenses and benefits?
If tax is owed on an expense or benefit you provide, in most cases we collect it directly from your employee through their tax code throughout the tax year. Your responsibility is to inform us of the value of the expenses and benefits you have provided.
This is usually done at the end of the tax year, using form P11D or P9D, but there is an exception for any changes in car benefits you provide which you must report to us using form P46 (Car) at the end of the quarter in which the change takes place.
There are a small number of expenses and benefits that we treat as regular earnings for tax purposes (for example, private telephone call charges for which you reimburse an employee). In these cases you must add the value of the expense or benefit to the employee’s gross pay when recording it on form P11 and working out how much PAYE tax to deduct from their earnings.
Employee income tax deductions for expenses and benefits
At the end of the tax year, your employees may be able to claim some relief against their tax liability for expenses and benefits before we finalise their tax bill for the year. But this is something for the employee to work out with us – it’s not your responsibility.
More about day to day PAYE tax and NICs and using form P11
More about reporting car benefit changes using form P46 (Car)
The key expenses and benefits tasks for employers
There’s a straightforward list of steps you need to take. The key things you must do when you provide an expense or benefit to an employee are to:
- keep good records of it
- report it using the appropriate form – P11D, P9D, P46 (Car) or (less often) P11
- pay us any Class 1A NICs, Class 1 NICs or (less often) PAYE tax that you owe us
Note that you can cut out much of this process for many routine expenses by arranging a dispensation with us. This is explained in the later section, ‘Arrange a dispensation to make things simpler’.
Which forms to use
The correct form to use for reporting an expense or benefit depends on the type of expense or benefit (use the links at the end of this guide for further details), and on the category of employee you provide it to – as described below.
Employees earning £8,500 or more a year
If you provide expenses or benefits to an employee earning at a rate of £8,500 or more per year, then you must record their value on a form P11D. See below for what to count within the £8,500 threshold and how to assess the income of part-time employees.
Employees earning less than £8,500
You should use form P9D to report the value of expenses and benefits provided to employees earning at a rate of less than £8,500. You do not need to pay Class 1A NICs for these employees. See below for what to count within the £8,500 threshold and how to assess the income of part-time employees.
Company directors
You should use form P11D to record the expenses and benefits you provide to almost all company directors.
However, use form P9D instead for a company director who earns at a rate of less than £8,500 per year, has no material interest in the company, and who falls into either of the following two categories:
- full-time working directors
- directors of charities or non-profit organisations
In broad terms, a director has a material interest in a company if they own or (together with associates) can control more than five per cent of its ordinary share capital.
How the £8,500 threshold works
The £8,500 threshold doesn’t only relate to the wages or salary you pay the employee. You should also include the value of the expenses and benefits they receive from you.
Also note that the £8,500 counts on a pro rata basis if the employee only works for part of the year. So for example if an employee only works for six months of the year then you will need to use a form P11D if their earnings in that period are £4,250 or more.
How to complete form P46 (Car)
Form P11
There are also certain payments relating to expenses and benefits that must be added to the employee’s gross pay and reported on form P11. This applies to all categories of employee and is not affected by the £8,500 threshold.
Arrange a dispensation to make things simpler
You can cut down greatly on your obligations by arranging a dispensation with us to cover the routine business-related expenses you provide to your employees.
With a dispensation in place, you don’t need to report the expenses it covers to us, and you won’t have to pay us any tax, Class 1 NICs or Class 1A NICs on them either. It also means that your employee doesn’t have to claim tax relief for the expenses covered either.
Another possible way of cutting down on your reporting is to arrange a PAYE Settlement Agreement (PSA) with us to cover expenses and benefits that are minor, irregular or particularly difficult to value for P9D/P11D purposes. Under a PSA you pay your employees’ tax liability for the items covered by the agreement, as well as Class 1B NICs (calculated not just on the value of the items covered by the PSA, but also on the tax you pay under the agreement).
The importance of how you provide expenses or benefits
The way in which you provide an expense or benefit to your employees can affect the tax and NICs that will be due on it.
For example, if you provide an employee with a health insurance scheme you have arranged with the insurer, you must record it on form P11D and pay Class 1A NICs to us.
But if you reimburse an employee for a private health insurance scheme they have taken out themselves, the reimbursed amount must be added to the employee’s gross pay figure when both PAYE tax and Class 1 NICs are being worked out.
The requirements are made clear on a case by case basis in our guides explaining how you should deal with common categories of expense and benefit – use the link below.
Common expenses and benefits: tax, NICs and reporting requirements
Deadlines for expenses and benefits forms and payments
You need to be aware of the following deadlines for important expenses and benefits tasks:
| Task | Deadline |
|---|---|
| Submit forms P11D and P9D to us – you can do this online. | 6 July, following the end of the tax year to which the forms relate |
| Give your employees a copy of the information from their P11D or P9D | 6 July, as above |
| Submit form P11D(b) to tell us the total amount of Class 1A NICs you owe, from all your P11Ds | 6 July, as above |
| Payment of any Class 1A NICs you owe us must reach us by | 19 July (22 July if you pay using approved electronic means) |
| 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 PAYE monthly or quarterly schedule |
More useful links
A-Z of expenses and benefits reporting
How dispensations can reduce your expenses and benefits admin
More about expenses and benefits record keeping
Common expenses and benefits: tax, NICs and reporting requirements
More about making tax and National Insurance payments to us
