P11D changes for contractors are now live - here’s what they mean

Before we outline now-applicable changes to P11D form submissions, and how these changes impact contractors, let’s start with what exactly a P11D is, writes technical compliance manager at SJD Accountancy, Joanne Thorne.

A P11D form is used to advise HMRC of any ‘benefits in kind’ awarded to employees within the tax year. An employer must fill out and submit a P11D form for each employee who has received a Benefit In Kind (BIK) from them.

What are the P11D changes, in a nutshell?

As of April 6th 2023, HMRC will no longer accept paper P11d/b forms, without exception. All forms must now be submitted online.

What this means for contractors and some of the other changes to be aware of, are as follows.

If your employer provides you with company benefits as part of your employment, such as a company car, gym membership, healthcare, or even a loan from the company, for example, these will likely fall into the category of BIK.

Benefits in Kind/Taxable Benefits (continued)

BIKs are deemed as ‘taxable benefits’ and so HMRC will require both you as the receiver, and your employer as the provider, to pay tax on them.

Company benefits will have a cost attached to them, and it is this ‘cash equivalent’ value that the HMRC seeks to tax, because if you had received the salary of the same amount, instead of the benefit, you would have paid tax on it, and so would your employer. The BIK tax charge therefore aims to ensure that this is not avoided by providing the benefit, instead of the salary.

The tax due on any benefit is based on information such as its cash equivalent; the type of benefit in question, how long it has been made available for use, as well as whether the recipient is a basic or higher rate taxpayer (in the year in question).

Employers may choose to include such benefits through employee payroll, so that the correct tax is deducted at source. Usually HMRC will amend the tax code of a person to account for the benefits received.

Limited companies, you have a choice...

Alternatively, directors of limited companies may choose to report the benefit to HMRC at the end of the tax year, and pay the associated taxes to HMRC directly.

Currently, where there are no benefits being provided in a tax year, or they have been provided but have been deducted through the payroll system, there is no requirement to provide a separate report to HMRC.

Where benefits have been provided, and there is still tax to pay as it has not been deducted through payroll, then there is a requirement to complete a P11d and a P11db return to HMRC to advise on the benefits provided, and their taxable values.

What is the difference between a P11D and a P11D(b)?

P11D/bs must be submitted to HMRC by July 6th following the tax year in question.

So benefits provided in the 2022/2023 tax year, which ended on April 5th 2023 will need a P11D completing and submitting by July 6th 2023, if HMRC penalties are to be avoided, with payment due by July 22nd 2023.

• P11D

A P11D is required for each individual recipient of benefits, and should include information such as the details of the employer, employee, the benefits provided, their cost, and the tax that is due on these benefits.

• P11D(b)

An additional P11D(b) form is also required from the company, which details the overall Class 1A National Insurance that is due from the employer for the benefits it has provided to its employees, directors, and their households, where applicable.

The employer will pay Class 1A National Insurance at 14.53% (22/23) on any taxable benefits provided, the same as they would have paid on salary, and the receiver will pay the associated tax.

As Class 1A NI is an employer tax, it will not count as a contribution towards the employee’s NI record.

• Challenges around submitting a P11D/(b)

Some of the most common mistakes of completing a P11D can include;

• Not realising one is due at all;
• Not understanding what needs to be included; and
• Not knowing how to provide some of the more complicated calculations.

Changes to amending a PAYE Settlement Agreement (PSA)

Some benefits are considered by HMRC to be so minor, irregular or impractical, that they allow an employer to submit one annual payment to cover all of the tax and NI due on these benefits provided to employees. Benefits which would fall under this exemption may include incentive awards for long service, the cost of attending an overseas conference, or shared cars, for example.

The employer would need to apply for a PAYE Settlement Agreement (PSA) to be able to use this scheme, and anyone wanting to apply to report benefits provided in 2022/23 under a PSA only has until July 5th 2023 to apply. Any tax and NI due, must then be paid by October 22nd following the tax year in question, or by October 19th if paid by post.

HMRC has announced a new online service for PSA, which since April 6th 2023, can be used to apply for the scheme, as well as make changes, amendment or even cancel the agreement.

P11D changes since April 6th 2023

HMRC has also announced that since April 6th 2023, paper P11D/b forms will no longer be accepted, and this non-acceptance of paper forms appears to be without exception.

Where a paper form is still submitted, HMRC will:

• Advise it has been rejected on the basis that it has not been submitted in the prescribed manner
• Notify the employer/agent that it has been rejected and direct them to the correct process.

Previously, amendments to returns filed electronically could be submitted in paper form, but HMRC has confirmed that these will now also require electronic correction.

So all P11Ds covering the tax year end 2022/23 and onwards, will need to be submitted electronically from April 6th 2023, seemingly without exception.

Undoubtedly, this will be daunting for any contractors who do not have the software or technical know-how to make a P11D submission online.

What does an end to paper P11D forms mean for business owners?

Where an employer only has a maximum of 500 P11Ds to submit, employers can submit online with HMRC.

However, where they exceed this threshold of 500, an employer/agent must source their own commercial software to allow them to submit electronically.

This seems sensible for small businesses, as many of them might not be in a position to invest in specialist software.

It is likely that most companies will already be using a payroll solution which allows them to file a P11D/b electronically, with many PSC contractors already using accountants who have access to this type of software, and are already filing online. In these circumstances, the changes may not have a huge impact.

However, for those who don’t have something in place already, because perhaps they are dealing with their own accounting requirements, and may have been relying on filing a paper return this year, the seemingly short notice of these changes to P11Ds may have caught them out.

What about contractors with multiple employments, like an umbrella company and limited company?

Like a P60, P11Ds relate to individual employments. So, where an employee has two separate PAYE roles throughout the year, and has had benefits in both jobs, two separate P11Ds covering each role will be required.

For a limited company contractor, who also has engaged in employment through an umbrella company throughout the year, there will usually be only one P11D required.

Taxable benefits are not (usually) provided under umbrella company employment, and so there is no requirement for a P11D for that employment, but there would be one required with regards to the limited company, should they have received any taxable benefits through there.

Where an individual completes a Self-Assessment Tax Return (SATR), they will need to add the details of all P11Ds received, for completeness.

As always, we would advise anyone unsure about what thee P11D changes mean for them to engage with a qualified accountant to help them navigate these complexities and ensure they remain compliant with HMRC.