Happy new tax year - don't forget your reporting obligations

With the 2020/21 tax year now over, employers should consider if they have any reporting requirements in respect of Benefits in Kind (“BIK”), expenses or Employment Related Securities.

The below sets out the key areas businesses need to consider to manage compliance.

Forms P11D - Benefits in Kind/Expenses

At the end of the tax year employers usually need to submit forms P11D to HM Revenue and Customs (“HMRC”) for each employee they have provided with taxable benefits.

Employers must submit forms P11D and a form P11D(b), and provide each employee with a copy of their individual form. 

These forms must be submitted by 6 July 2021.

The most common benefits reported on forms P11D include:

• Private medical or dental insurance;
• Health Cash Plans;
• Company Cars or Company Vans (and, if applicable, fuel for private motoring);
• Living Accommodation; or
• Gym memberships provided by the employer.
• Loans over £10,000

You’ll also need to submit a P11D(b) form if:

• you’ve submitted any P11D forms
• you’ve paid employees’ expenses or benefits through your payroll
• HMRC have asked you to - either by sending you a form or an email.

Your P11D(b) tells HMRC how much Class 1A National Insurance you need to pay on all the expenses and benefits you’ve provided. This liability must be settled by the Employer by 19 July (or 22 July if paying electronically) – the payment deadline. There should be no immediate liability for the Employees as the income tax arising on the BIK will be collected by HMRC under the employee’s personal tax account (most often via an update to the employee’s tax code or via the employee’s Self-Assessment).

Alternatively, instead of reporting benefits on form P11D, employers can choose to report most benefits via the payroll, however, this can only be done if applications are made to HMRC before the start of the tax year for which benefits are to be included in the payroll. If benefits are payrolled, there is no requirement to complete forms P11D, but there will still be a requirement to submit a for P11D(b) given that Class 1A NIC will still be payable – only income tax will be paid via payroll throughout the tax year.

PAYE Settlement Agreement (“PSA”) – Benefits in kind/Expenses

A PAYE Settlement Agreement (PSA) allows employers the opportunity to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits provided to employees where you do not want to pass that liability on to employees, or have that cost impact the employees’ tax affairs.

A PSA is discretionary and if you agree a PSA with HMRC for such expenses/benefits you will not need to:

  • report them on your payroll;
  • report them in your end-of-year P11D forms; or
  • pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead).

Once a PSA is agreed with HMRC it will automatically roll forward each tax year unless changed or cancelled by the Employer or HMRC. 

The expenses or benefits you include in a PAYE Settlement Agreement (PSA) must be minor, irregular or impracticable.

• Minor – e.g. small gifts/vouchers, incentive awards
• Irregular - items that are not paid at regular intervals in the tax year, e.g. employee spouse expenses, non-exempt relocation expenses
• Impractical – these are expenses which are difficult to value/divide up between specific employees, e.g. staff entertaining

Once the PSA is in place, the employer is required to submit the PSA calculation reporting the BIK and the tax liability arising for the tax year. HMRC advise that this should be completed as soon as possible to allow HMRC to review the calculation and issue confirmation and payment details before the payment deadline.

There is no requirement to inform employees that a PSA has been agreed with HMRC and employers do not have to provide a copy of the PSA calculation to its Employees.

Deadlines for a PSA:

Action

Deadline

Applying for a PSA with HMRC 

6 July 2021 for the 2020/21 tax year

Submitting the PSA calculation to HMRC

As soon as possible before 19 October

PSA liability payment deadline 

19 October (or 22 if paying electronically)

Employment Related Securities (“ERS”) Returns

If you provide employees with gifts and awards of shares, share options or similar rights in companies then these are known as Employment Related Securities. The act of granting an award or gift, exercising share options and sometimes disposals of shares are reportable events which trigger a requirement for electronic reporting to HMRC.

Employers are required to register all ERS schemes with HMRC in order to report reportable events, including one-off awards/gifts of shares. All tax advantaged, and “other” schemes must be registered by 6 July following the end of the tax year in which the first reportable event occurs.

For each registered scheme, employers have an obligation to submit an annual ERS return even if there are no reportable events for the tax year. The deadline for filing an ERS return is 6 July and automatic penalties apply if the deadline is missed.

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Employer tax calendar 21-22
Employer tax calendar 21-22