Paying your employees’ expenses and benefits through your payroll

Ways to report expenses and benefits you provide

If you’re an employer and provide expenses or benefits to employees or directors, you may need to tell HM Revenue & Customs (HMRC) and pay tax and National Insurance contributions (NICs) on them.

Examples of expenses and benefits include:

  • company cars
  • health insurance
  • travel and entertainment expenses
  • childcare

There are different rules for what you have to report and pay depending on the type of expense or benefit that you provide.

You usually tell HMRC about expenses and benefits you’ve provided at the end of the tax year by submitting an end-of-year form for each employee – and reporting the value of those expenses where Class 1A NICs was payable – on P11D(b).

But for some types of expenses and benefits you can include the taxable amount of a benefit in kind or expense payment in the employee’s pay – putting some or all payments for expenses or benefits in kind through your payroll. Check the Expenses and benefits: A to Z to see whether the type you’re providing can be put through your payroll.

If you opt to do this for all the payments you make you should tell HMRC by:

  • using an online form PAYE – notification of payrolled benefits
  • telephoning HMRC’s Employer Helpline

Reporting payrolled expenses and benefits

Depending on whether there’s both PAYE tax and NICs payable, or just NICs, once you’ve checked the type you’re providing you need to do one of the following:

  • treat the expense or benefit as if it were normal earnings, adding its value to your employee’s other earnings when working out PAYE tax and NICs using your usual payroll procedures
  • add the item’s value to your employee’s earnings for Class 1 NICs purposes only (not for PAYE tax) through your payroll system – at the end of the tax year report it on the employee’s form P9D or P11D

Record expenses or benefits that go through your payroll on your employee’s payroll record and tell HMRC when you report your payroll information in a Full Payment Submission – when the expenses or benefits are paid or provided.

When you submit your P11Ds, how you do it depends on which payments you’ve put through your payroll.

Leave a Reply

Your email address will not be published. Required fields are marked *