What is form P11D and when do I need to use it?

What is form P11D and when do I need to use it? This is a question that independent workers can often be heard asking, so let’s provide an answer and some guidance to boot, writes chartered accountant Graham Jenner, co-founder of accounting advisory Jenner & Co.

Form P11D: an explainer

Form P11D is a return (to HMRC) for a tax year, of expenses and benefits.

The form needs to be completed, by a company, in respect of any employee or director who has received expenses or benefits during the year, unless they are covered by an exemption or are otherwise not reportable (see further guidance on this exemption below).

So, if you are a contract worker working through your own limited company, you may need to complete a P11D.

I contract as a sole trader – do I need to complete P11D?

If you operate on a self-employed basis, i.e. as a sole trader, rather than through your own limited company, then there is no need to complete a P11D.

In these circumstances, ‘you’ are the business and the business is ‘you.’ If you’re such a sole trader, it doesn’t matter whether you pay for an expense out of the business i.e. the business bank account, or personally – it will be dealt with via your accounts and tax return.

Generally-speaking, if it as an expense incurred “wholly and exclusively” for business, then it should be shown in the accounts and will reduce the taxable profit.

However where an expense is partly for business and partly personal, then the expense is apportioned in an appropriate way, often by putting the full amount through the accounts and then making an adjustment in the tax calculation for the non-business element. In effect, the amount in the accounts that is not for business is disallowed as a deduction in calculating profits.

If you move from being a sole trader to a limited company (known as ‘incorporating’ your business), then you might need to complete a P11D, as outlined below.

What is the purpose of P11D?

The main purpose of the form is so that HMRC can ensure that any taxable expenses or benefits are included within an individual’s income tax calculation. In addition, certain benefits are subject to Employer National Insurance (Class 1a) and the P11D identifies those.

The reporting of expenses on the P11D gives HMRC the chance to consider whether an expense has been paid when none was incurred, or has been paid in excess of what is allowed for tax purposes, as what should be taxable income might have been incorrectly processed as a non-taxable expense.

Which benefits have to be included in form P11D?

Benefits might be such things as a company car, or a payment for the director’s health insurance. In fact, anything where the company has paid out for something for the benefit of the director/employee is included.

Which expenses have to be included?

Over recent years, the treatment of expenses has been significantly simplified as regards P11Ds, so that now many typical expenses are exempt.

Perhaps the most significant is reimbursement for meals (subsistence) when working away from home or away from your normal place of work.

This is provided that an expense on a meal has been incurred and the amount paid is no more than HMRC’s published ‘benchmark scale rate’ -- see: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim05231

Exceptions, expenses and exemptions

Alternatively, a bespoke scale rate can be agreed with HMRC, although this would be unusual for a contractor limited company (also known as a Personal Service Company).

Other expenses covered by an HMRC exemption include business travel, business phone bills, business entertainment, plus uniform and tools for work. These are exempt provided the company is reimbursing the actual costs you incurred.

In addition, there is a statutory tax exemption for mileage allowance payments, paid at no more than HMRCs published rates.

HMRC’s guidance states:

You must deduct and pay tax and National Insurance on allother expenses and benefits you give to your employees, andreport them to HMRCas normal.

How do I complete the form P11D?

The form can be completed online, or as an interactive pdf that gets completed, printed and posted.

When does it have to be submitted?

The form, along with a P11Db (effectively a form saying you have submitted all the P11Ds due), has to be submitted before July 6th each year

Where can I get further help?

Your freelancer accountant can help you complete and submit the P11D, but HMRC’s website also provides guidance if you’re looking for a starting point.

Good luck potentially filling in form P11D!