Company Benefits and Expenses – Areas to Consider: What is Exempt?

Employers have until 6 July to report any taxable benefits and expenses provided to their employees (including company directors) during the 2020 tax year on the forms P11D, and will have to settle any National Insurance arising on these by 19 July.

These forms cover everything from company cars to employee loans and Mat Waters, a Manager in our Halesworth and Lowestoft offices, has written this series of articles to cover the main areas to be considered when it comes to both providing and reporting benefits and expenses.

The series concludes by looking at payments to or on behalf of employees which can potentially be exempt from reporting.

Mobile telephones

An employer is able to provide its employees with a mobile phone on a company contract without a benefit needing to be reported to HM Revenue & Customs (HMRC), even if there is an element of private use. The phone will need to remain the property of the employer and not gifted to the employee as otherwise a tax charge will arise on the value of the phone.

Home telephones

If an employer puts in place a home phone contract for an employee to be used for solely business calls then this qualifies as exempt from being reported. However, where there is an element of private use by the employee then a benefit is incurred based on the private proportion of the total phone contract (line rental and calls).

Where the employer pays for the employee’s personal home phone contract, then the total cost of package will need to be reported, although National Insurance (NI) will only be paid on the full cost of the line rental (as this is deemed to be wholly relating to the employee) and the element of private call charges.

Travel, accommodation and subsistence

One of the most familiar expenses is the HMRC mileage rates, which are currently 45p per mile up to 10,000 miles and 25p per mile above this. These rates are paid to employees for business journeys, cover the fuel and running cost of their personal vehicle and will not need to be reported to HMRC. However, should an employer wish to pay the employee in excess of these rates, then the additional amount paid will need to be reported.

Where an employee has use of a company car but pays for all the fuel personally, there are separate HMRC advisory fuel rates based on the fuel type and engine size which should be used in place of the 45p/25p. These rates only cover the fuel for business journeys as the employer will be responsible for the running costs of the vehicle.

When an employee is required to work away as part of their employment, these will be treated as exempt so long as the company only pays directly for, or reimburses to the employee, the exact costs of the travel and accommodation. Should employees be provided with a flat rate amount not agreed in advance with HMRC then the excess should be added to the employee’s earnings and taxed through the payroll.

Any private travel arranged and paid for by an employer will need to be reported as a benefit on a P11D, or if it is arranged by the employee but paid for on their behalf by the employer then this will need to be reported on the form P11D and the cost subject to PAYE and NI through the payroll.

When employees incur subsistence expenses to cover food and drink bought on business journeys, HMRC provide benchmark rates which can be paid based on the length of the journey. These start at £5 for travel of 5 hours or more and go up to £25 for travel of 15 hours and where travel is ongoing after 8pm. Employers can agree bespoke rates with HMRC but otherwise any amounts paid in excess of the benchmark rates are subject to PAYE and NIC.

Record keeping

Previously, an employer would need to apply for a P11D dispensation from HMRC to confirm that they were only paying either exempt rates or actual costs, that adequate records were being maintained and that formal procedures were in place to ensure all expense claims were verified.

Although HMRC has moved to a self-certification system rather than requiring for a dispensation to be held on file, it is still the employer’s responsibility to ensure that suitable controls and record keeping are in place for expenses claims. These will need to be in place for both for payment of benchmark rates and actual expenses incurred.

Protecting your business

All of the benefits and expenses covered in this series fall within the remit of PAYE inspections and records checks and so, if you are running a business where several of the matters covered apply, you may want to ensure you have adequate Tax Investigation Cover in place in the event of HMRC wanting to review yours records.

If you have any questions, please get in touch.