The deadline for completing and submitting P11Ds for 2020/21 is 6 July 2021. This can include perks provided to your staff by other firms. When does this rule apply?
Reporting benefits
Employees are taxable on benefits in kind they receive in connection with their job, unless they are covered by an exemption. It doesn’t matter if a benefit comes from their employer or a third party, the tax treatment is the same. The rules for reporting third party perks are tricky. As a result, it’s easy for businesses to fall foul of these, which can result in HMRC fines of up to £3,000.
Third-party perks – report not needed?
A report is only required if the person you provided a perk to is an employee. For example, you provide a perk to an individual who’s self-employed you don’t need to report anything. There are exemptions for benefits provided to someone else’s employees, one for business entertainment and one for gifts. The terms of each are similar, but not identical. Broadly they are the:
- recipient’s employer, or anyone connected with them, must not provide or procure the gift or entertainment
- gift or entertainment is not given in recognition of services past or future
- gift isn’t cash, securities, e.g. shares, or use of services
- cost of all gifts to the same person isn’t more than £250 for the tax year. There’s no monetary limit for the entertainment exemption.
All other benefits provided and those where the conditions of the exemptions aren’t met must be reported and are taxable.
Example – gift. As a goodwill gesture for a loyal corporate customer you buy the director and the manager a case of wine. Each case costs £125. The gifts are exempt because you procured and provided the gift and it was not given to the director or manager in return for them providing a specific service, it was for their firm being a good customer.
Example – entertainment. As a goodwill gesture you invite three employees of a good customer to a sporting event at which you lay on food and drink. You also pay for their transport. You tell the employer they can choose which employees. The total cost for travel and the event per head is £250. The right of the employer to choose the employees does not count as procuring or providing the entertainment, and the other conditions of the exemption are met.
Who reports?
If you’ve come to the conclusion that a benefit must be reported, that still leaves the question of who should do it and how. Tip. If the employee’s employer arranged the benefit, it’s they and not you who is responsible for reporting it on Form P11D . You will need to provide them with the cost of the benefit if they aren’t already aware.
Example. You agree with a retailer for it to sell your products. As part of the deal you provide free goods to its employees. The exemption doesn’t apply because the employer has procured the goods and they set up the arrangement, so they must report it on Form P11D . Had the deal been the same except you voluntarily offered the goods, but they weren’t exempt because, say, they cost more than £250, you would have to report them.
Tip. The good news is that you only need write to the employees concerned (by 6 July 2021). No report is required to HMRC.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.