Frequently Asked Business Question:
I own a small business and I am conscious that the deadline for submitting the P11D 2020/21 form to HMRC is on 6 July 2021. How have these forms been impacted by benefits provided during the Covid-19 pandemic?
What is a P11D?
Forms P11D are used to report annually to HMRC, benefits which employees have received outside of normal payroll. Traditionally these include items like company cars, company fuel, loans made to employees and a multitude of other benefits which may not be able to be captured through regular payroll.
Covid-19’s Impact on P11D 2020/21 Reporting
2020/21 is the first full year of the tax system that fell within the Covid pandemic and in this year the Government introduced a range of tax-free benefits which may be provided to employees to deal with circumstances created by Covid-19, particularly, working from home.
It is important therefore to know which items need to be reported on P11D for 2020/21 and which items can be excluded.
What should be reported on the P11D 2020/21?
The first challenge the pandemic presented employees with was working from home and the costs of homeworking equipment was largely borne by employers. A benefit in kind exemption was introduced for equipment which was provided by the employee along with associated services in the employee’s home.
However, there are two conditions which must be met to be able to avail of the exemption.
- Firstly, the sole purpose for the equipment provision is to enable the employees to perform their employment duties.
- Secondly, any private use of the equipment by the employees should be insignificant. Such equipment would typically include computer monitors, keyboards, and peripheral devices such as printers, and even chairs and desks to be able to create an office environment within the employee’s home.
It is important to note that the equipment remains the property of the employer and eventually it should be returned to the employer or purchased by the employee should they wish to retain it post the pandemic. If the employer decides to transfer the title of the equipment to the employee this will create a taxable benefit which must be recorded on the P11D in the year in which the transfer of ownership occurs at its then market value.
The legislation around providing home working equipment also dealt with the situation where employees purchase equipment and ask the employer to reimburse them. This matter was covered in the Temporary Tax and National Insurance Contribution Exemption of May 2020 which covered equipment purchased by employees as a result of the Covid-19 pandemic and subsequently reimbursed by employers.
Interestingly and perhaps confusingly, a taxable benefit will not arise if the equipment is subsequently retained by the employee and not transferred to the employer post the Covid pandemic.
Having set themselves up in their new home office, the next costs faced by employees were communication costs, namely in the form of broadband connection and even mobile phone costs. Broadband connection installation as a necessity due to working from home is not a taxable benefit and does not need to be returned. For those employees with an existing broadband connection if they are able to split the business and personal use costs then any reimbursement from the employer will not give rise to a benefit in kind.
This latter situation is the same with employees who reclaim the costs of making business mobile calls for their employer. Most mobile phone contracts are fixed call plans providing all inclusive calls and data and if an employee is claiming for a fixed plan call then the entire cost is always taxed through payroll.
Historically, the most reported items on P11Ds are company cars and their associated costs. The definition of a benefit in kind for a company car is that the car must be “made available” to the employee in the period concerned. As those employees with company cars increasingly found themselves working from home their cars sat idle in their driveways. This however does not automatically stop a benefit in kind charge arising because the car remains at the employees house and therefore is still technically available for private use whether or not it is actually used for private motoring. The way around this benefit in kind charge is to return the car to the company’s premises or even to return the keys of the car to the company premises if it is not practical to have the car returned and then it cannot be said that the car is available for private use.
Personal protection items directly related to Covid-19 such as PPE and the cost of Covid-19 tests are not treated as benefits in kind and should not be returned on forms P11D.
For more information and/or assistance, please contact our Tax Team who will be pleased to help you.