P11D/PSA and staff benefits reporting: Planning & pitfalls

P11D/PSA and staff benefits reporting: Planning & pitfalls

Providing a staff benefits package is an effective strategy for employee incentivisation, attraction and retention. However, for compliance purposes, it's essential to maintain thorough records and processes for any benefits and expenses provided to, or paid on behalf of, employees.

Understanding the complexities of the tax treatment of expenses and benefits, and the associated reporting and planning, is paramount for both employers and employees. P11D forms, PAYE Settlement Agreements (PSAs) and payrolling benefits are integral components of this process, and adherence to best practices is necessary to avoid potential non-compliance pitfalls.

Methods of paying tax on benefits in kind

Below we explore various options and methods for reporting and paying tax on staff benefits, along with planning measures and possible pitfalls.

Payrolling benefits in kind

In January, the Government announced that the reporting and payment of income tax and National Insurance contributions (NIC) on benefits in kind through your payroll will become mandatory from April 2026. This change will eliminate the need for P11D forms to be submitted  after the tax year end, thereby reducing the administrative burden. The payrolling of benefits process allows for real-time reporting and tax collection on staff benefits and expenses, simplifying year-end reconciliations.

If you currently report employee benefits and expenses on P11Ds, and not through payroll, you may want to consider voluntarily payrolling benefits. Doing so ahead of 2026 and familiarising yourself with the process ahead of the mandatory implementation could prevent transitional issues. Employers must register before the start of the tax year in which they wish to commence payrolling and currently company provided accommodation and beneficial loans cannot be payrolled. So, employers can next consider payrolling benefits for the next 2025/26 tax year, registering by 5 April 2025.

P11D forms

When it comes to reporting taxable benefits and expenses, there are two forms involved in the P11D process:

• P11D – completed for each employee to report employer-provided benefits and expenses, allowing HMRC to adjust the employee’s PAYE code for tax collection via ongoing earnings. Employees who are required to submit a Self Assessment tax return will need to include the information contained on the P11D.
• P11D(b)– the employer’s declaration confirming all taxable expenses and benefits have been reported through P11D forms or the payroll and the total Class 1A NICs due.

Commonly reported items on P11Ds include company cars and vans, interest free/low interest loans, private medical insurance, living accommodation and non-business expenses.

The deadline for filling P11D & P11D(b) forms falls after the end of the tax year on 6 July - i.e. for the 2023/24 tax year the deadline will be 6 July 2024. The penalties for missing the deadline can be substantial, with businesses incurring a penalty of £100 per month for every 50 employees and a penalty of up to £300 per form. The resulting Class 1A NIC must be paid by 19 July (or 22 if paying electronically), with interest charged on any late payments.

PAYE settlement agreements (PSAs)

A PSA is an agreement that allows employers to meet the tax liability on behalf of their employees on benefits and expenses. It enables businesses to make a single annual payment to HMRC to cover all of the tax and NICs liabilities. To qualify for PSA treatment, the benefits need to be minor, irregular or impracticable to report individually. 

Minor – e.g. staff incentive awards, staff discount schemes, telephone bills, small gifts/vouchers.

Irregular – ad-hoc or one-off costs, e.g. staff relocation expenses, long service awards that are not exempt.

Impracticable – costs that are difficult to apportion between employees, e.g. staff entertainment, working lunches etc.

PSAs offer employers an alternative streamlined solution to the complex process of P11D reporting. As well as reducing the administrative burden of the P11D process, PSAs help employers simplify their compliance requirements and enables the employer to meet the tax liabilities which would ordinarily fall to the employee. Those benefits employers would prefer remain true “free of tax” perks to staff (such as reward vouchers, or social events) can be when dealt with via a PSA.

PSAs are an innovative way to reduce admin and compliance risk, but they can be costly. The tax arising on the reported expense or benefit in kind is ‘grossed up’, as paying the employee’s tax is another benefit to the employee.

Key deadline tables

We are here to help

The landscape of staff benefits and the associated reporting processes is complex and constantly evolving. To ensure tax efficiency and minimal risk, taking advice from a specialist team is recommended.

The Azets Employer Solutions team is highly experienced in working with businesses on every aspect of their employee benefits and expense provision.  They can help with managing the reporting process, reviewing current policies and procedures, working with the business to ensure they are accurately identifying their taxable expenditure and meeting their reporting obligations, through to helping to resolve issues where identified and reduce the risk of HMRC review.

If you have any questions regarding any of the areas discussed in this insight, please get in touch with a member of our Employment Tax team or your usual Azets advisor.