How to support clients in the wake of P11D closure

Back in January, HMRC announced its decision to retire its online end-of-year expenses and benefits (P11D) service, which had previously allowed SMEs to create, edit and send P11D forms either electronically or by post.

P11D forms disclose expenses or employee benefits given to employees in addition to salaries, such as private medical insurance, childcare vouchers, cycle-to-work schemes or gym membership. These forms must be submitted on 6 July each year, following the tax year referred to in the forms.

A P11D(b) form may sometimes need to be submitted alongside a P11D form for every employee. This summarises the information provided on P11D forms. P11D(b) forms also outline which employee benefits are liable for Class 1A national insurance contributions (NICs).

Up until recently, SMEs could make use of HMRC’s online end-of-year expenses and benefits service which allowed up to 150 submissions per company through its interactive PDF service. But the service has now been discontinued from the tax year 2021/22 onwards.

Employers – and/or their accountants – have now just two alternative ways in which to submit these forms:

• Via eligible payroll software with relevant functionality.
• Via HMRC’s PAYE Online Service (eligible for up to 500 employees).

Alternatively, companies may take the opportunity to opt for the ‘payrolling’ option to avoid P11D forms altogether and are required to register with HMRC Payrolling Benefits in Kind (PBIK) online service in order to do so. This option ensures expenses and benefits are taxed via payroll on a monthly basis but would require employers and/or the finance function to know the cash equivalent value of each benefit.

So with the closure of the HMRC online end-of-year expenses and benefits (P11D) service, how are accountants and their clients choosing to tackle P11D?

Use cloud software to drive strategic conversations around P11D and benefits-in-kind

Andy Smith, Founder, Abbeygate Accountancy

In the 10 years of working directly with clients, I have not come across a single client who has actually completed HMRC’s online end-of-year expenses and benefits (P11D) service themselves – they usually leave it to their accountant.

The online portal itself is clunky and slow and if you have a large number of employees then it can take some considerable time to complete.

Alternatively, there’s an option to register with HMRC under the ‘payrolling benefits in kind’ service. The employer is still required to submit a P11d each year, marking the benefits as ‘payrolled’ but the benefits are reported through the monthly payroll.

Or the employer can use payroll software which has the P11d feature, so that it can be filed directly with HMRC after year-end.

Next steps: We use cloud software at Abbeygate Accountancy so we can see clients’ real-time information to form the basis of the P11d return before any filing deadlines. This approach has led to many strategic conversations with clients around expenses and benefits.

A more traditional accountant may only receive the information well after the deadline and then advise that a P11d should have been completed, meaning that penalties and interest for late filing and payment may be added.

Verdict: Make use of cloud software to help drive strategic conversations around P11D and benefits-in-kind.

Invest in software with expenses and benefits functionality

Andy Sullivan, Founder and Managing Director, CompleteHQ

We have a few clients who need to complete P11d forms to report expenses and benefits, but they tend to instruct us to complete them for them. We use third-party software with expenses and benefits functionality for this rather than HMRC’s online end-of-year expenses and benefits service. We’ve always found that the time spent using HMRC service actually outweighed the cost of paying for a better piece of software.

HMRC’s decision to retire the service therefore won’t affect us or any of our clients.

Decommissioning of HMRC’s P11D online service may push businesses to payroll their taxable benefits

Steve Tanner, Managing Director, Leap Accounts & Outsourcing

The decommissioning of HMRC’s online expenses and benefits P11D service is definitely going to cause issues for some small and medium businesses. Although HMRC has a ready-built replacement in place (filing through HMRC’s PAYE Online Service), those who are leaving their submission close to the deadline may come unstuck when they realise their previous method for filing has disappeared and that they don’t have the necessary access yet to file using the online service.

Next steps: In light of all this, businesses may want to consider payrolling their taxable benefits. The changes may also prompt software providers to enhance their software to improve taxable benefit reporting, thus streamlining the process.

Verdict: The decommissioning of HMRC’s P11D online service may push businesses to begin payrolling their taxable benefits.

Take the opportunity to review benefits offering and tax efficiency

Daniel Tomassen, senior manager, private client department, HW Fisher

The P11D interactive online service was suitable for SMEs with less than 150 employees. It has been used by some employers for many years and therefore the process was streamlined and efficient.

The overall impact however is likely to be limited as there are other alternatives for employers such as free software and HMRC’s PAYE online service.

The main impact for employers who have been using this service is the lack of time HMRC gave notifying them that the service was to be decommissioned. They were only notified in January 2022 and the P11D forms deadline is 6th July.

Next steps: These changes may nevertheless present an opportunity for employers who have previously been using the service:

• Review core benefits offering to ensure they can retain key staff.
• Review the tax efficiency of the benefits provided by speaking to their accountants.
• Analysing the current process to ensure it is cost-effective.

For example, employers may now take the opportunity to payroll certain benefits which would reduce the number of P11D forms which are required to be submitted annually.

Verdict: Take the opportunity to review core benefits offering and review tax efficiency of benefits.

Annie Makoff is a freelance journalist and editor.