Guest Blog - P11D tips and traps – what you need to know

Whether it’s your first time doing it or not

Kate Upcraft

Jun 25th 2018

Guest Blog - P11D tips and traps – what you need to know

Whether it’s your first time doing P11Ds or not, 6 July seems to come around far too quickly when it coincides with holiday time and the normal monthly pressure of running payroll. This year is even more difficult as the P11D calculations are different for some employees who have benefits in kind provided via Optional Remuneration Arrangements (OpRAs) - what we used to know as salary sacrifice before the 17/18 tax year.

Remember there’s a new definition for what is classed as an OpRA, it now includes people who choose a benefit in kind and in so doing give up an allowance, for example they choose a company car which means they don’t receive a car allowance so are deemed to have ‘sacrificed’ the car allowance – this is called a Type B OpRA. Type A is the traditional sacrifice where an employee gives up pay and receives a benefit instead, for example giving up salary and receiving a company car.

Let’s start with the new calculations…..

First of all, you need to establish the employees that are affected, which are

Anyone who has had a ‘contract change’ from 6 April 2017 onwards that involves them reducing their pay and receiving benefits in kind instead, other than for:

  • Pension contributions and advice.
  • Childcare (existing members only by 4 October 2018).
  • Outplacement counselling & retraining costs.
  • Bicycles and bicycle equipment.
  • ‘green’ cars <76 g/km emissions.
  • Holiday purchase.

So that could, for example, be a new starter or someone who has been promoted.

A contract change does not include:

  • A change necessitated because of statutory leave.
  • A change necessitated by something outside the employee’s control like needing a new car as theirs was damaged in an accident.
  • A salary review where there is no change to the type of benefit provided.
  • A change in the price of a benefit provided by OpRA, such as a workplace parking space for an employee whose original sacrifice was in place before 6 April 2017.

If you have employees affected, and the most likely ones are new starters receiving company cars or being promoted to receive a car for the first time since 6 April 2017, there is now a two-step P11D calculation:

Value 1: What is the value of the car under 2017/18 normal benefit in kind value i.e. list price and emissions value? (do not take off any capital contribution), or

Value 2: What is the amount relating to the car and accessories only that has been sacrificed on the lease document/as part of the car allowance, i.e. excluding the maintenance and insurance etc.

Which is higher, Value 1 or Value 2?

  • If Value 1 - revert to normal P11D calculation
  • If Value 2 - then deduct any private use contribution that is paid from net pay and/or the full capital contribution* from value 2 to reach the ’relevant amount’ which is what goes on the P11D.

Here’s an example:

An employee sacrifices £260 per month plus £50 per month from net pay as a private use contribution. Only £200 of the sacrifice per month is for the car, £60 is for maintenance etc.

  • Value 1 - The car has a Benefit in kind value of £2,300 based on normal 17/18 rules, versus
  • Value 2 - £2,400 cash sacrifice i.e. £200 x 12.

Therefore, Value 2 is higher

  • Value 2 - £2,400 is reduced by £600 p.a. private use = £1,800 reportable on the P11D.

You’ll be prompted to think about this calculation on the P11D as you’ll see that the columns are headed up ‘cost of benefit or amount foregone’ – amount foregone refers to the amount sacrificed in either a Type A or Type B arrangement.

If you are worried at getting the right figure for a company car using these new two-step rules, then HMRC have published a new P11D working sheet to take you through the relevant steps.

Finally, what do you do if you have someone who for part of the 17/18 tax year has a benefit calculated under the old rules and then moves to the new rules. If it’s a car then it’s probably easiest to show it as two cars on the P11D so you can explain to the employee the two calculations. For other benefits you’ll need to work out a combined value for the P11D adding the two amounts together. Don't send two P11Ds as the second one will overwrite the first one! 

*there’s a mistake in the legislation that means you don’t pro-rate the capital contribution to the number of days the person has had the car.  This can lead to a negative P11D value for 17/18 which is what you report and will lead the employee to being give money back in their code for their car.  Yes it seems odd but it’s the right answer until they fix the legislation.

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