National Insurance Contributions: Benefiting with Form P11D
Form P11D is designed for anyone earning over £8,500 p.a. to report benefits and expenses. The form must be submitted to HMRC by 6 July following the end of the tax year, but payments are due monthly or quarterly.
The benefits reportable on Form P11D are:
- Relocation expenses (exceeding £8,000);
- Living accommodation (except where exempt);
- Payment of pecuniary liability (when the company pays the bill for the employee);
- Vouchers (in exchange for goods, services or cash, including childcare vouchers);
- Cash convertible (the second-hand value of the asset).
Cashing in on Non-cash Benefits
Even if you earn over £8,500 and fill in Form P11D, it can still be beneficial as an employee to choose the benefit over the cash salary, as this will save employee Class 1 NI contributions.
Example: Sandra earns a salary of £30,000 p.a., plus benefiting from private medical insurance of £600 p.a. As Sandra pays no NI on her private medical insurance, she is £72 a year better off than if she received the £600 in cash salary and paid for the medical insurance from her net pay.
Most taxable benefits provided to employees or directors earning at a rate of at least £8,500 p.a. are liable to Class 1A NI contributions rather than to Class 1. Class 1A NI is only payable by the employer (not the employee). By swapping cash salary for a non-cash benefit, the NI liability switches from Class 1 (payable by both employee and employer) to Class 1A (employer only) saving a director or an employee NI contributions.
So taking Sandra as an example again, the employer pays Class 1A NI of £82.80 on her benefit (the same would be paid in employer Class 1 NI payable on £600 cash salary). Although the employer is no better off, the company will enjoy a cash-flow advantage. This is because Class 1A NI contributions are paid after the end of the tax year, whereas Class 1 contributions are payable throughout the year.
Earning under the threshold: Form P9D
Of you earn under £8,500, for which you would fill in form P9D, neither employer nor employee pay NI contributions because Class 1A NI is not payable on benefits provided to P9D employees, even if those benefits are taxable employee Class 1 NI contributions. See the blog.