Many companies now provide benefits to employees, as a way of enhancing a remuneration package, i.e., in addition to the employee's salary. Where an employee has received 'something for nothing', HMRC will usually classify this as a benefit in kind (BiK) and is subject to a form of tax and national insurance (NI).

The most common liability that occurs from benefits is tax paid by the employee, and Class 1A NI paid by the employer. However, benefits and expenses are a complex area of legislation and each benefit should be looked at on its own merit, to determine the liability due. If you're ever unsure, you should speak with HMRC directly.

The most widely-known process for reporting benefits to HMRC is through a form P11D. This is an employee form that lists the benefits they have received throughout the tax year. The P11D reports the value of the benefit, as well as any contributions that the employee has made towards the cost of the benefit that has been deducted from the employee's net pay. This is known as an 'amount made good', or 'amount PAYE'd', meaning the employee has already paid the tax on this amount.

Each form P11D is submitted to HMRC accompanied by a P11D(b) form which reports the total values of benefits provided to employees, and the Class 1A NI calculated on the relevant benefits.

Both the P11Ds and P11D(b) must be submitted to HMRC by 6 July following the end of the tax year. P11Ds must also be issued to employees by the same date. For further information on how to process this through PayFit, please refer to this Help Centre article.

Once HMRC receives your employees' P11Ds, they calculate the total amount of benefits that were subject to PAYE, then recalculate the employee's personal tax allowance, before issuing a new tax code. Due to the deadline for P11Ds being 6 July following the end of the tax year, employees don't pay tax on the benefit until the tax year after they received the benefit.

Most benefits will also be subject to Class 1A NI which is paid by the employer and is calculated at a rate of 13.8%.

The Class 1A NI calculated on the P11D(b) must be paid to HMRC by 22 July following the end of the tax year, or 19 July if paying by cheque.

From April 2016, HMRC allowed employers to payroll their company benefits. This meant that most benefits could be included in the employee's taxable pay each pay period so that the employee pays the tax in real-time. This is reported to HMRC through your full payment submission (FPS) due on or before your payday.

Provided all benefits are reported through the payroll, there are no benefits to report to HMRC on form P11D. However, a P11D(b) must be submitted by 6 July following the end of the tax year. For further information about how PayFit can make this submission for you, please refer to this Help Centre article.

The tax due on the benefit is calculated each pay period through an increased taxable pay.

As the benefit value increases the employee's taxable pay, but not their NI'able pay, this means there has been no NI calculated yet on the benefit value. Most benefits will be subject to Class 1A NI which is paid by the employer and is calculated at a rate of 13.8%.

The Class 1A NI calculated on the P11D(b) must be paid to HMRC by 22 July following the end of the tax year, or 19 July if paying by cheque.

A PAYE Settlement Agreement (PSA) is used to report minor, irregular or impracticable expenses or benefits. A PSA is liable to PAYE and Class 1B NI. However, both costs are paid for by the employer. This might include benefits such as a Christmas party provided to all staff, or the costs associated with sending a group of employees for an overseas conference.

Employers also use a PSA so that the value of a benefit provided to an employee isn't eroded through taxation. For example, a gift given to an employee is diminished when the employee is left to pick up the tax bill.

Although there's no specific deadline for submitting a PSA, there is a deadline for making the payment of PAYE and Class 1B NI associated with the values, which therefore means the PSA should be submitted by the same date. The liability payment is due by 22 October, or 19 October following the end of the tax year.

The submission of a PSA is via HMRC's website and is not a payroll or benefits submission that can be sent via payroll software. Therefore, your PSA must be managed outside PayFit, along with the submission and the payment of liabilities. For further details, please refer to HMRC's PSA guidance.

The tax is calculated based on the number of employees that received the benefit, and their rate of tax. The total value of providing benefits to each of the employees is divided equally by the number of employees who received the benefit. I.e. if the value was £50 for one employee, and £150 for the second employee, as an average, the value is £100 per employee.

The value per employee is then multiplied by the rate of tax that the employee would usually pay.

The benefits reported on a PSA are usually subject to Class 1B NI instead of Class 1A. Class 1B is calculated at the rate of 13.8%.

Class 1B is calculated on the value of the benefits, plus the value of the tax paid on your employees' behalf. This is because the tax paid on behalf of the employee, is a benefit in itself. This is the total tax payable.