What is class 1A NICs If you’re the kind of employer that loves lavishing their employees with benefits in kind, then firstly, how do we apply for a job? And secondly, you should probably be aware of Class 1A National Insurance Contributions. Class 1A NICs (National Insurance Contributions) is the national insurance that employers are required to pay on behalf of their employees to HMRC for benefits in kind given to their employees. The payment needs to be made directly by the employer, so you can’t be deducting it from employee salaries. These contributions are used to fund the UK’s social security programs. Benefits that are subject to Class 1A NICs may include things like company cars, private medical insurance or beneficial loans. Class 1A NICs are payable for regular employees, directors and any family members or members of the household who also receive benefits. There is an exception for ‘smaller’ benefits, which are £50 or less (check out our blog on ‘Trivial Benefits’ for more information on these). The Class 1A charge applies to all taxable benefits (unless exempt or within the charge to Class 1), regardless of the earnings rate of the employee receiving the benefit or expense, although several conditions must be met for Class 1A NICs to apply: The benefit must not already incur a Class 1 NIC liability. The benefit must be related to employment. The benefit must be subject to Income Tax. The Class 1A NIC is usually a percentage of the monetary equivalent of your employee’s benefit. This monetary value is also what is expected to be reported on your P11D form. The percentage rate for the 2024/25 tax year on Class 1A NICs is 13.8%. You can find more details about Class 1A National Insurance in this guide from GOV.UK. How are class 1A NICS calculated It’s pretty straight-forward to calculate Class 1A national insurance. Simply calculate the total taxable value of the benefit provided to your employees. Then, multiply this total by the Class 1A National Insurance rate, which is 13.8% for the current tax rate. How to report your contributions To report Class 1A NICs to HMRC, you need to submit a P11D(b) form by the 6th of July following the end of the tax year. This form provides HMRC with details about the value of taxable benefits and the corresponding amount of Class 1A National Insurance owed. How to pay class 1A NICS You can pay by Faster Payments, CHAPS or Bacs to HM Revenue and Customs’ (HMRC) account. Sort code Account number Account name 08 32 10 12001039 HMRC Cumbernauld You will have to provide a 17-character number as the payment reference. This starts with your 13-character Accounts Office reference number (you can find this on the letter you received from HMRC when you first registered as an employer, so get digging through those cupboards!). Then, somewhat confusingly, add the tax year you want to pay for and the digits ‘13’ to make sure your payment is assigned correctly – so if you’re paying the tax year 24-25, you would add the 4 digits, 2513 to your 13-character Accounts Office reference number. You can also pay from an overseas account with the following details: Account number (IBAN): GB62BARC20114770297690 Bank identifier code (BIC): BARCGB22 Account name: HMRC Cumbernauld Some banks will charge you if you do not pay in pound sterling. HMRC’s banking address is: Barclays Bank PLC 1 Churchill Place London United Kingdom E14 5HP What benefits are subject to class 1A NICS? Here are some examples of benefits that attract Class 1A National Insurance: Company cars Living accommodation Private medical insurance Termination awards exceeding the £30,000 threshold that have not already been subject to class 1 NICs deductions. Beneficial loans When are you exempt from paying Class 1A NICS? You don’t have to pay Class 1A National Insurance contributions if: Your employee receives a non-taxable benefit in kind. The beneficiary does not meet the criteria for “employed earner”. The benefit is included in a PAYE settlement agreement. ’ When to pay your contributions You must pay Class 1A National Insurance contributions on work benefits you give to your employees,. You must also pay them on payments of more than £30,000 that you make to employees when their employment ends, such as a redundancy payment (‘termination awards’). You only have to pay Class 1A National Insurance contributions on termination awards if you have not already paid Class 1 National Insurance contributions on them. When you pay Class 1A National Insurance contributions depends on whether they are work benefits or termination awards. Work benefits You need to pay contributions on work benefits by 22 July each year for the previous tax year. You’ll need to pay by 19 July if paying by post. Termination awards You pay contributions on termination awards through PAYE. Pay contributions on work benefits online You can pay online by: approving through your bank account Direct Debit (pay automatically or one-off payment) debit or corporate credit card Make sure you pay HM Revenue and Customs (HMRC) by the deadline. You may have to pay interest and penalties if your payment is late. Key dates 6th July – Due date for submission of P11D forms 19th July – Payment due on work benefits for the previous tax year (if paying by post) 22nd July – Payment due on work benefits for the previous tax year for anyone not paying by post Here at HRD, we’re always on hand to answer any questions you may have or help you better understand your Class 1A NICs contributions. Get in touch with our expert team today via email or call us on 01244 831 277.
Company cars and vans: Understanding benefits in kind
If trying to wrap your head around benefits in kind, when it comes to company cars and vans, is driving you crazy, then the team at HRD are here to make things simple and show you why an electric or hybrid car might save you some serious cash. What’s the deal with company cars and vans? If you have a company car or van, you might be wondering how things work when it comes to taxes. When your employer gives you a vehicle for personal use, it’s considered a benefit in kind (BIK), and you’ll need to pay tax on it. It can seem a little confusing at first, but the main things you need to know are: How is the benefit in kind for cars calculated? The tax you pay on a company car is determined based on a few factors. These are: List price: This is not the price you paid for the car; it’s the amount the car was originally worth as new, including options and VAT, but minus the first year’s registration fee and vehicle tax. CO2 Emissions: The lower the emissions, the lower the tax. This is where electric and hybrid cars can offer significant savings. Fuel Type: Diesel cars usually have a higher tax rate due to their higher emissions, unless they meet certain emission standards. Here’s a quick formula to figure out the taxable benefit: Taxable Benefit = (List Price) x (CO2 Emission Percentage) The CO2 emission percentage varies from 2% for the cleanest electric cars to up to 37% for gas-guzzlers. Diesel cars have an additional surcharge, making them a bit pricier in terms of tax. Note: If you buy a second hand car, the list price used for calculating the taxable benefit will be its original value when new, not what you paid for it. Why go electric or hybrid? If you are considering a company van or car, there are a number of reasons why you should give serious thought to electric or hybrid: Lower tax rates: Electric cars can have a BIK rate as low as 2%, which means huge savings compared to traditional petrol or diesel cars. Environmentally friendly: You’ll be doing your bit to reduce carbon emissions. Fuel savings: Charging an electric car is usually cheaper than filling up a tank of petrol or diesel. How are company vans taxed? Vans are classified differently from cars, and the way taxable benefit is calculated is different to reflect that. The taxable benefit for a company van is a fixed amount, regardless of the van’s list price or CO2 emissions. For the 2024/25 tax year, the benefit is set at £3,960 for the van, plus an additional £757 if you receive free fuel for private use. Electric vans: no tax to pay The good news if you’re lucky enough to have a fully electric company van, is that these have a benefit in kind tax rate of 0%, which means there’s no tax to pay on them. This makes electric and hybrid vehicles a great option if you’re looking to save the environment, and save some money along the way. What about private fuel? Private fuel benefits are calculated differently for cars and vans. Cars: If your employer covers your private fuel costs for a car, you’ll need to pay tax on this benefit. The calculation is pretty straightforward: Fuel Benefit = (Fixed Amount) x (CO2 Emission Percentage) For cars, the fixed amount for the 2024/25 tax year is £27,800. So, if you’ve got a car with a CO2 percentage of 25%, your fuel benefit would be £27,800 x 25% = £6,950. This figure is the benefit that you would need to pay tax on (20% if you’re a standard rate tax payer and 40% if you’re a higher rate tax payer) Vans: If your employer covers your private fuel costs for a van, the calculation is simpler. You’ll pay tax on a fixed fuel benefit amount, which for the 2024/25 tax year is £757. In conclusion Understanding the tax implications of company cars and vans doesn’t have to drive you round the bend. Remember, going for an electric or hybrid vehicle can represent a significant tax saving, and help the environment. And if you’re driving a van, the fixed benefit amount makes it easy to know what you’ll owe. Got more questions? Or need some personalised advice? We’re just a call or an email away. Let’s make managing your company vehicle benefits as straightforward and stress-free as possible.
What’s the Deal with P11D Forms?
We know taxes and forms can be a bit daunting, but the team at HRD are here to help! Today, we’re diving into the world of P11D forms – but we promise to keep it easy to understand. So, What Exactly is a P11D Form? Think of the P11D form as a report card for all the additional perks your employer gives you. It’s used by employers to tell HMRC about the extras (benefits and expenses) they’ve given their employees – stuff that’s not included in their regular salary. These benefits are called “benefits in kind” (BIK), and they can be anything from a company car to private health insurance. What Kind of Benefits Make the List? Here’s a quick rundown of the perks that usually end up on a P11D form: Company Cars and Fuel: Got a company car you use for personal trips? It goes on the P11D! Private Medical Insurance: If your employer pays for private healthcare, that’s on the list too. Cheap Loans: Any loans over £10,000 with low or no interest count. Living Accommodation: If your employer provides a place to live, it’s included. Free or Discounted Goods and Services: Any freebies or discounts from your employer. Relocation Costs: Moving for work and the company picks up the tab? That’s a benefit! Travel and Entertainment: Personal travel and entertainment expenses covered by your employer. How Do You Calculate Class 1A NIC? Now, let’s look at the Class 1A National Insurance Contributions (NICs) – it’s simpler than you think! Find the Cash Equivalent: Every benefit has a value. For example, a company car’s value is based on its price and CO2 emissions. Apply the NIC Rate: The current rate is 13.8%. So, if the benefit is worth £5,000, you’ll owe £5,000 x 13.8% = £690. How Do Employees Pay Tax on Benefits? Once your employer has reported your benefits on the P11D form, HMRC will adjust your tax code to reflect the value of these benefits. Here’s how it works: Tax Code Adjustment: HMRC will send you a new tax code notice showing your adjusted tax code. This new code takes into account the taxable benefits you receive. Paying the Tax: The tax on your benefits is collected through your salary via the Pay As You Earn (PAYE) system. Your employer will deduct the tax from your pay each month, spreading the cost over the tax year. So, if you received a company car valued at £5,000, your tax code will be adjusted so that you pay tax on that £5,000 over the course of the year. Self-Assessment Tax Return: If you file a self-assessment tax return, you’ll also need to include the benefits reported on your P11D. This ensures you pay the correct amount of tax. Simply enter the details from your P11D form in the relevant sections of your tax return. Key Dates to Remember Mark these dates on your calendar to avoid any last-minute scrambles: Submit P11D Forms: Get them to HMRC by the 6th of July after the tax year ends (tax year runs from 6th April to 5th April). Give Copies to Employees: Make sure each employee gets their copy by the 6th of July too. Pay Class 1A NIC: Payment is due by the 19th of July if you’re sending a cheque, or by the 22nd of July if you’re paying electronically. Wrapping Up Filling out the P11D form doesn’t have to be a headache. We’re here to make it as painless as possible! If you’ve got any questions or need a helping hand, just give us a shout. If an employee or director receives lower value, non-cash benefits, these may not need declaring on a P11D. To find out more, please read our blog; How to make the most of your trivial benefits allowance. For further advice, please see gov.co.uk’s ‘How to complete P11D and P11D(b)‘
How to make the most of your trivial benefits allowance: A guide for UK businesses
Not so trivial – What is a trivial benefit? A trivial benefit is a tax and national insurance free employee benefit that is small in value (hence the name ‘trival’). They must cost you £50 (including VAT) or less to provide, must not be in the form of cash or cash voucher, cannot be a reward for the employees work and must not be a part of their contract. Directors of close companies (less than 5 shareholders) can receive no more than £300 in trivial benefits per year in addition to dividends and salary. In this blog post on trivial benefits, HRD aims to help business owners understand how to make the most of their trivial benefits allowance and to explain why trivial benefits are a good thing for employers and employees alike. What qualifies as a trivial benefit? As long as the benefit meets the criteria above, a trivial benefit can take many forms, such as a box of choccies, a meal out for a birthday or even a bottle of wine (a New Zealand, Sauvignon Blanc for us please!). Benefits for Employers There is nothing trivial about the tax-free status of trivial benefits. It means that you as an employer can provide morale boosting gifts and experiences for your employees, in a tax efficient and affordable way. All business owners will know how difficult it can be to motivate employees and to retain good staff, and that is why utilising your trivial benefits allowance is extremely important. Little gestures can make a big impact on how your company is perceived and how motivated your staff feel, and trivial benefits can play a huge part in boosting morale and employee satisfaction, and enhancing employee retention and loyalty. Generally, benefits to employees would need to be included on a P11D, would incur tax for the employee and national insurance for the employer. However, if they satisfy the rules for trivial benefits, there is no tax or national insurance payable by either the employee or employer. For companies, trivial benefits are an allowable expense for corporation tax relief and for sole traders they are also a tax deductible expense when provided to employees of the business. How to Account for Trivial Benefits in Your Business Accounting for trivial benefits in your business is essential to ensure compliance and maintain financial transparency. Here’s a straightforward approach: Record Each Benefit: Whenever you provide a trivial benefit, make a detailed record. Note the date, recipient, nature of the benefit, and its cost. This documentation will help in tracking expenditures and verifying that each benefit meets the £50 limit. Categorise Expenses: Set up a specific expense category in your accounting system for trivial benefits. This will help segregate these costs from other employee-related expenses and provide clarity in financial statements. Monitor the £300 Annual Limit: For directors and office holders of close companies (and their families), there’s an annual cap of £300 on trivial benefits. Keep a running total to ensure you don’t exceed this limit. Keep Receipts: Retain all receipts and invoices for the trivial benefits provided. This not only supports your records but also ensures you have evidence in case of an enquiry by HMRC. Review Regularly: Periodically review the trivial benefits expenses to ensure they are within the prescribed limits and compliant with HMRC regulations. Communicate with Us: Ensure your accountant is aware of your trivial benefits transactions. We can provide advice on best practices and ensure that they are accounted for correctly. By carefully accounting for trivial benefits, your business can enjoy the perks of this allowance while staying organised and compliant with tax regulations. Common Mistakes to Avoid One of the most common mistakes when it comes to trivial benefits is not understanding the HMRC guidelines. Remember that to qualify as a trivial benefit, it must cost you £50 or less to provide, must not be in the form of cash or cash voucher, cannot be a reward for the employees work and must not be a part of their contract. Remember, the trivial benefit is a tax relief, not a claimable tax credit, meaning you can’t claim the benefit retrospectively; you MUST incur a cost and all trivial benefits are to be paid directly from a business bank account. Also, if you spend more than the £50 per employee limit (per occurrence), the employee will be taxed on the entire gift amount, not just the amount over the £50, and national insurance will be payable by the employer. It is also important to ensure that any benefits provided do qualify as trivial. For example, if you are providing your employees with cash this will not qualify. It needs to be added to the value of their other earnings and have tax and national insurance deducted through the payroll. If you are incentivising their work with pre-agreed rewards, or you have exceeded the £50 allowance, then that won’t qualify as trivial and you will be expected to declare this on a P11D with tax and national insurance payable. And lastly, you should always keep proper records of any trivial benefits that you do give, as this will help with your accounting and ensure you stay compliant with the rules. FAQs About Trivial Benefits What is a trivial benefit? A trivial benefit is a tax and national insurance free employee benefit that is small in value (hence the name ‘trival’). They must cost you £50 or less to provide, must not be in the form of cash or cash vouchers, cannot be a reward for the employees work and must not be a part of their contract. What is an example of a trivial benefit? Buying a bottle of wine for an employee’s birthday or a bunch of flowers, or buying small gifts to mark the arrival of a baby are all trivial benefits. Giving gift cards (as long as they are not redeemable for cash) and buying Christmas presents would all count too.