Reporting 2024/25 expenses and benefits

Sarah Bradford explains how expenses and benefits should be reported to HMRC and look ahead to mandatory payrolling

Employer clients who provided taxable expenses and benefits to employees in the 2024/25 tax year will need to comply with reporting obligations in respect of those expenses and benefits. The exact nature of those obligations will depend on whether the benefit or expense was payrolled and also on whether the employer has chosen to meet the tax on the employee’s behalf by including the benefit within a PAYE Settlement Agreement (PSA). The deadlines that the employer must meet, both as regards reporting the benefit and paying the associated National Insurance and, where a PSA is used, the tax, also depend on the route taken.

Payrolled benefits

Under payrolling, the taxable amount of the benefit is treated like extra pay and is taxed through the payroll by including an amount in respect of the benefit or expenses in gross pay for PAYE purposes (but not for National Insurance as most taxable benefits are liable to Class 1A employer-only contributions rather than Class 1 contributions).

The amount to include is found by dividing the cash equivalent of the benefit (or the amount taxable under the alternative valuation rules where the benefit is made available under an optional remuneration arrangement) by the number of pay days in the tax year. For example, where an employee is paid monthly, one-twelfth of the cash equivalent value is taxed each month. The tax due for the pay period is calculated on the total pay for the month, including that in respect of the benefit, and deducted from the employee’s cash pay. The employee’s pay and deductions, including the payrolled benefits, are reported to HMRC through Real Time Information (RTI) on the Full Payment Submission.

As the benefits have been reported to HMRC in-year, they do not need to be reported after the year end and included on a P11D. However, the employer must provide the employee with details of their payrolled benefits for 2024/25 before 1 June 2025. This can be done on a payslip, by letter or by email.

For Class 1A National Insurance purposes, payrolled benefits are dealt with in the same way as those reported to HMRC on form P11D and included in the calculation of the employer’s Class 1A National Insurance liability on form P11D (b), which must be filed online by 6 July 2025.

P11D (b) reporting

Taxable benefits are expenses which have not been payrolled and which are not included within a PSA must be notified to HMRC on form P11D after the end of the tax year in which the benefits were provided. For 2024/25 benefits, the filing deadline is 6 July 2025.

The information that must be provided varies depending on the benefit. For some, all that is required is the cost to the employer of providing the benefit, any amount made good by the employee and the taxable amount. For other benefits, which as cars and employment related loans, more information must be supplied. Employees must ‘make good’ by 6 July 2025.

The taxable amount will be the cash equivalent value unless the benefit was made available under an optional remuneration arrangement and the alternative valuation rules apply. Where this is the case, the benefit will be taxed by reference to the salary given up or cash alternative offered where this results in a higher taxable amount.

Form P11D must be filed online as HMRC do not accept paper forms, Employers with 500 or fewer returns to file can use either HMRC’s PAYE Online Service or commercial software. Employers which have more than 500 P11D’s to file will need to use commercial software to do so.

Where an employer has opted to payroll some benefits and also provided taxable benefits which were not payrolled, either through choice or because the benefits were employment related loans or living accommodation in respect of which payrolling is not currently available, the non-payrolled benefits should be reported to HMRC on the employee’s P11D. The payrolled benefits should not be included in the form.

Exempt benefits do not need to be notified to HMRC. However, an exemption will only apply where the associated conditions have been met.

Employees also need to provide employees with details of their taxable expenses and benefits returned on the P11D. They can either give the employee a copy of their P11D or notify them of the benefits, for example, by letter of email. This too must be done by 6 July 2025.

Benefits reported to HMRC on employees’ P11D’s must be included in the Class 1A National Insurance calculation on the P11D (b).