Owner Kate Upcraft Consultancy Ltd
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P11D bids farewell to section N

20th Oct 2016
Owner Kate Upcraft Consultancy Ltd
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waving at the sun

Kate Upcraft bids goodbye to section N of the P11D form, but is concerned that HMRC has communicated this change too late to employers.

Employer Bulletin

On page 11 of the October 2016 edition of the employer bulletin, HMRC belatedly announced a change to the reporting of taxable expenses received by employees, which has been backdated to April 2016.

Dispensations to remove the obligation to report qualifying (tax-deductible) business expenses on P11Ds were abolished from 6 April 2016. Instead, employers have to take a view as to whether any expense (or benefit in kind) meets the ‘wholly, necessarily and exclusively’ test and therefore falls to be exempt from reporting on the P11D form.

Mixed use

The removal of dispensations for qualifying business expenses was not expected to affect the reporting of fully taxable or mixed-use expenses on the P11D, which are reported in Section N of the P11D and are subject to Class 1 NICs.

N section has gone

During an HMRC webinar early in this tax year, the presenter indicated that section N of the P11D would be removed for 2016/17. This was confirmed in the October 2016 edition of the employer bulletin. Section N of the P11D form allowed for the reporting of: 

  • Travel and subsistence payments
  •  Entertainment
  •  General expenses allowance for business travel
  •  Payments for use of home telephone
  •  Non-qualifying relocation expenses
  •  Other expenses

We now know that any expenses that would have been reported in the N section on the 2016/17 P11D should have been reported through the payroll for both tax and NI since 6 April 2016. Although where the expenses are included in a PAYE settlement agreement for 2016/17 they are not reported through the payroll or on the P11D.

Reimbursed expenses

There are two alternative treatments where the reimbursed expense represents a mixed use benefit – i.e. it is a partly business and partly private expense. This will typically be the payment of home telephone bills in the employee’s name. In such a case the full cost of the line rental and all private calls should either:

  • be reimbursed by grossing up the amount due and subjecting it to tax and NI through the payroll, or
  • reimbursed through expenses and added as a notional amount to the employee’s pay which is subject to tax and NI in the pay period in which the reimbursement is made.

If the business calls cannot be specifically identified, the cost of all the telephone calls on the bill should be included in the grossed up/notional amount. The employee then has to make a counter claim for tax relief on the business element of the cost of the calls, if they have records that adequately identify those costs.

Employer action

Employers may have already added the value of any such mixed use reimbursements as a notional addition to the employee’s NIC’able pay (but not taxable pay) since April 2016, expecting to be able to report the value for tax purposes on the P11D for 2016/17.  This has been the correct approach.

However, in light of the HMRC announcement in the October 2016 employer bulletin (which is not well explained) the employer now needs to review whether the taxable pay year to date figures on the RTI need to be amended, in order to capture the taxable value of any reimbursements made to employees since 6 April 2016.

The future

Going forward, employers will need to take a view as to whether it is simpler to reimburse fully taxable or mixed-use benefits by grossing up for tax and NI through the payroll, or continuing to reimburse the employee directly and then adding the relevant amount as a notional addition to both taxable and NIC’able pay in the pay period that the reimbursement takes place.


This is an additional complication which employers could do without. The change in treatment of taxable expenses was clearly known about within HMRC many months ago, so there is no reasonable excuse for delaying the communication of this matter to employers. 


Replies (2)

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By David Heaton
21st Oct 2016 16:10

HMRC's article in the Employer Bulletin is incomplete and only tells half the story.

Some employee expenses are met by contracting directly with, and paying directly, the supplier. The company travel agent books a plane ticket and the bill is paid by the employer to the agent. If that expense is partly or wholly taxable, it has no business going through payroll at all. PAYE only applies to payments "to" a worker (the PAYE regulations are crystal clear on this), and Class 1 NIC would not apply. Only reimbursed expenses are caught by the new rules.

The EB article also glosses over the new NIC rules on expense advances that came in on 6 April 2016 - new para 1A of Part 8, Schedule 3, Contributions Regs, introduced by SI 2016/352. Any advance is deemed to be NICable earnings, even if the expenses are subsequently incurred and fully vouched. Lots of HMRC staff who go out on business might be surprised to see irrecoverable NIC deducted from their expense advances ...

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By Chuckukuk
26th Oct 2016 12:20

So with the agreed mileage allowances for business travel is this the case too? 25p a mile does not fully cover the costs but does cover most simply paying this to the employee based on mileage submissions and checks will also be subject to NI and Tax?

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