If the charity provides anything other than pay to employees or officers, it may count as an expense or a benefit. Common examples of expenses and benefits include the provision of accommodation, company cars, health insurance, travel and entertainment expenses and childcare.

The charity’s tax, NICs and reporting obligations differ depending on the specific expenses and benefits that it provides to its employees. In general, one of the following five requirements will apply in each instance:

• at the end of the tax year the charity reports the items on the employee’s form P11D and – where a P11D is completed – pays Class 1A NICs on it
• the charity treats the expense or benefit as if it were normal earnings, adding its value to the employee’s other earnings when working out income tax and Class 1 NICs using usual payroll procedures
• the charity adds the item’s value to the employee’s earnings for Class 1 NICs purposes only (not for income tax) through the payroll, then at the end of the tax year the charity should report it on the employee’s form P11D
• the charity has no tax or NICs to pay but at the end of the tax year it should report the item on the employee’s form P11D, or
• the charity has no reporting requirements and no tax or NICs to pay

Click here for more information on the payrolling of benefits.

The way in which the charity provides a benefit can affect whether that cost should be reported on form P11D. In particular, the charity should be aware that if it settles a bill on behalf of the employee (i.e. meets a pecuniary liability) then this will affect the reporting treatment.

Using medical insurance as an example:

• if the charity arranges and pays for medical insurance for an employee, the charity should report it on form P11D and pay Class 1A NICs at the end of the tax year
• if the employee arranges the medical insurance but the charity pays the insurer directly for it, then Class 1 NICs will be due (through the payroll) and the charity should report it on form P11D
• if employees arrange and pay for their medical insurance but the charity reimburses them, then that payment counts as additional earnings and the charity will have to deduct and pay both income tax and Class 1 NICs using its usual payroll procedures