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An in depth look at HMRC’s consultation into abolishing the £8,500 threshold and the form P9D

10 July 14 | By: Jas Jhooty


In June, HMRC launched details of four important consultations aimed at simplifying existing benefits and expenses legislation. Over the next four articles we will be examining the contents of each of the consultation documents in detail. We start by looking in depth at HMRC’s proposals to abolish the £8,500 threshold for lower paid employees and the removal for the need to file forms P9D.


The “benefits code” was first introduced in 1948 as a general charge to tax on employer provided benefits-in-kind. Originally the legislation only taxed the following benefits: -
  • Living Accommodation – Except where it is exempt
  • Payment of Pecuniary Liability – If the company pays an employee’s personal bill
  • Vouchers – Any kind of voucher which can be exchanged for goods, services or cash
  • Cash Convertible – The second-hand value of the asset

These items would be reportable to HMRC after the end of the tax year on a form P9D. Over a period of time, company directors & senior managers realised that they could manipulate the system to get the company to pay for items and only pay tax on the second-hand value of these items.

The second chapter of the benefits code

For this reason a second chapter of benefits legislation was introduced that plugged this loophole by making the following additional benefits taxable on directors and higher paid employees: -
  • Assets Transferred – on the cost to the employer, not the second hand value
  • Company Cars
  • Company Car Fuel
  • Private use of company assets – 20% of the market value
  • Beneficial Loans
  • Private Medical Insurance

Over time additional benefits such as company vans & van fuel have been added to the second chapter.
The original definition of a higher paid employee was someone who was earning more than £2,000 per annum. This threshold was incrementally increased three times to £8,500 where it was frozen at the 1979 level. This is the equivalent of about £45,000 in today’s money.

These second chapter benefits are reportable on a P11D and also attract a Class 1A NIC charge since 1991.

Current position

As the £8,500 has been frozen for 35 years, only 15,000 P9Ds were submitted in 2011/12, as nowadays all full time employees earning at the National Minimum Wage exceed the £8,500 threshold and are therefore assessable to tax on benefits-in-kind via P11D forms. For comparison the total number of P11Ds submitted to HMRC in 2011/12 was 3.7 million.

Having to apply two different sets of benefits legislation to calculate an employee’s tax liability on employer provided benefits for such a small number of P9Ds is perceived to be an administrative burden on employers.


There were three proposals put forward by the Office of Tax Simplification as part of their recent review : -
  • Leaving the £8,500 threshold
  • Increasing the £8,500 threshold (including future reviews of the set threshold)
  • Removing the £8,500 threshold entirely.

Unsurprisingly the Government is proposing to remove the £8,500 threshold so that all employees will become taxable on employer provided benefits via P11D forms. This will result in additional tax being payable by the small number of employees who currently have P9Ds completed, as they will now be assessable on previously exempt benefits such as company cars & medical benefits. Employers will also have to pay Class 1A NIC on these types of benefits that were previously exempt.

Aims of the consultation

The consultation is asking for evidence of the types of institutions and particular types of employees who may be adversely affected by these proposals and whether or not some form of protection is required for them. If so, what form should this protection take to minimise any additional complexity for employers?

How emTax can help

Over the summer emTax have been invited to attend stakeholder meetings with HMRC to discuss these proposals. If you have any thoughts or ideas about the abolition of the £8,500 threshold and how this may affect some of your employees, please let us know so that representations may be made to HMRC on your behalf.


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