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Why the P9D and the £8,500 test had to be abolished

23 April 15 | By: Jas Jhooty

No P9D

This weeks’s article explains why there were two sets of rules for calculating benefits-in-kind and the reason why there will only be one set from 6th April 2015 onwards.

First chapter benefits

When benefits legislation first came into being post-war, only the following benefits were envisaged as causing a tax liability to arise: -

  • Living accommodation – Except where it is job-related or otherwise exempt
  • Payment of an employee’s pecuniary liability – Where the company pays an employee’s personal bill
  • Vouchers – Any kind of voucher which can be exchanged for goods, services or cash
  • The cash convertible price of an asset transferred to an employee – The second-hand value of the asset

These original benefits were reportable on a form P9D. There is no Class 1A National Insurance due on P9D benefits.

Second chapter benefits

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 have to pay tax on the second-hand value. This led to the government of the time to impose a second chapter of the benefits legislation in the 1960s that originally was only intended to hit directors and higher paid employees in positions of authority within an organisation.

A test based on earnings, expenses and benefits was devised and only those employees earning over a stipulated threshold would have to pay tax on a raft of other benefits such as: -

These second chapter benefits are reportable on a form P11D and also more recently are subject to the additional employer’s Class 1A National Insurance charge.

The £8,500 test

Originally the threshold was set at £200 and this was incrementally raised to £8,500 in 1979 when it was frozen. Back then £8,500 was the equivalent of about £50,000 in today’s money after taking inflation into account. The net result of this freezing is that nowadays one is hard pressed to find anybody earning at less than £8,500 especially bearing in mind minimum wage legislation.

Reasons for abolition

It was an anachronism to have two different sets of benefits rules still contained in the legislation in 2015, nearly 70 years after the original benefits legislation was announced. Only 40,000 P9Ds forms were completed last year compared to 4.5 million P11Ds. The reason for this is twofold; most employers either already ignore the £8,500 test or are not aware of it.It is for this reason that after a period of consultation, the Government has abolished the £8,500 threshold with effect from 6th April 2015.


This change will result in all employees irrespective of income being subject to tax on benefits in kind in exactly the same way. With the Personal Tax Allowance increasing to over £10,000 recently, most employees will not be affected by the abolition of this threshold. Some employees with secondary employments and benefits in kind may be affected. Employers will become liable to Class 1A National Insurance contributions (NICs) on most benefits in kind, but in future need only complete one return (the P11D) for all employees who have benefits in kind.


Two new exemptions from this change have been legislated for to protect: -

  • Ministers of religion who earn less than £8,500 p.a. – most benefits they receive will remain free of tax and NIC.
  • Carers who are provided with accommodation in the home of person they care for – this board and lodging benefit will be free of tax and NIC.


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