P11D Guide -
What is the £8,500 Test?

The £8,500 test was used to determine whether an employee would be receiving a P9D or a P11D. Originally when PAYE was introduced in 1948, only P9D benefits were assessable. However over the years company directors & senior managers realised that they could manipulate the existing rules system to get the company to pay for items and only have to pay tax on the second-hand value of those items.

This brought about the introduction of a second chapter of benefits legislation that was originally only meant to affect directors and higher paid employees. Their benefits and expenses are reportable on the P11D form.

However the threshold for determining whether an employee was higher paid was frozen in 1979 at £8,500, so now most employees who are full-time and are paid at the minimum wage will exceed the £8,500 threshold. The P9D has been abolished from the 2016/17 reporting year onwards.

The steps of the test were as follows

Salary - Including all payments of overtime, commission, bonuses etc.
+ Benefits - The cash equivalents of all benefits
+ Expenses - All amounts, however paid (even if a tax deduction will be claimed)
LESS
Certain Allowable Expenses
- Contributions to an approved superannuation fund
- Contributions to an approved payroll giving scheme

The test is to determine whether or not an employee is earning at the rate of £8,500. This means that the normal pay received in a PAYE earnings period of a week or a month must be pro-rated up to the annual figure for the purposes of the test .

Nowadays it is only part-time workers who may be classified as lower paid employees.

The P11D Organiser performs the £8,500 test automatically as long as employee’s salary information has been entered and you are working in tax years prior to 2016/17.