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.

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 (in applicable tax years) 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)
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 .

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.