Sarah Bradford explains why employers who wish to payroll benefits-in-kind from April 2016 should now register to do so.
From April 2016, employers will have the option of choosing to collect the tax on most benefits-in-kind via the payroll in a process known as ‘payrolling’ instead of reporting those benefit to HMRC after the year end on form P11D.
The option to payroll benefits is available for most taxable benefits-in-kind, with the exception of vouchers and credit cards, living accommodation and interest-free and low-interest employment-related loans. Employers can choose to payroll none, some or all of the permitted benefits – it is entirely up to the employer as to what works for them.
What is payrolling?
Under payrolling, the cash equivalent of the payrolled benefit is effectively treated as extra annual pay paid in instalments throughout the tax year, to correspond with the employee’s pay interval. For example, if an employee is paid monthly, the cash equivalent of the benefit is divided by 12 to get the monthly cash equivalent, which is added to the employee’s pay each month.
PAYE tax is calculated on the total pay, and the PAYE due is deducted from the employee’s cash salary. There is no need to include the cash equivalent of the payrolled benefit in gross pay for NIC purposes, as benefits-in-kind are normally liable to Class 1A (employer only) contributions, rather than Class 1.
No P11Ds?
While payrolled benefits do not need to be reported on the P11D, employers will still need to file P11Ds if they provide any benefits-in-kind which cannot be payrolled (such as beneficial loans) or choose not to payroll some of the benefits that they provide.
Tip:
Form P11D(b) will still need to be completed for 2016/17 regardless of whether benefits-in-kind have been payrolled. This is the case even if no P11Ds need to be submitted.
No P46 (car)
If company car and fuel benefits are payrolled, employers should not complete form P46 (car), and by payrolling the benefits the associated tax is deducted at source.
Registering to payroll for 2015/16
Employers that wish to payroll benefits-in-kind for the 2016/17 tax year need to register to do so in advance via HMRC’s Payroll Benefits In Kind (PBIK) online service. Employers who already payroll on an informal basis will need to register to continue payrolling benefits.
Although employers have until 5 April 2016 to register, HMRC advise employers who wish to payroll benefits for 2016/17 to do so as soon as possible (and ideally by 21 December 2015), in order to prevent employees being sent multiple tax codes for 2016/17. Employers who do not register by 5 April 2016 will not be able to payroll benefits in 2016/17, as HMRC cannot process changes in year.
The PBIK online service allows employers to specify which benefits and expenses they wish to include in the payroll for the next year and to add or remove benefits from payrolling. It also allows employers to exclude employees who receive benefits, but don’t want the tax on them collected via the payroll.
When an employer registers to payroll benefits-in-kind, HMRC will automatically identify which employees have the selected benefits or expenses in their tax code, and amend the employee’s tax code to remove these items so that the employees are not taxed twice. Once an employer has registered to payroll a benefit-in-kind, that registration is carried forward to the next tax year unless the employer removes that benefit from payrolling.
Section M – all or nothing
Employees who provide benefits that are reported in Section M of the P11D (‘other items’) should note either all items in this section should be payrolled or none of them.
Reporting under RTI
Where benefits are payrolled, details of those benefits are reported to HMRC via real time information on the full payment submission.
Practical Tip :
Employers wishing to payroll benefits-in-kind should register using HMRC’s Payrolling Benefits-In-Kind online service, ideally by 21 December 2015 and in any event no later than 5 April 2015. Employers cannot simply start payrolling from April 2016 without first registering to do so.
