Many employers will incorporate benefits into an employee’s remuneration package. Things like private medical insurance and company car and fuel are common examples.
From 6th April 2016 HMRC introduced payrolling of benefits in kind (PBIK) which allows HMRC to collect tax on these benefits within the financial year, and means these benefits no longer need to be reported on a P11D form.
However, there are some benefits that cannot be reported via this new process, being vouchers and credit cards, living accommodation, and interest free and low interest (beneficial) loans.
Payrolling Benefits Process
To use this new process employers need to register with HMRC prior to the start of the financial year in which they want to payroll benefits. If an employer hasn’t registered prior to the start of the year HMRC are unable to accept a registration as they are unable to process changes during the year. Benefits should be processed via P11D as before.
The process is not black or white. If an employer has registered for PBIK they can still choose to exclude an individual employee from the PBIK process. This can be changed the following year.
Previously some employers have had an informal agreement with HMRC that on an individual, case-by-case basis benefits could be processed through payroll. Any such arrangements ceased on 5th April 2016 and will no longer accept any informal reports of employee payrolled benefits.
The employer is required to calculate and collect the PAYE due on the BIK by calculating the cash equivalent of the benefit and dividing this by the number of payments that will be made to the employee during the financial year. A notional value of this amount should then be added to the employees taxable pay each pay period.
Only PAYE tax will have to be paid in the appropriate fiscal month, not National Insurance. Reporting the benefit in kind through the payroll will not attach an ‘automatic’ class 1 charge to the benefit. Only class 1A National Insurance will be due and this must be paid by the normal annual payment date of 19 July by post or 22 July electronically. As a result, a P11D(b) will still have to be submitted to account for the class 1A payable.
Payrolling of benefits should make the collection of the correct amount of tax on benefits a more efficient process, however there are currently no guidelines on the penalties that will apply if the employer makes an error when using the service. Employers must therefore have a clear understanding of the process and how to operate the service.
HMRC expects to publish further guidance when the appropriate PAYE regulations have been issued.
Further information in relation to payrolling benefits can be found on gov.uk here. In the meantime, if you need any further support with your payroll then why not consider outsourcing your payroll to us – it could be a lot more cost effective than you think.
