Payrolling benefits-in-kind

At the moment, employers are required to complete forms P11D to report benefits provided (such as company cars and medical insurance) and expenses paid (such as professional subscriptions) to employees during the tax year, which causes employers many headaches after the end of the tax year. Once the forms P11D are processed by HM Revenue & Customs, the employees’ PAYE codes are then updated to collect the appropriate amount of tax.

It can also cause tax issues for employees who believe that they have paid the correct amount of tax, only to receive an end of year assessment from HM Revenue & Customs where the actual benefit was higher than the estimate that HM Revenue & Customs included in their PAYE code.

In practice, employers have historically been able to agree with HM Revenue & Customs that benefits may be processed through the payroll, on a case by case basis. This meant that the benefits were included in the payroll process and any tax payable, on the benefit, was collected from the employee’s pay. There was still a requirement to complete form P11D at the end of the year but the tax charge on the benefit was met by the tax paid during the year.

Following a period of consultation to widen the scope of payrolling of benefits, the Government has put forward legislation to be implemented from April 2016. Therefore any employer who wishes to payroll benefits, must register with HM Revenue & Customs. This includes those employers who currently have an existing arrangement to do so with HM Revenue & Customs.

Employers must register before 5 April 2016 if they wish to use the service for 2016/17. If they do not register for the new scheme, the employer will still be required to complete forms P11D. Registration must be done via the HM Revenue & Customs website using the online PAYE log in.

Unfortunately, the service cannot be used for benefits such as:

  • Vouchers and credit cards
  • Living accommodation
  • Low interest or interest free loans

Such benefits must continue to be reported on forms P11D.

Given that such changes are likely to lead to questions from employees, we would recommend that you notify them of the upcoming changes in legislation before you implement the payrolling of benefits. Employees could be concerned that their payslips aren’t correct or are perhaps paying tax twice on the benefit.

As ever our tax team is here to help. For Darlington call Alan Moore or Lee Watson (01325 349700), for Durham call Nicola Bellerby or Lee Watson (0191 384 2244) and for York call Alan Moore or Graham Richardson (01904 784400).