Date18 Jan 2021
CategoryTax, Employer Solutions, Payroll
Payrolling benefits in kind can significantly reduce your P11D reporting requirements, reduce risk, and free up valuable administration time for the business. However, action is needed now for the tax year commencing 6 April 2021.
In April 2016, HMRC introduced formal payrolling of benefits. This enables employers to report and collect the tax on certain benefits in real time. A notional taxable amount reflecting the benefit value is added to the payroll information and reported to HMRC through payroll Real Time Information (RTI) reporting, allowing the tax to be collected at the time a benefit is received rather than retrospectively through an adjustment in tax code.
Payrolling benefits remains voluntary, but as it can alleviate the administrative burden of producing individual P11Ds for employees at the end of the tax year, it may be something employers now wish to consider.
If an employer decides to payroll benefits, they are required to register with HMRC before 5 April, before the tax year in which they want to commence payrolling benefits. Whilst the deadline is 5 April, it is advisable to register as soon as possible so HMRC can ensure that any existing benefit is removed from employee tax codes and send the employer the correct P9 notice of tax codes to use at the start of the tax year. This will ensure an employee does not have tax deducted through the payroll and via an adjustment to their tax code.
With the exception of beneficial loans and accommodation, all benefits can be payrolled. An employer can register to payroll all benefits or just certain ones. Equally, it can exclude certain individuals from payrolling, such as directors. Where it has not been possible to collect all the tax due on a benefit within the year, perhaps in the event of a period of unpaid leave for example, there is still the ability to report any undeclared benefits on a P11D. An employer is still required to report the employer class 1a NICs on form P11D(b) by 6 July, following the year end.
Once an employer has registered to payroll benefits, they should write to employees explaining that they are payrolling and what it means. An employer must also provide employees with the following information by 1 June, after the end of each tax year:
An employee will need this information if they complete a self-assessment tax return.
If you would like to consider payrolling benefits in kind, or require further advice and guidance on any areas mentioned above, please speak with your usual Azets contact or a member of our Employment tax team.