Payrolling Benefits in Kind
From the start of the tax year 2016 to 2017, you have the ability to choose to account for the tax on the benefits you provide to your employees through PAYE each payday.
In order to do this, you must register before 6 April 2016 to start payrolling for tax year 2016 to 2017. The HMRC needs to amend your employees’ tax codes before the start of the tax year to remove benefits now payrolled. In future years employers changing over to payrolling must register well before the start of the next tax year.
The payroll software you use must be able to measure the right amount of tax on benefits and expenses, or you won’t be able to payroll them.
Registering with the HMRC allows you to payroll tax on benefits without having to submit form P11D after the end of the tax year.
The reporting and payment of Class 1A National Insurance on benefits hasn’t changed. If you miss the registration deadline on 6 April, you can’t payroll benefits for the tax year 2016 to 2017. However, if you have a valid reason for missing the deadline, the HMRC may agree that you can informally payroll, but you will still need to complete form P11D at the end of the tax year and mark each P11D ‘Payrolled’. This will prevent the HMRC collecting tax that has already been deducted from your employees.
You can register with the HMRC, using the online Payrolling Benefits in Kind service by clicking here and following the link.
If you use HMRC’s Basic PAYE Tools, you will not be able to register for payrolling benefits in kind until the tax year 2017 to 2018.
Once you start payrolling benefits, you must continue to do so for the full tax year, unless either:
- there is insufficient income to cover tax on the benefit
- you stop paying your employee the benefit.
Once you are registered, the registration is continuous, so you only need to tell the HMRC if you decide to deregister. You can deregister before the start of the tax year using the online Payrolling Benefits in Kind service.
If you change your mind after the start of the tax year, you must wait until the end of the tax year before you stop payrolling. This means that you will be required to deduct tax each payday and report the deductions to the HMRC.
If you remove an employee from payrolling mid-year, that doesn’t meet the criteria for doing so outline above, penalties for incorrect returns will apply.
Which benefits can you payroll?
It is possible to payroll all benefits apart from:
- vouchers and credit tokens
- employer provided living accommodation
- interest free and low interest (beneficial) loans
You must still report the excluded benefits above on a P11D, even if you are payrolling other benefits for the same employee.
If you choose to payroll company car benefits, you don’t need to submit a form P46(Car). A form P46(Car) should only be submitted if the car benefit is not being payrolled.
When you register with HMRC you must tell them which benefits you want to payroll. The tax codes for all employees receiving these benefits will be amended, unless you exclude those employees who you don’t want to payroll benefits in the online Payrolling Benefits in Kind service.
For more information about Payrolling Benefits in Kind, please click here to view the government’s guidance.
Please note that your accountants are not able to register you for Payrolling Benefits in Kind on your behalf. However, if you have any questions please do not hesitate to contact our Head of Payroll, Kemi Rockson, using the details below.
Ad Valorem Accountancy Services