In 2016, HMRC introduced a scheme to payroll benefits in its bid to simplify tax administration.
What is payrolling benefits?
It is the ability to include all taxable benefits in your employees payroll. This includes benefits such as cars, mobile phones, cash vouchers and credit tokens, but excludes:
- Any living accommodation you have provided as the employer
- Interest free or low interest loans
What are the benefits of enrolling in this scheme?
- You do not need to submit P46 (car).
- You can deduct tax from employees pay, and do not need to process it separately at the end of the year through P11d or changes to their tax codes. This is hugely beneficial to your staff, as they pay the tax during the year, rather than receiving a tax demand to pay by 31 January.
- Employee pay slips are more accurate reflection of their pay as it includes all benefits as well as salary.
- The end of year Expenses and Benefits return (P11d) is much simpler as you now need to calculate only Class 1A NIC.
- It is very flexible. You can choose which employees and which benefits to include in payroll.
What else you need to know
- If you want to enrol for the coming tax year, you need to register by 5 April – specifying the benefits you want to payroll, the taxable value of the benefit and for which employees.
- When you register your employees will receive a new tax code
- You will still need to submit accurate P11d returns and deposit Class 1A NIC by 22 July following the tax year.
- You will need to notify your employees which benefits have been included in their payroll, the value of the benefit and tax deducted. Your payroll software should be equipped to handle this and show the required information in their pay slips.
- Similarly, the cash equivalent of the benefit payrolled must be included in the P60 or P45. It is quite straight forward in most cases, for example, you can calculate the value of car benefit by checking HMRC online calculator.
- If you cannot estimate the cash equivalent of the benefit at the beginning of the year, you cannot include it in the scheme and you will need to process it through P11d. A typical situation would be mobile phone bills paid for an employee where there is partial private use.
- If it is an estimated amount, you can adjust it during later pay days when more accurate information is available. The employee will need to pay tax if less tax was deducted during the year, or alternatively, will get a refund if more tax was deducted.
If you would like to learn more about the implications of payrolling benefits for your business, please contact us on 01256 406 601.