Payrolling Benefits; An employer’s guide to payrolling employee benefits

Payrolling Benefits; An employer’s guide to payrolling employee benefits

In 2016 HMRC introduced the option for employers to payroll employee benefits in kind. This allows employers to process employee’s benefits through payroll and pay tax on the deduction throughout the year rather than submitting and paying it via a P11D at the end of the tax year.

A benefit is an additional payment given to an employee by their employer that is not part of their usual salary. This may include things such as payments for a company car or medical benefits.

Employers may wish to offer these benefits as a reward to employees for years of service or simply to make a role more attractive to prospective employees.

Advantages of Payrolling Benefits

• P11D forms will no longer need to be filled out for each employee. This reduces end of year administration for the employer. (Class 1a NIC still needs to be calculated and reported via a P11D(b) form)
• Employees are more likely to pay the correct tax that is due on their benefits throughout the year. By payrolling benefits monthly, it is more likely that PAYE tax codes will be updated timely and efficiently by HMRC, leading to less chance of underpaid liabilities at the year-end.
• Employees tax payments are spread out across the year rather than one big lump sum tax payment being made at the end of the tax year.
• Your employees can see all benefits listed on their payslips.

Disadvantages of Payrolling Benefits

• The benefit value and tax must be calculated correctly and accurately during the tax year.
• Any changes to the benefit value during the year must be tracked, and the taxable values must be amended accordingly in the relevant pay period to avoid HMRC Penalties.
• You have to wait until the end of a tax year if you wish to cease payrolling a benefit (unless an employee leaves your employment).

Which benefits are taxable?

There are many employee benefits that can be payrolled; some of these will be subject to tax and national insurance deductions.

Here are some examples of taxable benefits:

• Company cars that are also used for private use
• Fuel that is subject to private use
• Medical and dental insurance
• Mobile Phones
• Gym memberships

Here are some examples of non-taxable benefits:

• Living accommodation
• Training
• Low interest/Interest-free loans

Non-taxable benefits still need to be declared to HMRC via a P11D.

Here is a link to the HMRC website that lists all benefits and will give you further information as to whether they are taxable. https://www.gov.uk/expenses-and-benefits-a-to-z

The 50% rule

Benefits cannot be paid to an employee if the tax on this benefit constitutes to more than 50% of their salary. For example, if an employee were paid maternity pay and this meant their salary was less than usual, payrolling of the benefit would need to stop during that time and instead, reported on a P11D at the year-end. This would then allow HMRC to incorporate the tax due in the employee’s following year tax code.

DEADLINES

If you would like to start payrolling benefits, you must register with HMRC before 5^th April of the year in which the benefit will relate to. You can do this by filling in an online form through your HMRC government gateway account.

Employees must be notified of the benefits and what it means for them before the benefit is processed via the payroll.

Class 1A NIC must be calculated and reported via a P11D(b) form to HMRC by 6^th July of the following year that in which the benefits relate to.

The Class 1A NIC due per the P11D(b) form must be paid to HMRC by 19^th July (22^nd July if paying electronically) following the tax year in which the benefits relate to.

For example, any benefits that were payrolled in the 2020/2021 tax year must be submitted via a P11D(b) by 6^th July 2021 and paid by 19^th July 2021.

If you need any advice or further information regarding employee benefits, please give us a call on 01785 254550.