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
Disadvantages of Payrolling Benefits
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:
Here are some examples of non-taxable benefits:
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.
If you would like to start payrolling benefits, you must register with HMRC before 5th 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 6th 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 19th July (22nd 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 6th July 2021 and paid by 19th July 2021.
If you need any advice or further information regarding employee benefits, please give us a call on 01785 254550.