Payrolling Benefits in Kind

4th September 2019

Since 2016 employers have had the option of payrolling their employee benefits. But what does it involve and how can employers take part?

Where an employer provides taxable benefits in kind to its employees and it reports these benefits annually on form P11D, it can consider payrolling those benefits so that P11Ds no longer have to be completed.

Not all benefits have to be payrolled; the employer can choose.

The only benefits that cannot be payrolled and must continue to be reported on a P11D in the usual manner are:

  • Living accommodation
  • Interest-free or low interest loans subject to the beneficial loan interest charge.

Registration

By registering for payrolling an employer adds the cash equivalent of a benefit as a nominal adjustment to an employee’s taxable pay. Once the value of the benefit is included in taxable pay, the tax for the employee is calculated, collected and paid on the benefit in real time throughout the tax year.

To register for payrolling an employer has to complete an application prior to the start of the tax year for which it is to apply. One registered, the employer remains registered for future years.

There are various steps to work through prior to registering.

  • An employer needs to check with their software provider that its payroll software will allow for payrolling of benefits.
  • If the software is suitable, registration can take place on HMRC’s online service
  • The employer will need to select which groups of benefits to be payrolled

HMRC’s systems can automatically identify all staff with the relevant benefits to be payrolled and will remove those benefits from their tax code.

Telling employees

Once registered, an employer must inform affected employees that their tax codes will change, including:

  • details of benefits payrolled
  • the cash equivalent of each benefit payrolled
  • details of benefits not payrolled

This could be provided with payslips or in a separate note.

What about end of year forms?

Where an employer chooses to payroll all benefits suppled to all staff, there is no need to prepare P11Ds. However, the employer will still need to prepare a P11D(b) to pay any employers Class 1A NICs on relevant benefits.

Where only some benefits are payrolled, then any benefits not payrolled will still have to be reported on forms P11D in the normal manner.

Contact us for the next step

If you would like to discuss payrolling staff benefits, please contact us for further guidance on the best way forward.

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