Home / Blog
An analysis of HMRC’s Consultation on Voluntary Payrolling of Benefits
29 July 14 | By: Jas Jhooty
In June, HMRC launched details of four important consultations aimed at simplifying existing benefits and expenses legislation. In this article we analyse the contents of the consultation to allow employers to voluntarily payroll benefits-in-kind (BiKs).
Many employers view the completion of end of year P11Ds as a major chore as it is extremely time-consuming and most large employers would prefer to be allowed to payroll BiKs in real time. Currently those employers who choose to payroll some BiKs still have to complete end of year P11Ds to calculate the Class 1A NIC due on the benefits.
Similarly employees often complain that by the time last year’s benefits (as reported via the current P11D system) are included in their PAYE tax codes, they are significantly underpaid in tax. Introducing a system that allows employers to payroll BiKs in real time will remove this particular employee gripe.
A few years ago a consultation was undertaken on the mandatory payrolling of benefits. This was abandoned when it became clear that a lot of smaller employers thought that it would be too difficult to achieve. Therefore HMRC are now proposing a legislative framework that will allow for the voluntary payrolling of BiKs.
The Office of Tax Simplification have put forward a legislative framework for payrolling of benefits that includes:-
- Employer Choice
- No need to complete P11Ds for those benefits that have been payrolled.
- Employees to receive clear notification of those benefits that have been payrolled.
- If an employer chooses to payroll benefits, they must do so for all of their employees.
The Government have taken forward these proposals and are further consulting on:-
- should payrolling be compulsory for all employers?
- if an employer payrolls, should it be compulsory for all benefits
- if an employer payrolls a benefit, should it be compulsory for all relevant employees
For consistency the government also wants the following key factors to be considered to ensure that payrolling of benefits offers genuine simplification to employers:-
- Defined rules for starting and stopping payrolling
- Standardised rules and guidance, including for individual benefits.
Compulsory for all benefits?
There are considerable difficulties in some of the existing legislation to allow all benefits to be able to be payrolled. Eg loan benefit calculations require the loan balances at the end of the previous year & the end of the current year so that the averaging method for the loan benefit can be ascertained. Therefore HMRC intend to take a pragmatic approach and intend to develop a standard list and methodology for payrolling the most commonly available benefits that will affect the most number of employees.
The consultation asks whether those employers who wish to payroll BiKs should have to payroll all BiKs as endorsed by HMRC or should they be able to choose freely from a list of approved BiKs produced by HMRC, as suits their particular business requirements.
Next comes the question of whether an employer should payroll chosen benefits for all of their employees within their PAYE scheme or should there be a list of exceptions and special cases e.g. employees with special confidentiality arrangements or with complex international affairs who can be left out.
Employer transition to & from payrolling
While it is proposed that employers can freely enter into a voluntary model, controls need to be into place in situations where employers wish to abandon payrolling arrangements. HMRC have suggested that they will require 4 to 6 months advance notice to ensure that employee’s tax codes can be updated with their BiK details as they will no longer be payrolled. They further propose that any changes to existing payrolling arrangements will only be allowed at the beginning of the tax year. HMRC are also considering whether or not to make any election to payroll benefits irrevocable once entered into.
Currently Class 1A NIC is paid via the P11D form on 19th July in one instalment. HMRC want to know if employers would prefer to account for the Class 1A NIC arising on a monthly basis in real time. Luckily there are no plans afoot to extend the current NIC charge.
Errors, omissions & PAYE
HMRC want to find out how employers should deal with any errors in benefits processing that do not come to light until part way through the tax year. Should the employee have to have to pay tax for any increased benefits in their next payroll run or should a P11D still be prepared for non-payrolled amounts if the error is not spotted until after the end of the tax year?
In a similar vein HMRC have suggested that they intend to introduce a maximum tax limit of 50% of gross pay for payrolled benefits in any given pay period. HMRC also intend to allow employers to use estimated values of benefits based on last year’s figures until these can be adjusted when this year’s details are known. Eg Private Medical Insurance premiums.
How emTax can help
HMRC have confirmed that this is just the first stage of consultation and that a phased delivery of the accompanying legislation is being planned. The first tranche of the enabling legislation being aimed to be delivered by April 2015.
Over this summer emTax have been invited to attend stakeholder meetings with HMRC to discuss these proposals. If you have any thoughts or ideas about the questions raised in this consultation document, please let us know so that representations may be made to HMRC on your behalf.