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Payrolling benefits in kind - should you opt in?
2 March 16 | By: Jas Jhooty
A new voluntary payrolling system for certain benefits in kind arrives on 6 April 2016, but you need to register upfront.
When will it be worthwhile and what do you need to do if you want to opt in for 2016/17?
New payrolling scheme
New legislation gives HMRC authority to introduce a voluntary scheme to tax employee benefits in real time through the payroll – payrolling benefits in kind (BiK). Online registration is required. You won’t be able to register after 5th April 2016 for the 2016 to 2017 tax year as HMRC cannot process changes in-year.
If you are an employer who already payrolls benefits informally, you still need to register for HMRC’s online Payrolling BiK service. Informal payrolling also ceases on 5 April 2016.
Interested employers should register immediately so employees’ tax codes are updated before the first payday of 2016/17. New tax codes will be needed for employees previously relying on P11Ds with BiK being coding out to collect tax due on benefits in kind.
Where HMRC has already included the BiK in the 2016/17 PAYE code, employees risk a double deduction if payrolling starts before a revised PAYE code is issued.
It is recommended that employers should contact employees, e.g. by e-mail, to inform them in advance they intend to commence payrolling benefits. They should also ensure employees know what to check for when their tax code changes.
The cash value of the BiK needs to be calculated and included in the payroll. In some cases this may need to be estimated. Complications will arise where employees leave and the amount of the payrolled benefit has been estimated. HMRC’s latest guidance was published recently and this is comprehensive and should be referred to if employers intend to payroll BiKs.
Individual employees can opt out of payrolling and not all BiKs are covered. This increases complexity and the chance of mistakes. For lower paid employees, payrolling may affect benefit entitlement to Universal Credit, or tax due may exceed the 50% cap on PAYE deductions. Where employees make a contribution towards the BiK, e.g. private use payments, this will need to be recognised and adjusted. Class 1A NI contributions still need to be calculated and returned on an end of year P11D b.
P11D or no P11D?P11Ds won’t be required if all BiKs are payrolled. This sounds straightforward, but may not be as simple in practice. Employers must be alert to:
- benefits which aren’t payrolled; those you choose not to payroll, or which are excluded from the online Payrolling BiK service, e.g. vouchers, credit cards, living accommodation and beneficial loans can’t be included in the new service. HMRC may agree to these being coded out informally, but P11Ds will then be needed
- missing the registration deadline of 5th April 2016 for the Payrolling BiKs service for 2016/17, as P11Ds will then be needed
- not coding out all benefits in kind: P11Ds are needed for excluded benefits
- those earning less than £8,500 per year (as the limit for P11Ds is scrapped from 6 April 2016).
How emTax can help
If you are interested in payrolling your BiK you may want to also read this article that highlights some of the practical points that you should take into consideration before taking the plunge.
Finally we would like to remind you that emTax are currently running a value-for-money Benefits & Expenses (P11D) training course where all of the latest information on the recent changes to employment tax legislation are clearly explained by our knowledgeable consultants.
This course has proved to be very popular with all of the training dates in March having been filled. If you would like to book a training course for April onwards, or if you would like some more practical advice on how you can payroll your BiK, please do not hesitate to contact us.