Payrolling Benefits-in-Kind

No more P11Ds

Contractors who wish their companies to account for tax on any benefits they receive through PAYE each pay day must register to do so with HMRC before 6th April 2016. This will enable the Revenue to amend the contractor’s tax code before the start of the year to remove any benefits previously included.

Registering with HMRC allows you to payroll tax on benefits without having to submit form P11D after the end of the tax year, although the reporting and payment of Class 1A NIC on benefits hasn’t changed and form P11D(b) will still have to be submitted.

Missing the deadline will automatically prevent an employer from payrolling benefits for 2016/17 tax year, unless they have a valid reason for doing so.

Once an employer starts payrolling benefits then they must continue to do so throughout the tax year unless either:

• the employee has insufficient income to cover the tax on the benefit
• the employee stops receiving the benefit

Once registered then the employer is committed for successive tax years unless they decide to de-register.

Benefits you can payroll

All benefits can be payrolled apart from:

• vouchers and credit tokens
• employer provided living accommodation
• interest free and low interest (beneficial) loans, e.g overdrawn directors’ loan accounts

The above benefits must still be reported on form P11D.

Upon registration, the employer must tell HMRC which benefits they wish to payroll.

Calculating the tax

When an employer starts payrolling a benefit they need to work out how much to payroll each time they pay the employee.

Example:

Dave is a contractor whose company pays for his private medical insurance of £720 p.a. As Dave receives a monthly salary it is necessary to work out the monthly equivalent of the benefit, ie £60. This is added to Dave’s monthly salary and PAYE tax deducted.

As Class 1A NIC is payable on the benefit this will need to be declared on form P11D(b) at the end of the tax year.

If the value of the benefit changes part way through the year, e.g the annual medical insurance goes up or down, then the benefit is recalculated.

Irregular pay periods

Where there is no set pattern of payment of salary, the value of the benefit is divided by 365 and the taxable amount of the benefit calculated by the number of days to pay period from the start of the tax year.

Example:

Using the previous example, Dave is paid on 31st May, which is 56 days into the tax year. The benefit to be added to his pay is £720/365 x 56 days = £110.

The next time that Dave is paid his company will calculate the period the benefit was provided from the last pay day rather than from the start of the tax year.

Registration is voluntary and can be done by visiting the gov.uk payrolled benefits expenses page.

HMRC have recently produced detailed guidance on payrolling benefits-in-kind which can be found by visiting the Payrolling Benefits in Kind.