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Payrolling Benefits and Expenses – Right For Your Business?

Have you decided whether to start payrolling benefits and expenses for the 2018/19 tax year yet?

If you haven’t come across this yet, payrolling benefits in kind (BiK) gives you as an employer, the opportunity to reduce or remove the obligation to send returns to HMRC.

It can also make BiK taxes easier for employees to understand, whilst offering a more efficient way to collect the right amount of tax in real time.

The time to decide is fast approaching. Employers wishing to use the new system in the tax year 2018/19 have only until April to register their intentions online with HMRC.

There are good reasons to consider the new system, equally, plenty of reasons why you might want to hold back for another year.

Which Benefits Can Be Included?

The following benefits can be included in payrolling as their cost is highly predictable:

  • Car
  • Car Fuel
  • Medical Insurance
  • Subscriptions (Gym Membership)

All payrolled benefits and expenses need to be included when you report your payroll information in a Full Payment Submission.

However, you can’t report the following benefits through payrolling:

  • Vouchers
  • Credit Cards
  • Living Accommodation
  • Interest Free and Low Interest (Beneficial) Loans

Beneficial or Not?

A simpler system: Under current legislation of reporting BIK, taxable benefits are reported on a form P11D. In conjunction with the P11D a separate form P11Db is also used to report the Class 1A National Insurance due on the BIK. Both forms are required to be submitted to HMRC by 31st July following the close of the tax year.  The employee then receives an adjustment to their tax code to collect the income tax due on the benefits in kind during the tax year.

By voluntary payrolling benefits in kind, their value will be included in the employee’s taxable pay, as if they were cash payments and tax due in each pay period is deducted through the payroll, meaning you don’t need to submit P11D’s.

The online service allows you to:

  • Choose the benefits and expenses that you want to include in payrolling for the next tax year
  • Exclude those employees who receive benefits or expenses but do not wish for them to be payrolled (once excluded you cannot reverse the decision until the following tax year)
  • Add or remove any benefits or expenses to be payrolled.

After registration HMRC will automatically:

  • Identify those employees that have the chosen benefits or expenses in their tax code
  • Remove the benefit or expenses and issue a revised tax code

On the down side: Payrolling the BiK does not report the Class 1A NIC’s due, so it doesn’t eliminate the need for manual reporting – the form P11Db will still need to be submitted to report Class 1A NIC’s.

For this reason we would recommend not payrolling BiK’s but continuing to use the normal reporting methods of the P11D and P11Db for the moment.

Payrolling BiK will become more attractive when HMRC have developed the statutory framework to allow the reporting of NIC’s though the payroll as well as tax – this will completely remove manual reporting by forms.

Going Ahead? Things To Watch Out For:

Register: If you already payroll benefits and expenses or intend to start, you must register them with HMRC using the online Payrolling Benefits In Kind (PBIK) service.

Check Your Software: Before you can use this service you must ensure your payroll software allows you to calculate and deduct the correct amount of tax on all benefits and expenses. You will need to align your payroll software and register using the online service by 05th April 2018 to start payrolling benefits. After this date you will have to wait until FY2019/20 as HMRC can’t currently process in-year changes.