Compliance
The future of P11D reporting
Though the P11D return has a long and illustrious history, HMRC appears to be signalling its demise. TimBridgett, employment taxes senior manager at PSTAX, discusses the issues
T he P11D return was introduced in the early 1960s, where the salary threshold was a mere £200. It is amusing to note that when introduced the legislation covering them did not apply to civil servants and local authority employees! Clearly those days are long gone and, since that time, we have seen a number of significant changes, most notably in recent years in relation to the changes to company car calculations (from being based on mileage to being based on list price and CO2 emissions) in 2002, as well as the introduction of optional remuneration arrangements in 2017. In the April 2021 issue of the Employer Bulletin (https://bit.ly/3hoqf2q), HM Revenue & Customs (HMRC) confirmed its intention to move away from allowing employers to report benefits in kind via individual P11D returns or lists, in paper form, favouring instead digital submissions or the use of ‘payrolling’. With the gradual move by HMRC to online submission of data in other areas (such as making tax digital, construction industry scheme, real time information) this transition has been expected by the team at PSTAX for some time. The Employer Bulletin makes the bold statement that the continued submission of P11D paper returns is ‘generally unacceptable’ to HMRC, but then acknowledges that the P11D service will still be available for those employers that cannot file online or have not yet
moved to payrolling. Judging by HMRC’s use of the term ‘legacy’ to describe paper P11D returns, we can reasonably expect that these will eventually be phased out, although there is no clear indication of when this may be. In March 2021, the CIPP launched one of its ‘Quick Polls’ and the results showed that there were still 49% of respondents who used this ‘legacy’ process to submit all their benefits in kind and expenses information to HMRC. It is clear we have a considerable way to go before P11D information is transmitted to HMRC wholly through digital means, or through payrolling. Through discussions with our own clients, there has been a gradual evolution away from paper returns. In some cases, P11D returns are being transmitted to HMRC digitally using add-ons to existing payroll software, or via dedicated P11D software. In other cases, we are aware that the two online services that HMRC administer are also used, but this is quite rare in the public sector. The most efficient way of dealing with expenses and benefits information, we believe, is through the use of benefit payrolling. There are clearly significant advantages of real-time benefit reporting and taxation. Employees are considerably more likely to pay the correct tax due on their benefits during the tax year and so PAYE (pay as you earn) tax code errors and underpaid tax liabilities associated with
benefits in kind are less likely to occur if payrolling of benefits is done correctly. Through our client discussions, we have found that the registration process is quite straightforward. Provided that the benefits the employer would wish to payroll are selected during the registration process, the tax codes for all employees receiving these benefits will be amended. The perceived risk of the double-taxation of benefits being payrolled is therefore negated. Additionally, if company car benefits are being payrolled, employers are no longer required to submit P46 (Car) returns to notify HMRC of a new vehicle. Having said that, payrolling in its current form is not appropriate for all employers, due to limitations of their payroll software. Additionally, not all benefits can be payrolled; currently, employer-provided living accommodation and low or interest- free employer-provided loans are excluded from the payrolling service. If no changes are made to payrolling, ‘legacy’ P11D returns will still need to be completed for those benefits. If an employer is considering a move to payrolling benefits, registration must be done prior to the start of the tax year, to avoid the requirement to submit P11D returns. ‘Informal payrolling’ arrangements can be agreed with HMRC for the current year, with P11D forms still needing to be completed, but the expectation will be that the employer must formally register to payroll for the following year. As with any significant change to the relevant procedures and systems, the correct employee communication and staff training is vital. Employers should seek professional advice to ensure that payrolling is a success. n
...intention to move away from allowing employers to report benefits in kind via individual P11D returns or lists...
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| Professional in Payroll, Pensions and Reward |
Issue 72 | July / August 2021
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