COMPLIANCE
In most of the Employer Bulletins over the past couple of years, HM Revenue and Customs (HMRC) has confirmed its intention to move away from allowing employers to report benefits in kind on individual P11D forms or P11D lists, in paper form. It instead favours digital submissions or the use of ‘payrolling’. Judging by HMRC’s use of the term ‘legacy’ to describe the paper P11D forms, we can reasonably expect they will eventually be phased out, although there’s no clear indication of when this may be. At PSTAX, we’ve invested a lot of time researching this topic, speaking to the CIPP about its views and experiences, speaking to HMRC directly around some of the more unusual areas, as well as delivering very successful training courses to our clients. In this article, rather than talking about payrolling in general, I thought it would be useful and informative to look at some specific areas in more detail. Registration To payroll benefits, the online registration must be completed before you can start payrolling in the following year. When registering, you can select which benefits in kind and which specific employees you would like to include in payrolling. It’s important to remember that the selection of benefits and employees is only relevant where these employees already have those particular benefits in kind in their tax codes, so that HMRC’s computers know to remove those coded benefits when the new year arrives. If you’re deciding to introduce a new benefits scheme in the following tax year, you won’t need to identify the benefits and employees at the registration stage, as there won’t be the same need to adjust their tax codes. The ‘best’ benefits As we know, most benefits in kind can be ‘payrolled’ other than beneficial loans and accommodation. There are certain benefit types for which payrolling is more effective and these are the ones that are pro-rated for the time the benefit is available in the tax year. Regardless of when the employee receives the benefit, their monthly ‘payrolling’ charge will remain the same. This could be as straightforward as, say, gym membership, where the employee joins the gym for the remaining six months of the tax year and so their monthly notional tax charge for payrolling will be
the same as if they’d joined at the start of the year. There are two ‘stand-out’ benefits for me for which payrolling is perfect and these are company / lease cars, particularly where they’re provided through a salary sacrifice, and the ‘use of assets’. When a company car is made available, there are certain reporting requirements when a vehicle is first provided, namely the mandatory submission of a P46(Car) form to HMRC. In our experience with salary sacrifice car schemes, there’s sometimes a little uncertainty between the employer and the leasing company around whose responsibility the submission of this form is. Fortunately, by payrolling this benefit, this removes the need for a P46(Car) form entirely. The car benefit can simply be included as a notional taxable figure through the payroll from day one and the tax collected from the outset, eliminating the need to play ‘catch-up’ with the benefit in kind tax, which often comes with the legacy P11D process. This is particularly effective where you have a salary sacrifice scheme, as the employee can see their salary reduction and the tax due on the benefit side-by-side on their payslip. In-year variations The ‘use of asset’ benefit is one where the benefit value can vary as the tax year goes by. Payrolling this benefit allows the employer to adjust the monthly benefit figure to take account of these changes. At PSTAX, we have a lot of emergency services clients who will often provide unmarked cars to officers to respond to emergencies, which are fitted with blue lights and sirens. This makes them ‘unsuitable for private use’ and so these vehicles are taxed as assets, rather than company cars. The use of asset rules would also apply to other employers providing benefits to staff, such as a plane (an example provided by HMRC), a yacht or something more modest. In addition to the base value of the Eliminating the need to play ‘catch- up’ with the benefit in kind tax, which often comes with the legacy P11D process
asset, the benefit in kind figure must also include servicing, maintenance and other running costs, such as fuel. In this way, the base benefit value increases as the year goes by. The use of asset benefit value can also be reduced where there are any days that the asset is regarded as unavailable and so, by payrolling, you can keep track of these increases and decreases, and adjust the benefit figure each month (if you wish), so that the employee keeps up with the tax that’s due, without there being the need for any catch-up at the year end. Please note that the rules on unavailable days are quite specific and should be checked carefully where the employer considers this applies. My final interesting point to make on in- year variations is that, if you run out of time to include a final variation to the benefit in kind figure for the year, you can carry forward any difference (positive or negative) to the first month (only) of the following year. It’s important to note that this ‘overflow’ amount should still be included in the previous year’s benefit in kind figure and class 1A National Insurance total. Leavers When you’re payrolling a benefit for an employee who then leaves partway through the year, there is further action required. You must calculate the revised taxable amount for the days in the tax year they had the benefit, deduct the amount payrolled for the tax year to date and then payroll the remaining amount over the remaining paydays they have before they leave. If you’re not able to payroll their remaining benefit in the remaining paydays you have left for that individual, you have two options: l you can include the balance in your full payment submission, informing HMRC that the employee is a leaver, if you’ve not already done so, or l include the balance on form P11D for any remaining benefit that wasn’t ‘payrolled’. In either case, HMRC will contact the employee for the unpaid tax. In summary Payrolling is a fascinating subject, for me at least, and I hope that some of my enthusiasm for this subject has come across in this article. As always, I would urge anyone considering introducing this to speak to their tax advisors for further support. n
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| Professional in Payroll, Pensions and Reward |
Issue 85 | November 2022
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