Compliance
Are you payrolling your benefits offering?
Lora Murphy ACIPP, editor at the CIPP , provides payroll teams with a checklist of things to remember once they’ve registered to payroll benefits for employees
H er Majesty’s Revenue and Customs (HMRC) has been ramping up its communications to encourage organisations to begin processing the benefits they offer to employees through pay as you earn (PAYE), in real time. This is the alternative to submitting the information via form P11D following the end of the tax year the benefits were provided in. The February issue of the Employer Bulletin highlights HMRC’s support for payrolling benefits: “You can payroll most benefits. It’s quick and easy to register online, but you must do so before the start of the 2022 to 2023 tax year. We recommend payrolling of benefits in kind. It’s designed to be less complicated and time consuming”. Read the February Bulletin in full here: http://ow.ly/iwiS30scE6h. This message builds on ideas included in previous issues of the Bulletin. The deadline for registering to payroll benefits for tax year 2022/23 is 5 April 2022, so if you’re intending to use this process, you’ll have already registered or you’ll need to do so before the deadline. Registration can be completed online here: http://ow.ly/lWPi30scE6s. The positives of payrolling benefits won’t be explored in full in this article, as the focus is firmly on the steps organisations need to take once they’ve taken the plunge and registered to payroll benefits. We’ve provided a handy checklist : 1. Remember which benefits you can process through payroll All benefits can be payrolled, except for: ● employer provided living accommodation ● interest free and low interest (beneficial) loans. These benefits must still be included on a P11D, even if other benefits are being payrolled for the same employee. 2. Communicate with employees Employees must be provided with written notification about payrolling benefits, and
4. Class 1 A National Insurance contributions (NICs) Organisations that payroll benefits will still need to calculate and pay any class 1A NICs. They will be required to complete form P11D(b) and this must be done by 6 July following the end of the tax year. This is because the class 1A NICs liability arises regardless of the method used to process benefits. There’s currently no facility for paying the NICs in real time, and only the tax on the benefits can be collected via real time information at the present time. The amount must be paid across to HMRC by: ● 19 July if paying by post ● 22 July if payment is made by an approved electronic method. The payroll team will be required to calculate the ‘cash equivalent’ of the benefit, which should be split equally across the year A note on the health and social care levy Class 1A NICs will be increasing by 1.25 percentage points in tax year 2022/23. There are no considerations for 2021/22, but when calculating the P11D(b) amount following 2022/23, the increase will need to be considered. Stakeholders have approached HMRC to ask what will happen in 2023/24, when the levy is separated out in terms of class 1A NICs, and the response was that guidance will be published in due course. n
how it impacts them. This can be done in a variety of ways: ● by payslip ● by email ● by letter. This must be provided by 1 June following the end of the tax year and must explain that employees will not be taxed twice due to the switch to payrolling benefits. The following information should be included: ● which benefits are being payrolled (the value, cash equivalent and which benefits have been subject to PAYE) ● the amount payrolled for optional remuneration ● details of any benefits that haven’t been payrolled. Employees should also be informed that, in the first year of payolling, their tax code will be amended to remove the adjustment for their benefits in kind. They should also be told an adjusted amount will be processed through payroll each month, which they pay tax on, and that, at the end of the tax year, they’ll be notified how much taxable benefit they’ve had in the year, and what it was for. New employees must also be advised of how their benefits will be taxed. 3. Process the ‘cash equivalent’ through payroll The payroll team will be required to calculate the ‘cash equivalent’ of the benefit, which should be split equally across the year. They will then need to use a notional pay element to process the benefit through payroll. A simple example is included below: A car has a ‘cash equivalent’ of £1,000. The employee is paid monthly, so 12 times in a year. Therefore, £1,000 / 12 = £83.33 should be added to each payslip for tax purposes only, and tax will be calculated each pay period, with no requirement for an adjusted tax code the following tax year.
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| Professional in Payroll, Pensions and Reward |
Issue 79 | April 2022
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