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ISSUE 4
How do employers currently payroll BiK?
Before employers can begin, they or their agent must register online with HMRC before the start of the tax year. Ideally, HMRC prefers registration to occur before the annual coding process begins, typically around December, to prevent employers from receiving multiple tax codes for their employees. Employers have the discretion to choose which BiK to payroll, but there is a specific category that requires an all-or-nothing approach. These are the benefits reported as ‘other’ items in Section M on the P11D. Employers must either payroll all items usually reported within Section M or none. Upon registering, HMRC will automatically identify all employees with the selected BiK or expenses in their tax code and remove them, issuing an amended tax code in its place, so you must only select those you will be payrolling. Once the tax year has started, employers must continue to payroll the registered benefit for the entire tax year, or for as long as it’s provided. The tax due on payrolled BiK is collected by adding the cash equivalent value to an employee’s taxable pay each pay period. To determine the BiK value, employers need to work out the cash equivalent value of the benefit, then know the number of pay periods to be made to the employee in the tax year. The cash equivalent of the benefit is divided by the total number of pay periods.
“Double taxation is the biggest concern, but the onl instance of quasi ‘double’ taxation that should occur is when the employee is compensating for an underpayment from the previous year, which would have happened regardless”
The resulting amount is added to the employee’s pay in the payroll each pay period. The item will usually be taxable, and not subject to NIC for payroll purposes as Class 1A NIC applies, but this will depend on the treatment of the individual BiK. The amount needs to be updated immediately if any changes are made during the year. It’s important to note that only payrolled BiK should be reported on the Full Payment Submission (FPS). Any non- cash BiK not payrolled are reported
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