Payrolling benefits – HMRC wants to know what you think

Since April 2016, HMRC have allowed employers to put benefits in kind (BiKs) through the payroll for tax purposes rather than prepare P11Ds in July, this is known as ‘payrolling benefits’. Whilst about 75,000 employers have moved to payrolling some, or all, of their benefits, HMRC are keen to explore what barriers there are to increased take up.

I’m a fan of payrolling, not because I do it myself as my payrolls don’t have any BiKs (I only do a handful for local churches to keep my hand in), but because of the feedback I hear from clients who have taken the plunge. They report the following:

  • It gives control back to the employer and the payroll team as HMRC no longer have any input in amending tax codes in relation to benefits (often incorrectly)
  • Employees have paid the tax on their BiKs as well as their cash pay in year, so there is no tax lag until HMRC become aware of the BiK (this is now less likely due to dynamic coding anyway if the employee tells HMRC asap)
  • There is nothing for employees to report on their SA return as everything has been taxed at source
  • The fact it doesn’t affect Universal Credit at the moment as the notional pay is stripped out of earnings is reassuring to lower paid staff who might, for example, have medical insurance

Yes, there is the need to sort out: training for payroll teams, data information flows on a timely basis to payroll and the ability for payroll software to handle notional taxable pay elements, but once these are in place it becomes part of the normal payroll cycle.

In the April Employer Bulletin and the Agent Update published last week HMRC incorrectly say that you have to give employees a letter about their payrolled BiKs at the end of each year – YOU DON’T and I keep telling them that. The law says that taxpayers have to be told about the breakdown of cash and notional pay before 30th June each year, but every employer I know simply prints this on each payslip, so negating the need for a letter at year end.

If you’re already payrolling and you’d like to give HMRC feedback, or haven’t tried it yet and want to share why, then the policy team at HMRC want to hear from you.  They have a short survey to complete here.

Whilst there is no confirmed date for the end of P11Ds l’m a firm believer it’s only a matter of time, particularly given that the P11D has never been included in HMRC’s digital roadmap as a mandatory online submission and the attractiveness of all that tax coming in earlier without any P11Ds to process must be persuasive for government.