My client has approached me with regard to changes in the reporting of the benefits in kind it provides to its employees, what are these changes and what do they need to do?
Changes in the Finance Act of 2015 now allow HMRC to collect income tax on most benefits in kind via payroll from 6 April 2016. Employers who register with HMRC for the new online payrolling benefits-in-kind service (PBIK) will not have to report the benefits-in-kind on individual forms P11d.
Excluded benefits from this new service are: Vouchers and Credit Cards, Living Accommodation and Interest free and low interest Loans (beneficial loans).
If the employer has payrolled car and car fuel benefits, they will no longer have to complete P46(car) forms as tax is being deducted at source.
Only PAYE will have to be paid in the appropriate month, not National Insurance and therefore payrolled benefits and expenses are still required to be entered by the employer on an annual form P11d(b) in order to collect the class 1a NIC, which will remain payable by 19 July (by post) or 22 July if paid electronically.
The employer must collect the PAYE due on the benefits and expenses by adding a notional value to its employee’s taxable pay in the payroll, instead of reporting it separately on a P11d.
Before using the PBIK service you’ll need to ensure your payroll software allows you to collect the right amount of tax on benefits and expenses. You need to align your payroll software and register to payroll using the new service by 5 April 2016. You won’t be able to register after this date for the 2016/17 tax year as HMRC can’t process changes in-year.
In order to avoid being sent multiple tax codes for your employees you should ideally have registered before the annual coding process which usually starts around 21 December, employers who register now for 2016/17 should ensure that their employees tax codes reflect the correct benefits in kind.
Employers have flexibility as to which employees should be covered. The process is not compulsory and any employees who do not wish to have their benefits in kind collected in this manner can be excluded.
Some employers have existing informal arrangements that they could process benefits through the payroll with HMRC, these arrangements were agreed on a case by case basis, such arrangements will cease on 5 April 2016 and HMRC has stated that from 2016/17 it will no longer accept any informal reports of employee payrolled benefits.
Employers considering the payrolling of benefits will need to understand how to include the benefits data into their payroll.
At present HMRC have not issued guidance on the penalties that might apply if an employer using the service makes an error when using the service.