November 2nd, 2015
Registering for new voluntary payrolling of benefits
Following on from recommendations made by the Office of Tax Simplification, the Government is introducing a new formal system for 2016/17 onwards to allow for payrolling of benefits to replace the current informal arrangements. In order to use that new system, employers have to register the benefits that they wish to payroll with HMRC before the start of the tax year in which the payrolled benefits are to be provided. This is done using a new online PBIKs service, which HMRC launched on 12 October 2015.
Existing practice for payrolling benefits
The normal rule for the reporting of benefits and expenses other than cash earnings is that they are reported after the end of the tax year (see the Year end benefit reporting guidance note). Most benefits are liable to Class 1A NICs on the basis of the amount included on the P11D. In cases where the benefit is subject to Class 1 NICs, it has to be included in the employer's RTI submission at the time it is provided and Class 1 (but not tax) deducted from the employee's pay, with the benefit in question still being reported on form P11D. The extra tax the employee has to pay on the benefits / expenses is generally recovered by means of an adjustment to the employee's PAYE code.
Currently employers can put some benefits through the payroll, but only with the advance agreement of HMRC. But this does not remove the requirement to return the benefits in question on form P11D as these forms are used to calculate the employer's Class 1A liabilities (see the Payrolled Benefits-in-Kind under RTI guidance note).
New voluntary payrolling system
Under the new system for voluntary payrolling of benefits, employers can put the cash equivalent of many employee benefits through the payroll over the course of the tax year in equal instalments so that the employee's tax due on those benefits is collected from normal salary payments. Employers will not then need to include the payrolled benefits on form P11D at the end of the tax year.
ITEPA 2003, ss 684, 1ZA; draft Regulations (see pages 8–14)
There is no change to the system for reporting benefits for the purposes of the employer's Class 1A liability on employee benefits. The employer will have to provide details of all taxable employee benefits, whether payrolled or not, on form P11D(b) after the end of the tax year and pay Class 1A NICs in respect of those benefits.
The exact rules for apportioning the cash equivalent across the tax year and how to deal with changes in the benefit provided and benefits starting or ending during the course of the year are to be inserted into the PAYE regulations early in 2016 – although draft Regulations (see pages 8–14) are available now.
As currently drafted, the regulations will allow for payrolling of benefits in place of P11D reporting except in the case of:
- *living accommodation
- *taxable cheap loans
- *vouchers and credit tokens
Employers can choose to payroll any or all other types of benefit, but must register that choice with HMRC in advance of the tax year in which the benefit is to be payrolled (see below for more on registration). Once the employer indicates that he wishes to payroll a particular benefit, HMRC will assume that the benefit in question will be payrolled for all employees receiving that particular benefit unless the employer advises differently. Similarly HMRC will assume that the employer wants to continue payrolling the specified benefits for all future tax years unless the employer advises otherwise.
Employers who currently use the informal practice to payroll the cash equivalent of living accommodation, taxable cheap loans or vouchers and credit tokens may (according to the GOV.UK guidance) continue to do so from 2016/17 but must also continue to report those benefits on form P11D at the end of the tax year. They should still register with HMRC to payroll any other benefits from 2016/17.
Employers wishing to payroll benefits under the new regime for 2016/17 must register to do so by 5 April 2016, using the new online PBIKs service via the Government Gateway (which means the employer will need his Government Gateway ID to access the system). Even if the employer operates the current informal method of payrolling, he must still register if he wishes to continue to payroll benefits from 2016/17.
Where the employer is registering to payroll benefits that employees have previously had coded out, HMRC will interrogate its systems to identify which employees have the benefit(s) in question in their tax code and will issue a revised tax code for 2016/17 for them.
To give HMRC time to identify the affected employees and issue new tax codes as necessary, it is advisable for employers intending to make use of voluntary payrolling to register as early as possible.
Registration to payroll a benefit means that the employer must continue to payroll it for each recipient employee for the whole tax year, except where an employee leaves or otherwise stops receiving the benefit in question. If the employer wishes to exclude a particular employee from the payrolling treatment, that too must be for a whole tax year.
The online service is intended not only to allow employers to specify which benefits and expenses are to be payrolled for the following tax year, but also to add or remove particular benefits for subsequent tax years and exclude particular employees from the payrolling treatment.
No access for agents yet
An important point to note is that there is not yet any facility to allow agents acting on behalf of employers to access the PBIKs service directly. In its October Employer Bulletin (page 3), HMRC reports that it is working to allow access in the future, but gives no timetable for this.