So what more have we learned since we last looked at the topic of payrolling benefits in kind, a new development which ultimately is likely to see the demise of the P11D as benefits in kind are reported in real-time alongside cash?
Legislation, guidance and specification
Here it’s a case of yes, no, maybe. Yes, we have some finalised legislation The Income Tax (Pay As You Earn) (Amendment No. 4) Regulations 2015 SI 2015 No. 1927. And no, we don’t have, and appear are never likely to get, a proper specification for the payroll software developers. And maybe we have guidance, but we’re told it is a ‘living document’ that will be amended over time.
The only significant change in the March 2016 budget around payrolling benefits was the ability for vouchers to be payrolled from April 2017, leaving just loans and living accommodation outside the scope of the new rules.
Registration
The tool to register to payroll, which is only available to employers not agents closed for registration for the 2016/17 tax year at 8 p.m.on 5 April. Any employer who missed this deadline will have to wait until the 2017/18 tax year to begin payrolling, unless HMRC eccept there was a reasonable excuse for missing the deadline.
If any of the 3000 current PAYE schemes that are already payrolling do not register by this deadline they will have to unpick the benefits they are payrolling and revert to only including them on P11Ds for the 2016/17 tax year. You will also need to let employees know that benefits are no longer being payrolled and will be coded out in due course. If you are one of these employers then we suggest you contact HMRC immediately.
Registration does not have to be repeated each tax year, only if the employer wishes to remove or add benefits to their chosen selection. If an employer starts to offer a new benefit during the tax year this can be added to the registration in year.
Informing employees
Employers are required to inform employees that they have chosen to move to payrolling rather than produce P11Ds. A draft letter that can be used for this purpose is included in payroll guidance
New starters
If an employee joins you and you want to start payrolling benefits for them, you simply start to do so from the first pay period. HMRC will receive the first FPS for the employee and the system will indicate they have started working for an employer who payrolls benefits.
If the individual has any benefits in their tax code from their previous employer and HMRC know these are payrolled by the new employer, they will remove that benefit from the coding and will issue a new notice of coding to the employee and the new employer.
Conversely if a new starter joins you and you don’t want to payroll their benefits, you will need to use the FPS to inform HMRC of the new starter in the normal way and then exclude them via the payrolling benefits tool so that HMRC does not remove the benefit(s) from their code and will continue to expect a P11D at year-end.
Changes of benefits and leavers
Whenever a benefit in kind that is being payrolled changes in value during the year, the employer will have to rework the net cash equivalent value and divide this by the number of pay periods left in the year (or to the date of leaving in the case of leavers) and amend the notional pay amount. The exception is mileage as it’s not possible to know the full details until the end of the tax year so mileage for March can be adjusted in the first two pay periods of the next tax year.
Where an employee is provided with a benefit after their date of leaving, HMRC would ideally like the employer to recover all the outstanding tax in their final payment. If the employer is unaware that the employee is leaving or is unaware of the benefit and processes their final pay without an adjustment to collect the outstanding tax, they are have two choices according to the draft guidance:
• Report the taxable pay including the final notional amount that has not been taxed on the employee’s P45, or
• Report the outstanding taxable amount on a P11D at year-end.
It is odd that the employer has been given this choice, as the tax impact on the employee can be quite different depending on which method is used. If the higher taxable pay including the untaxed benefit is reported on the P45 the next employer can recover the unpaid tax immediately. Conversely where the outstanding tax is reported on a P11D the tax is collected some time in the future through the employee’s tax code.
What should we do?
If you haven’t yet taken the plunge and have a reasonable excuse for not registering to payroll prior to 6th April, it might be worth taking the opportunity to practice on a straightforward benefit if your payroll software can accommodate this. If you are waiting until 2017 then start planning the project now and register in good time.
An early start might stand you in good stead since we may not be that far away from voluntary payrolling becoming statutory. If this were to come into law we would hope it would exclude SMEs as many would struggle with the concept where they manage their own payroll.
Kate Upcraft, payroll consultant, Kate Upcraft Consultancy Ltd.
So what more have we learned since we last looked at the topic of payrolling benefits in kind, a new development which ultimately is likely to see the demise of the P11D as benefits in kind are reported in real-time alongside cash?
Legislation, guidance and specification
Here it’s a case of yes, no, maybe. Yes, we have some finalised legislation The Income Tax (Pay As You Earn) (Amendment No. 4) Regulations 2015 SI 2015 No. 1927. And no, we don’t have, and appear are never likely to get, a proper specification for the payroll software developers. And maybe we have guidance, but we’re told it is a ‘living document’ that will be amended over time.
The only significant change in the March 2016 budget around payrolling benefits was the ability for vouchers to be payrolled from April 2017, leaving just loans and living accommodation outside the scope of the new rules.
Registration
The tool to register to payroll, which is only available to employers not agents closed for registration for the 2016/17 tax year at 8 p.m.on 5 April. Any employer who missed this deadline will have to wait until the 2017/18 tax year to begin payrolling, unless HMRC eccept there was a reasonable excuse for missing the deadline.
If any of the 3000 current PAYE schemes that are already payrolling do not register by this deadline they will have to unpick the benefits they are payrolling and revert to only including them on P11Ds for the 2016/17 tax year. You will also need to let employees know that benefits are no longer being payrolled and will be coded out in due course. If you are one of these employers then we suggest you contact HMRC immediately.
Registration does not have to be repeated each tax year, only if the employer wishes to remove or add benefits to their chosen selection. If an employer starts to offer a new benefit during the tax year this can be added to the registration in year.
Informing employees
Employers are required to inform employees that they have chosen to move to payrolling rather than produce P11Ds. A draft letter that can be used for this purpose is included in payroll guidance
New starters
If an employee joins you and you want to start payrolling benefits for them, you simply start to do so from the first pay period. HMRC will receive the first FPS for the employee and the system will indicate they have started working for an employer who payrolls benefits.
If the individual has any benefits in their tax code from their previous employer and HMRC know these are payrolled by the new employer, they will remove that benefit from the coding and will issue a new notice of coding to the employee and the new employer.
Conversely if a new starter joins you and you don’t want to payroll their benefits, you will need to use the FPS to inform HMRC of the new starter in the normal way and then exclude them via the payrolling benefits tool so that HMRC does not remove the benefit(s) from their code and will continue to expect a P11D at year-end.
Changes of benefits and leavers
Whenever a benefit in kind that is being payrolled changes in value during the year, the employer will have to rework the net cash equivalent value and divide this by the number of pay periods left in the year (or to the date of leaving in the case of leavers) and amend the notional pay amount. The exception is mileage as it’s not possible to know the full details until the end of the tax year so mileage for March can be adjusted in the first two pay periods of the next tax year.
Where an employee is provided with a benefit after their date of leaving, HMRC would ideally like the employer to recover all the outstanding tax in their final payment. If the employer is unaware that the employee is leaving or is unaware of the benefit and processes their final pay without an adjustment to collect the outstanding tax, they are have two choices according to the draft guidance:
• Report the taxable pay including the final notional amount that has not been taxed on the employee’s P45, or
• Report the outstanding taxable amount on a P11D at year-end.
It is odd that the employer has been given this choice, as the tax impact on the employee can be quite different depending on which method is used. If the higher taxable pay including the untaxed benefit is reported on the P45 the next employer can recover the unpaid tax immediately. Conversely where the outstanding tax is reported on a P11D the tax is collected some time in the future through the employee’s tax code.
What should we do?
If you haven’t yet taken the plunge and have a reasonable excuse for not registering to payroll prior to 6th April, it might be worth taking the opportunity to practice on a straightforward benefit if your payroll software can accommodate this. If you are waiting until 2017 then start planning the project now and register in good time.
An early start might stand you in good stead since we may not be that far away from voluntary payrolling becoming statutory. If this were to come into law we would hope it would exclude SMEs as many would struggle with the concept where they manage their own payroll.
Kate Upcraft, payroll consultant, Kate Upcraft Consultancy Ltd.
