Payrolling benefits v submitting forms P11D – points to consider before registering…

Sun 05 Feb 2017

Employers can now voluntarily collect the tax via payroll on benefits provided to employees/Directors without having to submit forms P11D to HMRC. This process will cover most benefits except for living accommodation and beneficial loans.

It remains possible to continue to deal with employee benefits through forms P11D (we understand that forms P11D will be updated to reflect the changes to Optional Remuneration Arrangements (OpRA)) and so every employer has a choice as to which route they should go

What needs to happen?
In order to payroll benefits employers will need to register with HMRC before the start of the applicable tax year so, before 5 April 2017 for the 2017/18 tax year. This process will require the employer to calculate each employee’s annual benefits (which would usually have to be reported on form P11D) then apportion these between their respective ‘pay period’ e.g. monthly and add these to their employment income for that period on the payroll.

Payrolling of benefits will mean employees no longer need adjustments in their tax codes for benefits in kind which will simplify matters for them and essentially mean they should no longer need to contact HMRC with tax code queries, a process which has been particularly time consuming on occasion.

If you decide to payroll benefits, you must communicate to your employees straight away explaining that you are payrolling and how this affects them, by 1 June after the end of that tax year.

How is Class 1A National Insurance Contributions (NICs) reported and paid to HMRC?
A form P11D (b) still needs to be prepared each year to report employer’s Class 1A NICs and payment needs to be made to HMRC by 22 July (if electronic).

Is payrolling of benefits the right route for your Company?
Payrolling benefits is not compulsory, but before you decide whether to payroll benefits, you should consider the following:

• What benefits do you offer and whether they can all be payrolled – generally, benefits with a fixed monthly cost (for example, private medical and/or dental insurance) could provide costs savings and efficiencies if payrolled but do you want two ‘systems’ where you also provide benefits which either can’t be payrolled or it would be difficult to calculate the amount of benefit to be payrolled, for example, beneficial loans and company cars respectively?
• Do you have resource to calculate the amount of benefit which needs to be processed through the payroll?
• If any errors or irregularities in calculating the tax charge arise and are seen by employees on their payslips – can you resource this?
• If, after the payroll year end, it is identified that the amount of benefits reported through the payroll did not agree to the actual benefit for the year, then a post year amendment may require to be made to your payroll.

Please do not hesitate to contact your local Mazars Employment Tax or Mazars Payroll specialist for more information.