Snakes and add-ons: payrolling credit vouchers under PAYE turns on more than a roll of the dice

Fri 02 Dec 2016

When the voluntary benefit in kind (BiK) payrolling system was introduced from 6 April 2016 most but not all BiKs were eligible for inclusion. New regulations extend BiK payrolling to non-cash vouchers and tokens as announced in the 16 March 2016 Budget but they are not the only, or always the best option, so it is worthwhile summarising the current position on compliance where benefits in kind are concerned. This is an area where employers may climb up to tax-efficient employee reward packages or slide down into excessive tax bills.
At present payrolling of BiKs remains voluntary but the Government clearly wants to see as many elements of employee rewards as possible brought into PAYE as plans to restrict salary sacrifice to a narrow range of officially approved items show.
BiKs that cannot be payrolled
At present the only benefits that can’t be payrolled are:
• employer provided accommodation;
• beneficial loans; and
• credit-tokens and non-cash vouchers.
As from 6 April 2017 only employer-provided accommodation and beneficial loans will still be non-payrollable. Employers do not have to complete individual employee P11Ds in respect of payrolled BiKs: instead the value is reported through Real Time Information (RTI). However, a P11D (b) will still be required to report Class 1A NICs.
Other options?
Payrolling BiKs is one option but employers may also opt for:
• continuing with P11Ds;
• salary sacrifice; or
• PAYE settlement agreements (PSAs).
P11Ds
P11Ds can be a bit of a nuisance but have the small advantage that the values of the BiKs concerned can be shaken out in one go after the year-end when actual levels of employees’ private use and reimbursement can be determined.
Most employees’ BiKs are taken care of through PAYE codes but some still need to file returns and pay tax under self-assessment. Where the value of a benefit is substantial and it is not included in the PAYE code the employee may enjoy an advantage in that the tax may not become payable until after the end of the tax year.
Salary sacrifice
Salary sacrifice is also under attack and will soon be restricted to Pension provision, childcare, cycle-to-work and ultra-low-emission cars.
Otherwise salary sacrifice schemes will generally be brought into tax through PAYE, and NIC from 6 April 2018.
Cars, accommodation and school fees are all grandfathered until April 2021.
PAYE settlement agreements
Under a PSA the employer pays tax and NIC on benefits concerned, so to that extent they are similar in effect to payrolling but:
• unlike payrolling, PSAs do not need to be set up before the start of the relevant tax year- they can be set up in or after the end of the tax year, so long as they are in place by 7 July following the year-end;
• tax and NIC (class 1B) on a PSA is not due until 22 October following the year-end; and
• PSAs are only available in respect of minor or irregular BiKs or BiKs where P11Ds are impracticable.
We also await the outcome of HMRC’s consultation on changing the relevant dates and moving PSAs online.
Minor benefits
Minor BiKs that might once have been exempted by local agreement with HMRC or included in a PSA, can now take advantage of the statutory exemption introduced from 6 April 2016. This exemption applies to BiKs valued individually at no more than £50 and directors and office-holders of close companies cannot receive minor benefits totalling more than £300 per year tax-free.