Over the past two years HMRC has encouraged employers to move away from reporting benefits in kind via individual ‘legacy’ P11D returns or lists, in paper form, favouring instead digital submissions or the use of ‘payrolling’. With the gradual move by HMRC to online submission of data in other areas (such as making tax digital, construction industry scheme, real time information) this transition has been expected by the team at PSTAX for some time. Indeed, a recent Employer Bulletin (April 2022) confirmed that “HMRC considers paper submissions to be generally unacceptable.”
So, what is ‘payrolling’?
‘Payrolling’ is where the employer includes a notional value for employee benefits in kind as taxable pay into the regular payroll cycle, as a welcome alternative to declaring the benefits each year on a P11D form.
Including this notional value in the payroll means that the income tax due on the benefit can be collected, and paid to HMRC, through Real Time Information (‘RTI’). This will be ideal for taxable salary sacrifice schemes, particularly for lease cars, but will also be suitable for other employee benefits which are currently reported on form P11D. Importantly, it will help employees see the tax being paid on their benefits each month, rather than receiving a tax code adjustment at a later date, possibly even after the end of the tax year. Nobody enjoys getting a single month hit for tax!
Registration with HMRC to payroll benefits is a relatively straightforward task. Employers will need to register before 6 April 2023 for it to apply for the 2023/24 tax year but, once done, the registration continues until the employer decides to cancel.
Should an employer wish to start payrolling benefits in-year, there is the option for ‘informal payrolling’, which requires a little more manual intervention, but can allow you to begin payrolling immediately.
Points to note
Not all payroll software will be able to process the payrolling of benefits and so it is important that employers first check with their payroll provider to ensure that their software is compatible, as most of the major software products already used by the public sector are.
There are a number of things that must be done when payrolling, but these are not onerous. We have built up an extensive knowledge base on this subject, including contact points at HMRC and the CIPP and so can provide full guidance and support, if required.
One of the most useful things we have found is the ability to amend the value of a benefit in kind in real time. This is particularly advantageous in circumstances where:
- company cars are provided new, or changed in-year. Payrolling removes the need for a P46(Car);
- additional electronic goods are obtained through the use of a salary sacrifice scheme; or
- or (in the case of our emergency service clients) where a ‘use of asset’ vehicle incurs additional costs, or can reduce due to ‘unavailable days’.
There is no indication of a cut-off point for paper P11D forms from HMRC, but we suspect that it won’t be that far in the future.
As with any significant change to the relevant procedures and systems, the correct employee communication and staff training is vital.