PAYE legislation is changing from 5 April 2016 as The Finance Bill 2015 has given HMRC powers to introduce regulations allowing employers to payroll benefits.
Currently employers are required to complete a form P11D for each employee receiving expenses and benefits during the tax year. The form is sent to the employee and submitted to HMRC along with a form P11D(b) detailing any Class 1A National Insurance Contributions (NIC) due.
Employers have historically been able to agree with HMRC that they may process benefits through the payroll and collect any tax due via PAYE, on a case by case basis. This is known as ‘payrolling benefits’ and under these agreements the tax is collected on a monthly basis but a P11D must still be submitted (or at least an annual list of benefits provided to employees).
The Finance Bill 2015 contains enabling legislation giving HMRC powers to make further regulations.
As of April 2016, employers who intend to or are already payrolling benefits and expenses must register with HMRC using the new online Payrolling Benefits in Kind (PBiK) service.
Although payrolling benefits will be a voluntary arrangement, there will be statutory obligations for employers who choose to operate this.
Specifically The Finance Bill allows for regulations to cover:
- The timing of PAYE deductions
- The amount of PAYE deductions
- The provision of benefits to be a payment of PAYE income
- Accountability to HMRC for such deductions
HMRC announced in December 2014 that initially the voluntary payrolling benefits would only apply to:
- Car fuel
- Medical insurance
- Subscriptions (e.g. gym membership)
The move to payrolling benefits should present a more efficient way of collecting the right amount of tax throughout the year, and will form part of an employer’s Real Time Information (RTI) reporting obligations. This should reduce the administration associated with repeated adjustments to an employee’s tax code, as well as potentially removing the P11D reporting requirements for payroll benefits.
Payrolling benefits represents a major change to the collection on tax on benefits. Further regulations and/or guidance is expected to be released before its introduction in April 2016.
If you have existing payrolling arrangements in place, or are considering implementing this, you must be confident in your payroll processes, understand how benefits data will be integrated into your payroll and have clear employee communications documents in place. To start preparing for the changes, speak to a member of our expert team today.