Update on voluntary payrolling of benefits from April 2016

Posted by David on February 15, 2016
Expenses and benefits, HMRC, National Insurance, News articles, Payroll / Comments Off on Update on voluntary payrolling of benefits from April 2016

HMRC has recently set out the framework by which employers will be able to collect tax voluntarily on specified benefits through payroll thus avoiding (or very substantially reducing) the annual P11D return cycle.

From the outset

Decide which benefits you wish to payroll: Employers may elect for some but not necessarily all benefits to be payrolled, e.g. to include medical benefits but not company cars. Many employers see this a way of ‘easing themselves in’ to the new process, especially if HMRC does experience any teething problems.

Also note that the election will cover the whole of a particular section of the P11D; so that if for instance you use Section M of the P11D to record two or more different types of ‘Other’ benefits, you would need to be sure that all such benefits (previously included within that P11D section) can now be payrolled.

Benefits which specifically cannot be payrolled are: vouchers and credit cards/tokens, employer provided living accommodation, and beneficial loans (currently sections C, D and H of the form P11D).

Are there any employees you wish to exclude? The presumption is that all employees receiving benefits within that ‘P11D section’ will now be payrolled, unless HMRC is told otherwise. Whilst it is possible to tell HMRC if you need to exclude particular people, it remains to be seen how effective HMRC is in recognising any such exclusions.

Make your election in good time: HMRC requires the employer to register before the start of the tax year – this can be done via the online ‘PAYE for Employers’ service. Employers who have informally payrolled benefits in the past are still required to register as this previous process is being phased out.

Another point to note is that you can’t change your mind part way through the tax year.

If you decide you want to ‘opt out’ for a future tax year (having previously opted in) you would need to inform HMRC before the start of that new year.

Removing benefits from tax codes: Once you have made the election, HMRC states that they will remove the benefits in kind, previously included within each employees’ tax coding, automatically. This may prove to be an interesting conundrum for HMRC, if say the tax coding currently includes two or more P11D items under the generic description of ‘benefits in kind’ (one of which is now payrolled and the other one isn’t) and we wait to see if HMRC’s systems are subtle enough to detect the difference.

Tell the employees: Although the latest HMRC guidance says that you ‘must’ provide employees certain information at the outset, we cannot see that requirement reflected within the new Regulations. Nonetheless any sensible employer would be well advised to let employees know, i.e. before the employees start to receive their updated tax codings (and before they notice the changes to their payslips). Whilst HMRC does suggest sending a letter to affected employees, the department does acknowledge there is no required or set format for such notifications, and the employer will generally choose the method which is most effective for them e.g. email, intranet, separate notices on pay statements etc.

During the year

Tax the benefit via PAYE: You must include the relevant benefit as an amount which is subject to PAYE tax, but not NIC, and spread this over each payment period of the year. Of course this is not an actual payment in cash so, in payroll terms, the easiest way of ensuring the correct calculations may be to also include the benefit as a net pay deduction.

Maximum PAYE deduction is 50% of pay: Employers must ensure the maximum PAYE deduction of 50% of pay is not exceeded. Note that the benefit is a deemed rather than an actual payment of income; so the 50% maximum must be applied to the pay before the deemed benefit is added in. Most employers will probably rely on their payroll software supplier to spot any potential issues here. In practice we can envisage some potential issues in cases where employees are on unpaid sick or maternity leave (i.e. where their benefits in kind continue).

Dealing with leavers: The employer should include the cash equivalent of the benefits within any P45 taxable pay to date figure.

HMRC does also confirm that the employer may adjust the final pay period(s) of leavers, to ensure that, as far as possible, the employee pays the correct amount of tax on the benefit up to the date of leaving. If such an adjustment is not possible before the employee has left (e.g. there is no further payment due), there are two choices; either the employer adds the ‘untaxed’ element of the benefit to  taxable pay and enters this on an amended FPS, but without adjusting the taxable pay to date, and sends this to HMRC advising the employee has left, or the value of benefit not collected via payroll must be returned on form P11D. Whichever of the two option is chosen, HMRC’s current guidance is that the department will itself seek to recover the unpaid tax direct from the employee.

Other ‘in year’ benefit changes: If for instance an employee changes their company car during the year, the employer would normally calculate the actual benefit for ‘car 1’ plus the estimated benefit for ‘car 2’ (both calculations reduced as appropriate for days unavailable). Any benefit value not already taxed would then be spread over the remaining pay periods of the year.

HMRC does acknowledge there will be occasions where the ‘correction’ is not processed before the end of the tax year, and in these circumstances will accept that any sum not taxed in ‘year 1’ can be taxed in ‘year 2’. NB: the Regulations appear to be drafted on the premise that the employer will always know about such changes instantaneously, however in reality that may not always happen (e.g. in a large organisation where information cannot always be shared immediately between departments). We would therefore hope that HMRC will apply some common sense and latitude here.

Correcting calculation mistakes made: Similarly HMRC accepts the occasional recalculation will be necessary e.g.  where the estimated number of paydays or actual benefits have been calculated wrongly. The same might apply if a company car fuel benefit applied which had not been recognised and payrolled (e.g. because an employee failed to make good the full private fuel as expected). Again some amount of year end cross-over is permitted so that any benefits not payrolled in ‘year 1’ can be payrolled in ‘year 2’

At the year end

Employee information: The new Regulations do confirm that the employer should include the cash equivalent of the benefits within any P60 year end figure. The timescale is the same as for forms P60 (i.e. 31 May following the year end), and it is assumed that most payroll software will be able to incorporate any necessary data on the form P60 itself.

Forms P11D will of course still be required for any benefits which were (for whatever reason) not payrolled.  Many sections of the current form P11D incorporate a section showing ‘amount made good or from which tax deducted’, however this is not so for company car or fuel benefits, hence we assume the P11D form will either be reworded or further HMRC guidance issued.

Submit form P11D(b) and pay Class 1A NIC: As only PAYE tax has been collected via payroll, the employer’s NIC obligation will be largely unchanged. As things stand, forms P11D(b) must still be submitted by 6 July following the end of the year, with the Class 1A NIC remaining due and payable by the following 19 July date.

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New Employer PAYE year end procedures 2013/14 under RTI

Posted by David on March 25, 2014
HMRC, News articles, Payroll / Comments Off on New Employer PAYE year end procedures 2013/14 under RTI

Having embraced the Real Time Information (RTI) process for the first time in 2013/14, employers will be hoping that their PAYE year end processes will now become much more straightforward. The previous annual return forms (forms P35 and P14) are no longer now required under RTI. Instead HMRC will itself collate annual details of each employee’s pay tax and NIC, from the ‘Full Payment Submissions’ (FPSs) already made ‘in year’ by the employer.

The employer will still be required to send a ‘Final Submission’ to HMRC once all FPS returns for the year have been done. This is broadly based on the end of year questions formerly included within the previous form P35. However the numbers and complexity of the questions appear to be much reduced, therefore the process should be much simpler.

Perhaps the most important aspect will therefore be to ensure that all FPS submissions for the year have first been submitted. Many employers have in the past tended to make informal ‘Month 12’ adjustments to their PAYE/NIC records, around about the end of the tax year. Unfortunately such practices do not fit in comfortably within the RTI process, requiring an FPS return ‘on or before’ each payment. HMRC has stated that it would still be possible to file an amended or ‘revised FPS’ on or before 19 April 2014. After that date, corrections would still be possible, using what is referred to by HMRC as its ‘Earlier Year Update’ process, though such updates would have to be filed by 19 May 2014 to avoid any risk of penalties for late submission (in effect, the same deadline as for the outgoing form P35).

HMRC has taken to YouTube in an attempt to explain the new process. Unfortunately we found this rather long winded (perhaps taking its lead from watching the Oscars ceremony – imagine a couple of minutes of entertainment ‘crammed’ into several hours of TV, as they say!). If you do require more practical assistance, you can also refer to the written guidance in the Employers Bulletin issued last month, call the HMRC Employer Helpline directly, or of course contact ET4B.

Other employer P11D and Class 1A (P11D(b)) returns will still of course be separately required, by the normal timescales of 6 July and 19 July 2014 respectively.

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HMRC launches on line P11D form

Posted by David on June 27, 2013
Expenses and benefits, News articles / Comments Off on HMRC launches on line P11D form

HMRC recently launched its online P11D form. The process permits smaller employers to complete an editable PDF version of the P11D return,  before submission on line.

The timing is unfortunate, as the 2012/13 form was only launched on 24/06/13, for returns which are due no later than 06/07/13. However in the long run this should be a useful addition for smaller employers who only have a few P11Ds to complete. For instance it allows the user to apply certain benefits across the board to (limited numbers of) employees. It will also perform some basic Class 1A NIC calculations

HMRC’s on line P11D form can be accessed here.  The form is intended to compliment, rather than replace, existing methods of P11D submission. For example, manual paper P11D returns are still permitted (for now at least).

Postscript:  HMRC has subsequently acknowledged that the timing of the new process may have contributed or caused delays in P11D submission! Where this is so we understand HMRC has agreed not to seek penalties for late submission if 2012/13 P11Ds are received by 04/08/13.

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ET4B Spring 2013 Newsletter

Posted by David on May 29, 2013
Expenses and benefits, HMRC, News articles, Payroll, Status / Comments Off on ET4B Spring 2013 Newsletter

019B_ET4B Spring 2013 Newsletter

In our Spring newsletter we consider a number of topical items including the ever-popular
question of employment status, an RTI update, and details of recently announced changes to
childcare tax reliefs.

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