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Payrolling benefits: Draft regulations published

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21st Jul 2015
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The move towards the end of the P11D continues on with the publication of the draft regulations to support the introduction of the first benefits to be available for voluntary payrolling in April 2016.

For employers who register to move to payrolling when the registration tool is launched this month, four benefits will be available to be payrolled from the start of the next tax year. These are: Cars and car fuel, health and dental insurance, medical treatment and taxable subscriptions (for example to a gym or for a non-qualifying membership).

The registration is mandatory for any employer who wants to start payrolling from April 2016 or is already payrolling on a non-statutory basis. As part of the registration, employers can elect to move all employees into payrolling for all or a selection of the available benefits, or can exclude some individuals if they wish to remain submitting a P11D on their behalf. Registration is likely to remain open until the end of this calendar year for the next tax year start in order that benefits can be removed from codes for the affected employees from April 2016. I share the scepticism that some of you may have that they should not remove the benefit from all employees in year one as not all tax on a new benefit will have been collected, but HMRC assures me this is not an issue.

An employer and employee will remain in payrolling for a full tax year once registration is made unless the employee no longer has sufficient income for the tax to be collected in this way in which case payrolling is withdrawn with immediate effect. It’s not clear how HMRC has to be notified of this and whether this withdrawal of payrolling occurs the first time that the employer cannot deduct the requisite tax from the pay that is being processed, or only if the employer believes that the tax due on the benefit(s) cannot all be collected by tax year end.

At the start of the tax year the employer is expected to assess the expected cash equivalent value of the benefit, deduct any amount to be made good by the employee and then spread the resultant taxable benefit over the expected pay periods to the end of the tax year by adding a notional amount to gross taxable pay. The amount that is payrolled will be reported within a specified field on the FPS (that already exists to capture the amount for employees whose employers already does this on a non-statutory basis) such that all employees are treated as if a P11D had still been submitted and so that the notional amount is ignored in computing entitlement to Universal Credit. Where an employee leaves, the employer is expected to recover the remaining tax for any payments after leaving. This clause will need finessing in my opinion.

The draft regulations cover the situation when a benefit changes, is awarded or withdrawn in-year but does not seem to deal with what happens where the 'made good' amount (or assumed amount) changes, which will definitely happen for example where an employee is moved to a temporary workplace so what had been private mileage now becomes tax-exempt business mileage.

As well as P11Ds not being required for payrolled benefits P46 (car) forms will be withdrawn where cars are being payrolled.

Class 1a we assume will still be paid over annually so payroll software will need to accumulate the notional values for tax so that the Class 1a can be paid supported by the overarching P11D(b) and any Class 1a and P11Ds for non-payrolled benefits.

     

Kate Upcraft is the author of the Payroll Unplugged blog.

Replies (4)

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By barbaracordner
21st Jul 2015 15:17

any benefit?

Am Wondering is there any benefit to us in adopting payrolling of benefits early? 

 

When is it likely to become statutory?

 

It seems like there will be additional payroll work involved in payrolling benefits which will not be cost effective in terms of saving time on an annual p11d which has just car, and possibly medical benefit.  I think it is easier to gather year end information June/July for a P11d particularly in terms of car changes rather than having to keep up to date with changes on a real time basis.

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By NYB
22nd Jul 2015 11:13

More Payroll Work

Oh well - first RTI then AE now Payrolling benefits. More and more shoved on to the payroll!. Lets open a book to see what will be next. There must be something.

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By User deleted
22nd Jul 2015 12:10

Must be thick ...

... but the benefits that can be pay-rolled are all one that are collected via the tax code. 

Thing is, how does it work, if healthcare insurance paid annually, does it only hit one payslip or is it pro-rated?

Can't really see much different with the test 4 expenses, other than instead of reducing the tax code you are increasing the taxable pay.

The benefits being trialed are not ones that have ever caused a problem, it is all the other crud that gets paid that cause the P11D headache, and effectively reporting these weekly or monthly will just make that headache 52 or 12 times worse, thing like beneficial loans etc!

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Replying to slowthinker:
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By NYB
22nd Jul 2015 12:43

Tax Coding Benefits

Exactly what my accountant husband has said. it works well.

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