Payrolling & P11D issues: an overview
Currently if an employer wishes to provide what is deemed a Benefit In Kind (BIK) to an employee, there are normally tax and/or National Insurance (NI) implications, and the liabilities are reported on the form P11D or P9D annually, explains the CIPP's Diana Bruce.
HMRC then marry the P11D information to data supplied by employees via their self-assessment tax returns and or the employer end of year information and calculate the tax due and adjust the individual’s tax code accordingly. There is also a Class 1A NI liability for the employer on some BIKs which are reported on form P11D (b) annually.
In 2007 the CIPP lobbied for a change in this process, along with members of the Admin Burdens Advisory Board (ABAB); a consultation forum set up to challenge HMRC regulations and burdens. The proposal, which came about from a HM Treasury’s initiative of aligning PAYE and NICs, was to replace the reporting structure with BIKs being taxed and NI applied at source, otherwise known as “payrolling”.
Research conducted by the CIPP and ABAB found that opinion fell into three areas regarding BIKs reporting, namely:
Continued...
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Employee's NIC on Benefits
Employees have to pay NI contributions on their salaries. Employers have to pay NI contributions on both the salaries and the benefits in kind provided to employees. I do not see any logical justification for employees being spared NI contributions on benefits.
The law should be changed so that employees are liable to Class 1 NI contributions on their total remuneration whether paid in money or in kind.
Then, make it the law to payroll all taxable benefits and to stop the requirement to report the reimbursement of business expenses, both of which can be verified by PAYE inspections.
That would bring an end to P11Ds, Class 1A NIC, many of the adjustments to PAYE codes (basically, only recovery of unpaid tax would remain) and employees having to claim under s.333 ITEPA 2003 for business expenses. It would also improve the Revenue's cash flow with monthly payments during the tax year rather than on 19th July following the end of the year and of course, if Ee's NICs are payable, would increase the tax take. Payroll software would require no complicated rewrite to include pay elements subject to tax and Er's NIC, but not to Ee's NIC. No need to change the P60.
Simple!