HMRC wants employers to embrace real time benefits reportingby
Kate Upcraft looks at HMRC’s plans for employers to move away from P11D reporting and embrace reporting BIK in real time.
Last week HMRC released the registration tool for payrolling benefits-in-kind which has now assumed the new acronym PBIK. From April 2016, as part of a package of reforms to benefits in kind taxation, HMRC are keen for employers to voluntarily move away from P11D reporting and embrace reporting benefits in kind in real time each time an employee is paid.
Moving to the capture of the value of benefits in kind in real time, as opposed to post year end, has an obvious attraction for a cash strapped government even though Class 1A will still be payable by the employer on the payrolled benefits along with anything still reported on P11Ds after tax year end. It also removes another resource-heavy processing peak from HMRC to payroll teams. Additionally it will suit DWP in due course for PBIK to become statutory so that the value of benefits in kind can be factored into Universal Credit awards as opposed to just cash earnings as at present.
If you are an employer processing many P11Ds for health insurance for example (and HMRC say that 95% of the nearly 4m P11Ds are for health insurance) you might jump at the chance to put this through the payroll. I deliberately didn’t suggest as an agent those will appeal as I know PBIK will be unwelcome if P11Ds currently deliver an income stream for the tax team. And this is the nub of the issue with payrolling: controlling your clients’ enthusiasm!
As we speak there is still no payroll software specification for PBIK. It is promised for mid-November but given that payroll software needs to be signed off by the end of December that would leave just six weeks to design, build and test a new gross-to-net process. As the gross-to-net is obviously the engine of payroll software no one wants to rush changes through. So before your clients register with HMRC you need to establish if your payroll software will be able to handle the new statutory approach to payrolling. You may not even be aware if your clients are payrolling already. They may be one of the estimated 3000 current payrollers who are adding notional values to gross taxable pay to tax benefits through the payroll, although one hopes they realise that where you do this the FPS field for payrolled benefits needs to be populated. This then deducts the notional amount to put the individual back on the same footing as a P11D recipient for Universal Credit purposes.
The current payrollers are a particular challenge. They will be unaware that the way they have payrolled on a non-statutory basis will not be appropriate from April 2016 as the regulations are very prescriptive about how the gross-to-net is configured. If your software cannot accommodate statutory payrolling they will have no choice but to unravel what they have been doing for years and revert to P11D completion. HMRC have said they will be in touch with this group, although its not clear that they know exactly who they are or when they plan to do this.
If your software will be compliant by April 2016, new adoptees and existing payrollers must register with HMRC to become ’authorised employers’. The tool to do this allows the employer to select employees, who are to remain with the selected benefit reported on the P11D, to be excluded from the registration by name or national insurance number. On receipt of the registration, HMRC will remove the selected benefit(s) from the employees' tax codes for the tax year 2016/17 and set a flag to stop the benefit being reinstated. For 2016/17 employers cannot payroll: loans, living accommodation or vouchers all of which need legislative changes to redefine the Cash Equivalent value, so may be available for payrolling in April 2017. If the registration is complete by the end of December HMRC say they will deliver the new codes as part of the annual coding run in January but as they don't propose to support the PBIK tool with any guidance until the end of the calendar year many employers may not do so.
Before each gross-to-net the employer must calculate the cash equivalent value of the BIK minus any made good figure from the employee and divide this by the number of pay periods left in the tax year. This figure is then added as a notional addition to gross taxable pay. It is not added to gross Ni’able pay unless the amount is subject to Class 1 NICs rather than Class 1A NICS. The complication with the regs is that where the notional amount would cause the 50% regulatory limit to be breached the whole notional amount is excluded from the tax calculation and carried forward. Where this is the case it will mean that by year end the original calculations of cash equivalent value may not be hold good and may need reworking, as will also be the case if a payrolled benefit is newly offered to the employee or removed during the year. I would suggest that most clients will also want to know the amounts that have been added to notional pay in-year so that they can account for the Class 1A on those values that will be due post year end.
At year end 2016/17 there will be no P11D entries for any PBIKs nor any ‘substitute listings’ as have been required for non-statutory payrollers and will still be for 2015/16. There may though be partial P11Ds for:
those who have some benefits payrolled and some reported at year end, and
for those who have had PBIKs for part of the year but were then excluded as it was determined that they would have insufficient cash pay for the rest of the year to allow the ‘headroom ‘for tax on a national amount (eg those who go on maternity or sick leave)
Full P11d reporting will be required for any employees who were excluded at registration. If cars are payrolled no P46(car) forms must be submitted, nor the company car online reporting tool used by the employee as this could lead to the benefit being reinstated – I’m not sure why if the ‘PBIK flag’ has been set on HMRC systems?
So with no guidance due until Christmas, no software spec until mid-November and an agent community that might prefer P11Ds to continue until this becomes mandatory it will be interesting to see quite how popular this brave new world of real time benefit reporting is.