Deadline Looming: Payrolling of Benefits

30th Mar 2021
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There are so many moving parts to Tax Year End and this year is no different.

Along with IR35 legislation, a new age for the National Living Wage (23) and all of the normal changes to NI and PAYE thresholds, it’s easy to miss the other thing that happens on 6 April - namely that you’ve missed the boat again for putting your Benefits in Kind (BiKs) through the payroll system rather than the P11D process.

Any business wanting to payroll their benefits for the 2021/22 tax year must register with HMRC before the end of this tax year.

The advantage of payrolling benefits is that employees are being taxed on the benefit at the same time as they are having the benefit, rather than in the next tax year.  This transparency should help reduce the number of queries.

Similarly, once they are set up, the administration is very simple as the amounts are accounted for automatically in each payroll cycle - with additional work only generally required for new or terminating employees.  Reporting is taken care of by the FPS process.

And of course, for most employers this will also remove the need for the administration of P11Ds.

Did you know? Deemed employees under the IR35 legislation can all also have any Benefits in Kind accounted for via the payroll system.

Registered businesses can payroll all BiKs with the exception of:

  • living accommodation provided by the employer, and
  • beneficial loans, i.e. zero or low interest loans

Both of these still need to be reported via the P11D process, even if other benefits have been payrolled for the employee.

Employers still have a duty to tell employees: that their benefits will be payrolled; which benefits will be payrolled; the cash equivalent value of those benefits and about any benefits not being payrolled.  However, some or most of this can be done via payslips for example.

Lots more details and information about Payrolling of Benefits can be found here.

There is one other important thing to check though.  Your payroll software must be able to take care of Payrolling, i.e. keep the records, perform the calculations and make the submissions in the FPS.

If you want to use the efficiency of payrolling benefits, but your current payroll software doesn’t allow it, then there is still time to switch to a cloud software such as KeyPay.

But remember, if you don’t register by 5 April you will have to spend another year using the P11D system before you get the chance to make the change again.

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