HMRC retires online P11D form for small companies
The decommissioning of HMRC’s Online End of Year Expenses and Benefits service will come as a surprise and inconvenience to the many small employers that have used it. Ian Holloway advises on the other options for payroll managers of smaller companies.
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Clear and succinct as always - although it might have been useful to remind that registration for Payrolling Benefits (any for which registration does not already exist) has to be completed before the start of the Tax Year ... so that option for 2022-23 BiKs is long gone.
And "also poses the question of whether the employer should make more radical decisions going forward" ... would you like to elucidate, Ian? Oh go on, go on .. you know you want to!
I remain unconvinced about payrolling benefits - HMRC keeps extolling it's virtues but I'm yet to see who actually benefits except HMRC themselves. For medical benefits it's usually simple with one annual figure to divide by twelve, but others are more complicated and putting them in a monthly payroll doesn't save work for employers and employees still pay the tax - now just brought forward.
And employers still have to file the P11D(b) at the end of the year so class 1A gets paid. Surely it would be best to enable that to be included in the payroll too, and save what should be unnecessary work?
As for mandating, this has been a voluntary option for a few years now and still no sign of it being mandated, nor of a solution for those two benefits that can't be payrolled.
I see why HMRC wants it, and how it could help them (and therefore potentially the taxpayer), but I'm still not at all positive about it on employers' and employees' behalf, nor my own as someone who does payroll and P11D's for clients.
Ah ... not sure how radical that is (guess it depends on how averse to change one is), but wise words. Thanks.
One quibble ... "payrolling a benefit is not more complicated than that (putting through an annual salary on a monthly/weekly basis)".
I know what you mean, but there are some extra complexities that can arise ... depending on the T&Cs of the benefit provider.
In particular with regard to early termination of the benefit (because employee leaves part-way through the year), or where the benefit year doesn't align with the tax year, or where the employee elects to change the cover in mid-year, or any temporary period without pay that may/may not mean temporary suspension of the benefit.
The common factor with all those is that, unlike salary, it is not the employer's remit to decide on any variation to the regular amount to be taxed as notional pay ... so they will need to have identified the constraints imposed by the supplier's T&Cs and pre-determined within their employment T&Cs how those scenarios will be processed.
I guess that's just one part of why "it took at least 6 months to get everything in place" ... so I agree it is a real 'project' to make the move - not just a few more payroll elements to add in to your software.
And that's the problem. Every employee requires paying (so putting in place the mechanism & processes to do so is expected); whereas in many businesses the number of employees with one or more BiKs is minimal (so the effort of putting in place the payrolling of benefits doesn't seem commensurate, whilst it remains optional).
I totally agree with you about the complexities that can (and do) arise. Although, we do have all of these complexities in day-to-day payroll processing, with starters, leavers, late overtime notifications, salary increases and decreases, non-notification of events requiring backpay and recalculations, maternity, paternity etc etc etc. The list goes on of things that we take in our stride and get on with, trying all the time to tighten up processes to minimise these things in the future.
Payrolling is a major project and all I am saying is that employers should consider whether it is achievable and, if not, what changes are necessary to make it become achievable. One of the biggest issues I had when payrolling medical benefits was getting the provider to tell me on a monthly basis when people had changed their cover level (on marriage etc). Premiums used to change in January and that was another exercise, changing all of the taxable values in the payroll. However, eventually, I was able to change my processes so that, effectively, P11D processing was done on a monthly basis rather than an annual one.
It wasn't easy but the biggest issue I had was getting buy-in from employees. That was a massive communication exercise with a remote workforce. But I did it and the employees could see that they were paying tax on the benefit at the time they were receiving the benefit. Of course, at the end of the year , I still had the P11D(b) exercise to go through but with all of the values in the payroll anyway, it was relatively simple to add up all of the values and multiply them by the relevant percentage.
Again, payrolling is a major change and I am not trying to give the impression it isn't. And I'm not saying that it is right or achievable for every employer for every benefit. But the move from voluntary to mandatory has to come, with HMRC already referring to the annual P11D process as a 'legacy' one. I just don't want employers to be taken aback when this does happen.
The two that cannot be payrolled at the moment are employer provided living accommodation and interest free and low interest (beneficial) loans. However, these do not make-up the majority of benefits that are provided to employees.
Payrolling is a radical change for all, however, it's a change that is going to happen anyway, so let's get ahead of the game and do it before legislation tells us we have to. In my opinion, of course.
Au contraire, by far the most P11Ds I complete as a small accountant acting for small companies is by reason of beneficial loans. If payrolling is to become compulsory and it can't accommodate that, then payrolling is no more useful than a chocolate teapot.
More generally, small businesses need payroll professionals to a) realise that micro employers (anything less than 1000 headcount to a payroll bod, it seems?) don't have payroll departments to spend all their time monitoring this stuff, and b) fight their corner on issues like this rather than rolling over and allowing HMRC to have what they want without even a murmur: take a leaf from the GP end of the profession and at least make a fuss a la MTD.
I have also worked in places where beneficial loans make up the majority of the P11D submission. The current way in which the benefit is calculated makes it something that is very difficult to payroll - perhaps time for that to change if it is ever going to be added to the list of benefits that can be payrolled.
From experience, though, I would say that medical benefit is the one that is the most common (and I wish I could find the statistics that said this made-up about 90% of the benefits reported on the P11D, though not 90% of the total £ value of BIKs reported)
Yes, medical insurance is pretty common although it still probably only appears on a minority of the P11Ds which I complete.
But I would rebut the assumption that even this is a good fit with payrolling.
Current position:
* P11Ds get completed once a year
* Accurate calculation based on actual costs in the tax year (probably based on 2 different insurance periods) and over staff coming and going, all in one pass
Proposed position:
* Ask for updates every month
* No deadlines to waive in the client's face to enforce timely compliance
* Change calculations as updates are informed to us
* Lots of backwards adjustment because those updates won't be timely
* 12 opportunities a year for staff to whinge / quibble etc rather than just the one
* Zero attempt (I'm guessing) at client education by HMRC will result in widespread ignorance of the change and also widespread turning a blind eye even by those aware there has been a change
How exactly is any of that an improvement? When will HMRC realise that it isn't what's good for them that is good for UK plc for tax collection but what's good for the taxpayers / the profession and HMRC as a unitary whole?
"In its simplest form, payrolling is where an employee puts the taxable value of an expense or benefit through the payroll, the P11D obligation is avoided altogether."
Although not the P11D(b).
And that is another thing that would have to change, I agree. If payrolling is to be made more 'attractive' to employers, if the benefit is subject to tax in the payroll it should be subject to Class 1A NICs in the payroll.
It was clear last year that HMRC wanted to limit the number of filing options.
However one client just couldn't register in time this year for in year P11D's partly because the process is so very complicated.
HMRC should feel grateful he tried.
See 'Other ways to apply' at https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-.... There is still the requirement to submit a P11D though AND payroll!
But I agree with you. Payrolling is obviously HMRC's preferred choice but they have to make the whole process easier for employers.
If the main purposes of these "benefits" is to keep the workforce healthy and productive, then I would regard this as a genuine business expense rather than a personal benefit to the employee to be taxed. This particularly when the NHS patently cannot cope with demand, and if anyone needs anything done to keep fit enough to continue work it has to be paid for.
This is very true - private medical insurance should be permissable as a deduction. As has been said it enables staff to be cured and got back to work with minimum absence.
Waiting 3-6 months for the NHS to do anything just doesn't make sense in the real world. The Government should be on bended knees, not to the NHS which is a shambles and not fit for purpose, but to the private sector and those who pay for it so that staff and others can get back to work and cease to be a potential burden to the NHS which wouldn't cope anyway.
Our P11D software (IRIS) doesn't allow you to send in a nil P11D(b) so the only current option if a nil return is needed is to use the HMRC service. Therefore if HMRC sends a notice to file and it is nil we shall have to go back to paper unless the software changes as otherwise there is a penalty which then has to be appealed etc etc. More wasted time.
And that is progress!
You can use this HMRC structured e-mail for agents, to advise that no P11D(b) is due. It works a treat.
https://www.tax.service.gov.uk/shortforms/form/EXBANoRtn?dept-name=&sub-...