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Woman waving goodbye AccountingWEB A fond farewell to the current P11D process
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A fond farewell to the current P11D process

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Lora Murphy, CIPP editor, reminds businesses, accountants and payroll professionals of their current duties regarding P11Ds. She discusses recent changes to the process and looks ahead to 2026 at the significant developments being made.

24th Apr 2024
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Deadlines are synonymous with working in payroll. Anyone who deals with payroll knows there are certain dates in the year by which certain activities must be carried out and relevant reports or payments submitted. 

The deadline to send P11Ds to HMRC and employees who need one by 6 July is one of those deadlines that should be etched into your mind. If you haven’t already started thinking about doing this, here’s your polite nudge!

Additionally, a P11D(b) must be sent to HMRC by the same date, which confirms the amount of class 1A national insurance contributions (NICs) due from the employer. Don’t forget that the date by which those class 1A NICs must be paid is 22 July if paying electronically, or 19 July if paying by cheque.

Recent change

These are long established deadlines and processes which many will be extremely familiar and comfortable with. Last year, we saw a change to the way P11Ds could be submitted to HMRC. From 6 April 2023, the forms could only be submitted online and not in paper format, except in circumstances where the employer was deemed as being digitally excluded. 

Large swathes of employers were already sending their P11Ds online anyway so no big change for them, but organisations who previously sent paper forms have reported that this was a substantial change for them.

Although many are embracing the move to digital, it was felt that the announcement didn’t allow enough time for employers and payroll teams to get ready for the shift in process. An earlier notification could have been provided to iron out any problems which arose and to protect against unintended consequences of the changes.

What’s on the horizon?

So, unless you’ve been asleep, you’ll have seen there has recently been extensive discussion and coverage of the fact that from 6 April 2026, the payrolling of benefits in kind (BiKs) will be made mandatory. Or, at least, this is the timescale set out by HMRC. Time will tell if this deadline is feasible. 

This is something the payroll industry has long been preparing for, particularly as HMRC has been referring to the P11D process as the “legacy process” in its communications for some time now.

Based on the feedback regarding the move to online only P11Ds, we need to be mindful of the short timeframe being granted in which to make the move to mandatory payrolling.

HMRC has already been very actively engaging with stakeholders, including the Chartered Institute of Payroll Professionals’ (CIPP) policy and research team, to ensure the current hurdles we see in implementing the change can be ironed out ahead of the proposed implementation date.

So, what are the challenges we see?

  1. Some benefits can’t currently be payrolled

Not all benefits can currently be processed via the payroll. P11Ds must be submitted for those benefits even where employees have other benefits processed in real time through the payroll. 

This means you could be carrying out two separate processes for the same person, payrolling certain benefits for an employee, while also producing a P11D for them for those benefits which can’t be put through the payroll in real time. 

Those benefits are:

  • living accommodation provided by the employer; and
  • interest-free and low interest (beneficial) loans.

Before making payrolling mandatory, a way needs to be found to allow for the real time reporting of these types of benefits.

  1. Cashflow considerations

As the change will mean that tax is due on benefits in real time, this could impact some employees who are used to receiving their benefits one tax year and then paying the associated tax through their tax code in the following tax year. 

This is something that will need to be communicated well in advance of the change to ensure people can budget effectively and not put them into hardship. If this is not possible, it may be that the employer needs to think of a workaround process to help their staff through this period.

Equally, in the transition year (if this is when the employer opts to start payrolling benefits and not before), it could be that individuals have a tax code which reflects benefits enjoyed in the previous tax year, while also paying for benefits they are currently receiving in real time through the payroll. 

This would effectively mean double taxation during the transition year. Just another thing to think about in terms of protecting the financial wellbeing of staff, which employers of choice should be doing.

It is hoped that HMRC will propose some sort of remedy that will avoid any issues for employees and employers in this transition period. HMRC has previously stated that no such issues will arise, but stakeholders have been vocal that this may present challenges. As with any big change, communication will be key to ensuring there’s little to no backlash from affected individuals.

  1. P11Ds as a paid-for service

Many bureaux offer the P11D service as a bolt-on to their payroll services, and charge extra for this. While we’re not suggesting this falls under HMRC’s responsibility, it’s still something worth thinking about, as the change could potentially have an impact on the revenue of some payroll service providers and subsequently the level of service they’re able to provide.

There are other areas of consideration too, all of which the CIPP is hoping to raise with HMRC, through discussion with its members and the wider payroll profession. 

If you have any initial further thoughts or considerations on the move to the mandatory payrolling of benefits, contact the team at [email protected]. We will keep AccountingWEB readers up to date with any movements in this space.

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Replies (9)

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By FactChecker
24th Apr 2024 19:19

"Additionally, a P11D(b) must be sent to HMRC by the same date, which confirms the amount of class 1A national insurance contributions (NICs) due from the employer."
Might have been helpful to mention that 'the amount of class 1A NICs' *includes* those resulting from any relevant BiKs payrolled during the year (i.e. there's no longer any direct correlation between the P11D and the P11D(b) simply because RTI doesn't - yet - have the facility to include payment of class 1A in year)!

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By FactChecker
24th Apr 2024 19:37

But I really think the 1-2-3 of "what are the challenges we see?" is seriously flawed.

Probably the most important 'issue' (it's not a problem because there are solutions - just not ones that HMRC has acknowledged) will be communicating to individual EEs what is going on in their weekly (or monthly or whatever) pay.
When the idea of 'formally payrolling benefits' was being considered c 10 years ago, I brought this up with HMRC and they eventually published suggested templates (that I'd written for employees in the lead up to the first affected April) .. along with further communications for HR and Payroll depts to put on notice-boards, etc. Obviously that dates things - but digital company forums and EE messaging etc can achieve comparable results.

The points that HMRC had missed were:
* EEs are taxpayers and thus HMRC's 'customers', so should be informed of what was happening;
* EEs will, when confused or upset, typically first approach HR or Payroll (which is a major cost);
... and that's before you set any kind of standard for what needs to (I would say must) be explained via a Payslip.
And that's not as easy as it sounds - whether paper-based or digital, most payslips have a relatively pre-defined structure and are fairly tight for space. Whereas BiKs can not only be numerous, but can start and stop throughout the year - often with changing 'prices'.

Unlike what HMRC appear to think, the chances of the 'average' EE understanding the basics of Tax Codes is horribly low ... so when you add in weekly/monthly data that affects their net pay the chances are high that comprehension will sink beneath the waves. And that's without trying to explain why changes to their TC are usually 2-3 months after the thing that caused the change had itself changed!

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By Paul Crowley
25th Apr 2024 09:59

Not a farewell at all.
HMRC will not be able to figure out the loan thing on an appropriate basis. End balance is not known until the end
HMRC would need to change the rules for it to be viable.
Just like basis year was supposedly needed for MTD.
Quarterly reports essential for MTD? Still no explanation for that.

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By Vjacob
25th Apr 2024 10:04

The fact employers need to anticipate all your staff benefits in advance for the tax year seems a strange approach, if HMRC are serious about capturing everything using this method. Any employer with ad-hoc benefits effectively can’t use this method, as they are unlikely to have enrolled before the benefit is known. This will affect many small employers.

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By Mallock
25th Apr 2024 11:05

This whole move to payrolling benefits adds considerably to the admin pressure on small businesses and indicates clearly that HMRC don't understand how many small business owners operate.
Due to the complications of Real time payroll and auto-enrolment many small businesses outsourced their payroll but still do their own book-keeping.
I would think it is highly likely that a change in the premium for private medical insurance (probably dealt with by the Director) would not be shared with the book-keeper or be passed to the payroll processor.
Director's Loan accounts very often change when accounts are prepared because, as an example, the book-keeper posted the Director's personal tax fee to accountancy or items posted to entertaining were actually personal.
There is no way for this kind of thing to be incorporated in to payroll during the year for a very large number of small businesses because those involved don't know or understand the rules. As any accountant will tell you, trying to teach clients this stuff is nearly impossible - the client does what he does and the rest he leaves to the accountant.
This is the kind of tax policy we get when those designing it don't actually know what happens in real life.

Thanks (7)
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By adam.arca
25th Apr 2024 13:24

As an accountant, I work with clients at the small end of the market. Those who not only don't have HR or payroll departments but, most often, don't have a dedicated back office at all. That makes me pretty typical.

I just don't think that payrolling will ever work for this sort of client and no one will be a winner. The Revenue won't get accurate BIK tax as it arises, there will be added grief in the relationship between accountant and client as we try to keep them on the straight and narrow within the narrow timings allowed by payroll processing, and there will inevitably be increased costs for the client.

For me, all of that has been enough to give payrolling the big swerve so far. But now to discover that payrolling is to become compulsory but that the P11D process will remain for certain benefits just beggars belief. So, not only are we not getting rid of a process, we're going to be saddled with two processes where there was previously one. How exactly is that an improvement?

I appreciate that HMRC has a limited budget and that that is a political decision. But when was it decided that HMRC's job isn't to serve Joe Public, rather that it is Joe Public's job to serve HMRC as unpaid tax collectors and administrators? Or, to put it another way, when was it decided that HMRC's role as paper shufflers is more important to UK plc than Joe Public Businessman's role as wealth generators?

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Replying to adam.arca:
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By FactChecker
25th Apr 2024 19:07

"when was it decided that .. it is Joe Public's job to serve HMRC as unpaid tax collectors and administrators?"

Everyone will have their own 'favourite' answer to that one.
For me it was 1983 when Statutory Sick Pay was first introduced in the UK (with employers made responsible for paying sick pay for the first eight weeks of illness - although in those days you could reclaim it all).
Those were pretty much the exact words I used at the time!

Others may point to the arrival of VAT in 1973; older readers choosing others.

Thanks (4)
Replying to FactChecker:
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By adam.arca
26th Apr 2024 14:42

I would perhaps date it from the introduction of PAYE which I believe was the 1940s (I wasn't around to see it!).

Having recovered somewhat from my rant, I'll freely admit that there will always be a need for businesses to act as tax collectors / administrators but I feel most people would draw the line at the point where the business has given the Revenue the information it needs to do its job because actually doing the Revenue's job is, erm, the Revenue's job.

The difference with these proposals is that the Revenue seem to think they should have no responsibility at all and everything will be the employer's responsibility no matter how infeasible that is going to be to achieve in the real world.

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By PAULLEWISFCCA
29th Apr 2024 10:15

not that long ago workers got paid in real money (gold and silver) and HMRC had no cut - i think it was a better time

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