What is it and what is the benefit?
The statutory framework
for taxing benefits and expenses has changed. You can now deduct and pay tax on
most employee expenses through your payroll, as cash equivalent amounts, rather
than using employee tax codes, (through the P11D form).
Payrolling is a voluntary
arrangement, but using the P11D means that adjustments must be made to tax
codes, and often there is a delay, overpayment or underpayment in tax. The main
benefit of payrolling, to both employer and employee, is that tax is reported
and paid in real time, avoiding the danger of under/over paying tax. It also
means less adjustments to employee’s tax codes in the year.
If you choose to payroll
car benefits, you will also no longer be required to submit the P46 (car) form.
All benefits and expenses
can be payrolled except the following:
(low interest/interest free)
For these, the P11D must
still be used.
How to Payroll
Payrolling must be
registered for in full tax years, which must be done before the beginning of
the tax year. Future years of payrolling are then registered for automatically,
unless HMRC are informed otherwise. If you have not registered before 5thApril,
you must still use the P11D. Once you have registered, you must continue to
payroll for the rest of the tax year.
You can register on HMRC’s
website at https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll
From here, you can select
which benefits you wish to payroll and HMRC will automatically identify the
relevant employees using their tax code.
At the beginning of each
tax year, you must calculate the cash equivalent amount (which is then divided
by the number of pay periods in the year, which gives you the notional value of
the benefit in kind for each month) and this is then added to the employees
pay. Tax can then be deducted on that total pay.
For further guidance on
payrolling benefits and expenses, see https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll