Payrolling Benefits & Expenses

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.

What’s excluded?

All benefits and expenses can be payrolled except the following:

·         Employer provided living accommodation

·         Beneficial loans (low interest/interest free)

·         Vouchers & credit tokens

 

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

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