For some years now employers have been able to payroll benefits for their employees. The obvious question for you as an employer is should you payroll your employee benefits? What are the advantages and the draw backs of taking such a step?
So, what are we talking about here? We are talking about employee benefits that you provide such as private medical insurance , company cars etc. Normally you report these once a year after the end of the tax year in form P11d.
But when you opt to payroll benefits, you include the cash equivalent of the benefit in the payroll run each month.
What benefits can you payroll?
It’s really up to you which benefits to payroll. However, once you have decided and the tax year has begun you have to continue to payroll those benefits. The only time you can stop is if the employee leaves or if you stop providing that benefit.
Your employee does however have the option to be excluded if they want.
You can potentially payroll most benefits apart from:
- Interest free or low interest loans (including director’s loan)
- Living accommodation.
In our experience if you are going to go down the route of payrolling benefits then you should go all in. Don’t be tempted to pick and choose because this will make the admin a nightmare.
Advantages of payrolling benefits
One of the biggest advantages of payrolling benefits is that the employees pay the tax each month via payroll. It means that the correct amount of tax will be paid each tax year. There would be no shocks of underpayment which sometimes happens when new benefit or new employment starts.
Most people like this because they don’t need to worry about amending PAYE tax codes and it removes the need to include any benefits in their tax return if they are completing one.
Also as an employer you will no longer need to complete form P11D for each of your employees so there should be some time saving at the end of the tax year.
Are there any drawbacks to payrolling benefits?
If you decide to payroll the benefits and your employees are happy too than that is great. But it does not remove the obligation to complete any further forms. Why? Because this is the only way you can pay the Class 1A National Insurance due on the benefits. You will still need to compete a form a form P11d(b).
Form P11d(b) is a summary of all taxable benefits you provide that attract National Insurance. You need to complete this form each year and submit it to HMRC by 6th July following the tax year. So, make sure you keep clear records of the benefits you payroll. Any liability needs to be paid over by 19th July.
Payrolling benefits is not right for everyone. You need to be sure that you are okay with the administration side of it and the staff running your payroll are fully trained.
The benefit values must be accurately established and correctly calculated. HMRC are known to impose penalties if there are errors when they inspect your payroll records.
What do I need to do to register for payrolling benefits?
If you decided that payrolling benefits is for you then you must register online You will need your Government Gateway Account. You must register before the beginning of the tax year.
If you don’t have a business Government Gateway account then read here
Once you have registered you must let all your employees know what you have decided to do. We would recommend that you send them all an email and failing that write a letter. It’s always best to have written evidence.
HMRC says you must send this notification by 1st June but really you should do it in April before they receive their payslip. It is important that you explain in the communication piece that they are not going to pay tax twice!
You also need to include the following:
- Details of what benefits you are going to payroll
- Any amount that you have payrolled under optional remuneration
- Anything that you have not payrolled
- Explain that their PAYE code will change because the benefit will be removed from the Code
- This is because the benefit will now be taxed directly in the payroll
If you want to consider payrolling benefits, please contact your normal manager at Myers Clark now. You’d need to register with HMRC this month i.e. March before the next tax year starts.
At Myers Clark we have extensive experience in client’s payroll and benefits. We would be happy to have an informal chat with you in the first instance to see what your payroll and benefit structure looks like and how we can help. Please email Priya at priyar@myersclark.co.uk and she will be happy to help