Payrolling taxable benefits and expenses has been possible since 2016. It complements the submission of payroll information through Real Time Information. As a result, certain expenses and benefits can be taxed immediately. This is done through the employee’s earnings. Otherwise, expenses would be taxed later, through tax codes. So, is there an advantage?
The crux of the matter is the employer’s bureaucratic burden. Does payrolling taxable benefits and expenses reduce it? In one respect, yes. Basically, it does away with the end of year P11D. However, this comes at a price.
Unfortunately, you can’t payroll all benefits. Beneficial loans and accommodation benefit are among the exclusions. In such circumstances, a P11D is still required.
Let’s look at an example. A director with a company car and a beneficial loan. The car benefit can be taxed via the payroll. However, the business must account for the beneficial loan on a P11D. It’s dealt with on a delayed basis, through the director’s tax code.
NICs are excluded
National Insurance Class 1A contributions are also excluded. So, for all payrolled and non-payrolled benefits NICs must be returned annually on a P11Db.
No reduction in paperwork
Regrettably, payrolling taxable benefits and expenses doesn’t mean less paperwork. To apply employers must register with HMRC before April 6. Afterwards, they can use the facility for the following tax year. Importantly, you must inform directors/employees. Send a letter following registration confirming the benefits and expenses included.
Notify full details
Next, give employees full details. Notify them at the end of the tax year and before June 1. Advise the benefit or expense included. Also confirm the cash equivalent of the benefit. Include details of amounts payrolled under an optional remuneration scheme. Finally, notify details of any non-payrolled benefits. Directors/employees need this information for their Self-Assessment Tax Return.
Calculating actual cost
It’s up to employers to work out the actual cost. This is the benefit per pay period. Take monthly paid employees as an example. The payroll amount depends on the number of days in the pay period. Typically, this is 28, 30 or 31 days.
Errors and penalties
What happens if you make a mistake? Basically, HMRC will consider penalties. It assesses all incorrect P11D/P11Db returns submitted at the end of the year.
Missed the deadline?
Don’t worry if this year’s deadline to apply has passed. Here’s what to do. First, fill out your P11D/P11Db in the usual way. Then, submit it by July 5 following the end of the tax year.
Talk to our specialists
Payrolling taxable benefits and expenses can be complex. We can help. Contact our payroll team on 01785 243276.