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News // 21/12/2015

HMRC benefits in kind

PAYE legislation is changing from 5 April 2016, so employers who intend to or are already payrolling benefits and expenses must register with HMRC using the new online Payrolling Benefits in Kind (PBIK) service.

Businesses will be required to align their existing payroll software and register to payroll using the new service. After this date companies will not be able to register for the 2016/ 2017 tax year as HMRC cannot process changes in-year.

In order to avoid being sent multiple tax codes, businesses will also need to register before the annual coding process, which usually starts around 21 December.

In addition, P11D (b) forms must still be completed, including the total benefits and expenses provided, whether or not they have been put through the payroll.

However, if employers payroll car and fuel benefits, they must not complete P46 (Car) forms as they are deducting the tax at source that is due on these benefits.

The only benefits that cannot be payrolled using this new service are:

  • vouchers and credit cards
  • living accommodation
  • interest free and low interest (beneficial) loans

These must still be registered using the P11D form in the usual manner.

Before making the first main relevant payment to an employee in a tax year, businesses need to calculate the cash equivalent of the benefit.

They will then be required to determine the number of payments to be made to the specified employee in the tax year and divide the cash equivalent by the total number of payments to be made.

The resulting amount is the taxable value of benefit, which should be added to the payroll each pay cycle as a notional value. It is then necessary to deduct or repay tax as usual by reference to the employee’s code, even if this is the subject of an objection or appeal.

These changes bring with them an additional burden for businesses and some may need to seek clarification ahead of the change.

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