Registration for payrolling benefits & expenses
If you wish to payroll any benefits and expenses, you must register with HM Revenue and Customs (HMRC) using the payrolling employees taxable benefits and expenses service. You must do this before the start of the tax year.
Using the online service for payrolling benefits and expenses means that you won’t have to submit forms P11D. You must tell HMRC which benefits you want to payroll during the registration process. The tax codes for all employees receiving these benefits will be amended to remove restrictions, unless you exclude any employees that you don’t want to payroll benefits for in the online service.
If you miss the registration deadline, you can’t payroll benefits until the following tax year. However, HMRC may agree that you can informally payroll benefits, but you will still need to complete forms P11D at the end of the tax year and mark each P11D ‘Payrolled’. This stops HMRC collecting tax that has already been deducted from your employees.
Please be aware that from 6 April 2018 all employers will be required to include details of car and car fuel benefits in their monthly PAYE full payment submissions. To prepare for this you must ensure that your payroll software is adequate to deal with these new reporting requirements.
Benefits you can payroll
You can payroll all benefits except:
- employer provided living accommodation
- interest free and low interest (beneficial) loans
You must still report the above benefits on a P11D, even if you’re payrolling other benefits for the same employees.
Currently only the tax element is collected via the payroll and a form P11D(b) will still need to be completed after the year end to account for the Class 1A NIC due and payment made to HMRC.
Telling your employees
Once you’ve registered to payroll benefits, you must provide your employees with a letter explaining what you’re payrolling and what it means for them. You must also provide your employees with the following information before 1 June after the end of each tax year:
- details of the benefits that have been payrolled, for example car fuel
- the cash equivalent of each benefit that’s been payrolled
- separate details of any benefits you haven’t payrolled
You can include this information on your employees’ payslips or in a separate note or statement. If your employees complete a Self-Assessment tax return they’ll need these details so they can report them to HMRC.
Salary sacrifice all change!
From 6 April 2017 the taxable value of benefits in kind, provided where earnings are foregone in exchange for the benefit, will be the higher of the earnings foregone, and the taxable value determined under the benefits code. i.e. the higher of the salary sacrificed or say the car benefit charge.
There is some good news. Firstly, these changes will not affect arrangements where employees are sacrificing salary for pension contributions, pension advice, cycle to work schemes, ultra-low emission vehicles, certain employer supported childcare, and intangible benefits such as annual leave and flexible working.
Furthermore, there are transitional rules which mean that salary sacrifice contracts entered into before 6 April 2017 will be protected until the earliest of:
- the date on which the salary sacrifice contract ends, or is changed, modified, varied or renewed; and (the planning point here is, if you have an existing arrangement then think carefully before making any changes that might jeopardize the tax reliefs currently being enjoyed)
- 6 April 2018 – for all benefits except non-ultra-low emission cars, living accommodation, or school fees, in which case the final date is 6 April 2021.
But if an employee starts a contract on or after 6 April 2017, the new rules will need to be applied immediately for that employee.
Trivial benefit exemption
PAYE Settlement Agreements (PSA) where the employer meets the tax and NIC on behalf of their employees for certain items are expensive, as tax and NIC is calculated on a grossed up basis. This equates to an effective rate of over 40% for a basic rate taxpayer and over 90% for a higher rate taxpayer.
Two of the most common items included on a PSA are staff entertaining and staff gifts. HMRC introduced a new trivial benefit exemption on 6 April 2016 and some of these costs may now be exempt.
From 6 April 2016, non-cash gifts and staff entertaining costing up to £50 per employee per occasion (including VAT) will be exempt from tax and NI if:
- They are not part of a salary sacrifice arrangement; and
- They are not a reward or in recognition of work undertaken by the employee.
Non-cash vouchers of up to £50, such as store vouchers may now be covered by the trivial benefits exemption. Historically, vouchers have always been taxable and liable to NI. There is no limit to the number of gifts an employee may receive (with the exception for directors of close companies where there is an annual limit of £300).
In conclusion, treats for Birthdays, etc. can be exempt if under £50 per person, but those for celebrating meeting a business target, will remain taxable. As with all employee expenses and benefits in order to make use of the tax breaks available you must keep detailed records which are available to present to HMRC in the event of a PAYE enquiry.