Prior to April 2016, the only way to formally report company-provided benefits to HMRC, e.g. company-funded meals, medical insurance, service awards and gifts, was to submit P11Ds at the end of the tax year.
Not only was this a fiddly and manual process but it was also extremely time-consuming.
However, through changes that came in almost five years ago, companies now have the option to voluntarily use an HMRC online service named Payrolling Benefits in Kind (PBIK).
This new system has enabled companies to change how employees are taxed and the manner in which they report expenses and benefits to HMRC.
What is payrolling benefits?
Payrolling benefits is the process that allows an employee to pay tax on a month by month basis through the salary they earn in the tax year that they received the benefit.
Previously, companies would have needed to fill out all of the information on a P11D at the end of each tax year, meaning employees paid the tax in the following year. HMRC would then collect the tax on benefits by reducing the employee's personal allowance.
When is the deadline to sign up?
Although the service is voluntary, companies ought to sign up no later than 5th April 2022 to use PBIK for the 2022/23 tax year. The application can be made via their HMRC account.
If this deadline is missed, HMRC may agree that the employer can informally payroll benefits providing that they can justify the reason for missing the initial cut off point.
Even if a company is signed up to PBIK, they will still need to submit a P11D form and mark the payrolled benefits as "payrolled" on the form. This is so that HMRC know not to collect tax on this benefit again.
Why should you payroll benefits?
It removes the need for you to complete P11Ds on behalf of your employees. Not only does using PBIK save time but it also reduces the chances of making any manual errors, unlike P11Ds.
Employees pay the tax on the benefit during the tax year in which they receive it.
You can plan regarding which benefits you wish to process in this way.
The benefit's value is visible in the employees' taxable gross figure on their monthly payslip.
Important PBIK information
Companies that want to register for PBIK must do so before the start of the tax year. The registration is ongoing, meaning that there's no need to reapply each year.
They will also be required to inform HMRC via their online service about which benefits they wish to payroll and if they would like to exclude any specific employees from the PBIK scheme.
Companies will still need to submit a P11D(b) form to report and pay Class 1A National Insurance contributions (NICs) due on the benefits.
Should a company ever wish to deregister, they can use the same online service.
However, it is worth noting that this must be completed before the start of the tax year and can't be done halfway through.
What you need to know before payrolling benefits
You can only apply before the start of the tax year. Consequently, any benefits that are decided on or after the deadline can't be administered in this way.
Benefits such as employer-provided living accommodation and beneficial loans cannot be processed as a PBIK.
Once you've successfully applied for payrolling benefits, you must write to your employees to let them know what this means for them. At the end of each tax year, and before 1 June, you must write to your employees again to provide them with:
Details of the benefits you have payrolled
The cash equivalent of the benefit
Details of benefits you have not payrolled
Any benefits that have been payrolled for optional remuneration
PayFit and PBIK
Payrolling benefits on PayFit is straightforward. All that is required is for the toggle to be activated. Once this has been done, the benefits can be added to the app and subsequently payrolled.
The information contained in this document is purely informative. It is not a substitute for legal advice from a legal professional.
PayFit does not guarantee the accuracy or completeness of this information and therefore cannot be held liable for any damages arising from your reading or use of this information. Remember to check the date of the last update.