Payrolling P11D Benefits

With another tax year passed and the impending filing deadline for P11D’s of 6 July approaching, I have received a number of questions regarding payrolling of benefits on a monthly basis rather than submitting a P11D form on an annual basis; although it does not remove the need to file form P11(b) on an annual basis. So, with the government potentially pushing towards this method of reporting benefits is it worth thinking about now?

First things first and probably the most important consideration is that you must sign up before the start of the tax year; the upshot being that this will allow you time to evaluate the current process and put in place procedures to ensure a smooth transition for your business and employees.

The advantage is that the employee can see their benefits on their payslip along with a monthly deduction without it affecting their tax code and hopefully reducing any pertinent questions you may receive from a disgruntled employee with a large tax code change after submitting forms P11D on their behalf. It also removes the risk of an under or overpayment of tax on the employee’s behalf.

Although this may sound like a great idea there are a number of downsides which currently exist:-

  • The current system allows you to payroll all benefits including cars but excluding living accommodation and interest free loans; so it is quite wide ranging however it is interest free loans that is the main one that trips some of our clients up.
  • Form P11D(b) Employer declaration will still need to be completed on an annual basis identifying the amount of Class 1A National Insurance your business must pay with the amount still being due for payment by 22 July 2017 if paying electronically.
  • You must update HMRC of any changes to your employees benefits as soon as they occur so the correct amount of tax is paid. The downside here is that although HMRC have not cracked down on this there is the potential for fines to be implemented for late submissions as they will be easier to track if payrolling.
  • The tax deducted through the payroll cannot exceed the usual 50% threshold so if you have a director or maybe an employee on sick pay the amount of tax deducted will be limited and an adjustment will be required at a later date.

So is it worth thinking about for next year? Certainly it is on a case by case basis dependant upon the benefits you usually declare and there will be further weight added to the case if HMRC allow you to pay the Class 1A National Insurance due on a monthly basis although this is currently not possible.


Blog written by Jamie Hall

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