You may already be among the vast number of employers who have already registered to payroll benefits, but if not, act now to register from 6 April 2020!
In April 2016, the payrolling of benefits scheme was introduced to allow flexibility for employers surrounding the taxation of benefits and how they are reported to HMRC. The changes enable employers to process taxable benefits through payroll with tax paid in ‘real-time’. This removes the requirement to report benefits on a P11D form after the end of the tax year, reducing year-end compliance for the Company and also a reduction in confusing tax code adjustments for employees!
In summary, the key benefits that this scheme brings to employees and employers are as follows;
|Simplified process||Tax collected on a real-time basis meaning reduction in tax underpayments|
|Cost savings due to reductions in administration||Reduction in adjustments going through their tax code as payrolled benefits no longer captured in tax codes|
|Removal of the requirement to submit P11D forms||No longer need to wait for their P11D to complete their tax return as benefits total included in P60 for the year|
|P11D(b) form is only annual form required to declare total benefits payrolled in the year and Class 1A NIC contributions due||
Although this scheme brings numerous advantages, one thing that employers and employees should be aware of is that as the scheme increases P60 taxable pay for the year, this could have an impact on any state benefits/tax credits that individuals are entitled to, or the amount of child maintenance/court order payments to be made. We recommend to businesses that a communication is shared with employees in advance of the scheme starting outlining the changes.
Whilst the scheme is optional just now, many expect that given its success, it may eventually become compulsory once HMRC work out how to include benefits that can’t currently be reported via payroll (accommodation and beneficial loans ). In addition, we would hope that a further change would be the collection of Class 1A NIC on a monthly basis to remove all year-end admin.
If this scheme interests you, it is not too late to register for the 2020/21 tax year. Registration is open until 5 April 2020 and can be completed using your online HMRC dashboard.
If you require any assistance or would like any further information on payrolling benefits, please do not hesitate to contact Megan McDonald or your usual AAB contact.
By Megan McDonald, Payroll & Employment Taxes Assistant Manager
To find out more about Megan and the Payroll & Employment Taxes Team, click here.