Payrolling benefits The government is proposing a new method of taxing benefits-in-kind made available and expenses paid to employees. Instead of returning such items on Forms P46 (Car), P11D, P11D (b) or P9D, all employers will be required to deduct and account for tax on all benefits and expense payments provided to employees through the payroll, by April 2011, at the earliest. A number of UK employers already elect to use this system by informal agreement with their Tax Office, many of these doing so without reporting benefits-in-kind to HM Revenue & Customs (HMRC) at or before the 6 July deadline following the tax year of provision. Under ‘payrolling’, employers put benefits-in-kind and expense payments through the payroll, performing the necessary ‘cash equivalent’ calculations and thus meeting employees’ tax obligations in real time rather than at an indistinct point sometime after the end of the relevant tax year. HMRC recognise that an exact cash equivalent value may not always be available straightaway. One option would be to allow employers to include in the payroll a best estimate of the amount of income likely to be chargeable to tax in respect of each benefit, with the true figure being adjusted at a later date by the employer or HMRC. Employers would still need to keep records about benefits and expenses provided, including how any estimated value was arrived at. There are, however, certain practical difficulties that need to be resolved. For example, where it has not been possible to account for all the tax due in the employment through the payroll or a value is included in a particular pay period where there are insufficient cash earnings to meet the actual tax liability. It is envisaged that all employers will be required to provide just one figure annually, summarising the total value of benefits and expenses included in the employee’s gross pay on a modified Form P14. The level of information currently requested on Forms P11D/P9D would not be replicated on a modified P14/P60. The employer only Class 1A NIC liability total would be reportable on revised Form P35, but there are currently no proposals to change the payment date for Class 1A NIC or introduce an employee Class 1 charge on all benefits. The number of PAYE tax code changes issued by HMRC should be reduced and employees will have greater certainty over the amount and timing of their tax liability. The government is also considering removing the £8,500 threshold used to differentiate between P9D and P11D reporting. However, before doing so it wishes to understand what the issues might be for low-paid, part-time or voluntary workers that receive benefits on which employees would become liable for tax and employers Class 1A NICs, if the threshold were removed. The consultation paper, Including Benefits in Kind & Expense Payments in the Payroll – A Fresh Approach, is available on the HMRC website and runs until 14 March 2008. Any policy change would be reassessed by HMRC within three years of implementation. Paul Tew, Pay Magazine Snowdrop provides a range of Payroll solutions that are fast, flexible and easy-to-use, to suit the many and varied needs of each organisation. To find out more about the software and services that we provide, please click here >>