Payroll - Payrolling Benefits
Background comments from HMRC
Changes in the Finance Act 2015 allow HMRC to collect income tax on most benefits in kind through the payroll from 6 April 2016. Employers who register with HMRC to use the online payrolling benefits-in-kind (PBIK) service will not have to report them on a P11D form. For the Income Tax year 2017-18 the deadline for registration with HMRC is 5 April 2017. Employers will not be able to register after this date for 2017/18, because HMRC is unable to process changes during the tax year.
The payrolled benefits and expenses will still have to be entered and included on the P11D(b) form, regardless of whether they are included in the payroll. If the employer has payrolled car and car fuel benefits, they will not have to complete P46(car) forms, because tax is being deducted at source.
If an employer payrolls benefits, this should present a much more efficient manner of collecting the correct amount of tax through the fiscal year. It will also obviate the requirement for repeated adjustments to an employee's notice of coding and, in addition, remove the P11D reporting requirements for those payrolled benefits. In an ideal world, employers should have already registered for the PBIK service to avoid multiple tax codes being issued to employees. There would also be the risk that the employee could suffer double tax on the benefit, through the payroll and also the restricted tax code. As a result, employers who register now for 2017/18 should ensure their employees tax codes reflect the correct benefits.
Payrolling of benefits and expenses
Once registered with HMRC you may add the cash equivalent of the employees' benefits to their pay and then tax them through your payroll. HMRC will make sure the value of the benefit is not included in your employees' tax codes.
If you use the service you:
- won't need to use form P11D
- still need to work out the Class 1A National Insurance contributions on benefits and complete form P11D(b)
- You can exclude employees from payrolling once you are registered, but you will need to send a P11D to declare the non-payrolled benefits.
Once the tax year has started you will have to payroll the benefits for the whole of the tax year, or until you stop providing them.
Registration for payrolling benefits and expenses
Registration for payrolling benefits and expenses together with further guidance and information from HMRC is available by following the link www.gov.uk
Once you have registered to payroll benefits, employees must be provided with a letter explaining payrolling and what it means to them.
Setting up payrolled benefits on the system
If the eventual P11D(b) associated with the payrolled benefits is to be filed via the system, activate the tracking of expenses and benefits for P11D purposes. If it is not, then this is not necessary. Personnel P11D Expense and Benefit Tracking is activated via the Optional Features tab, under Organisational Profile.
Control - Organisation Profile - Optional Features
Tick the Personnel P11D Expense and Benefit Tracking box. A prompt to switch on payroll may also be seen. Payroll will need to be activated even if it is not to be used for pay purposes.
Those benefits for payrolling that have been registered with HMRC are set on the Configure payroll screen.
Payroll - Configure Payroll - PAYE Settings - Payrolled Benefits Tab
Select the payrolled benefits on the Payrolled Benefits Tab and SUBMIT to confirm
Each benefit being payrolled will need to be set up as a Pay Element. Payroll Elements are set up and maintained from the menu item under Configure Payroll. A payroll element is simply an item of remuneration or deduction which is to be included in the calculation of net pay, in this case each benefit. Pay elements will appear as line items on an individual payslip.
Payroll elements are usually set up once, but occasional maintenance may be necessary Payroll elements are set up via the Configure Payroll menu.
Payroll - Configure Payroll - Payroll Elements
Click ADD ITEM and give the element an appropriate name and from the element type drop-down select 'Payrolled Benefits'
Select the Payment Pattern. A Recurring Fixed Amount will appear with the same value in each relevant pay period, until amended. A Recurring Variable Amount will appear with a blank value in each relevant pay period; enter the value on each occasion. An Ad Hoc Amount will appear only the once and will clear once a payroll run has been finalised.
The Impacts PAYE Gross? box will default to being ticked. Do not tick any other of the boxes.
The Account drop-down is greyed-out as it is not necessary as no accounting will take place.
SAVE ITEM confirms the entry. By clicking on ADD ITEM on each occasion the user can enter further Elements. UNDO ITEM cancels the current line item data.
SUBMIT confirms and stores the pay elements.
Setting up the benefit cash equivalent
Once appropriate payrolled benefits pay items have been set, each employee/director who enjoys the benefit will need the cash equivalent value to be set before the payroll run that will apply the tax deduction.
Set pay in the normal way.
From the Manage Employees menu click on Pay and deductions from the Action Menu for the relevant employee.
Personnel - Manage Employees - Action Box - Pay and Deductions
Click ADD ITEM to start and select the Pay Element from the drop-down list. If a pay element is not available, it can be created via the Configure Payroll menu.
Enter the Quantity of the payrolled benefit to be extended by the rate.
Enter the unit Rate for the payrolled benefit; As an example, an employee has a company car with a cash equivalent of £5,200 for the year. They are paid on a monthly basis so the pay element rate is set at £433.33 (£5,200/12)
The system extends the quantity by the rate to determine the Amount. SAVE ITEM confirms the entry. By clicking on ADD ITEM on each occasion the user can enter further Line items. UNDO ITEM cancels the current line item data.
Click SUBMIT to store the information.
Determining the cash equivalent value
The cash equivalent of a benefit is calculated in the same way as it would be done for a benefit reported on a P11D form. If the user is not sure what the value of the benefit is at the start of the tax year, make an estimate and then adjust when the exact figures are known.
The system may be used to get an estimate by using the P11D function, this is particularly so for cars, vans and car and van fuel.
Where an employee chooses to make a payment towards the cost of the benefit, known as 'making good', the cash equivalent amount is reduced by the contributed amount. A little more information is available from HMRC at www.gov.uk
Next Steps
Having set the parameters and the cash equivalents run the payroll as normal. See the Payroll - Running a Payroll user guide.