To start payrolling benefits in kind, employers must register with HMRC before the start of the tax year they want to begin payrolling from.
This is a reminder that if you wish to payroll benefits for the upcoming 2022/23 tax year, and you have not previously registered with HMRC to do so, then you will need to register by the deadline of 5 April 2022 at the latest.
What is ‘payrolling’ a benefit?
When an employee’s taxable benefit (such as private medical insurance or a company car) is payrolled, the taxable value of that benefit for the pay period is added to their taxable pay in the payroll. The income tax due is deducted from their gross pay in real time and paid to HMRC.
Payrolling acts as an alternative to forms P11D for reporting employee benefits, which are usually filed annually following the end of the tax year.
Three advantages of payrolling benefits
- Payrolling is voluntary, not mandatory, but it could help you get ahead of the curve. In view of HMRC’s digital agenda it may become a mandatory requirement sooner rather than later, and possibly with very little notice.
- Tax is deducted from the employee’s pay in real time, so it smooths the tax impact to the employee, particularly in the first year of providing the benefit when HMRC will not have included the benefit in the employee’s PAYE code.
- Payrolled benefits do not need to be reported on forms P11D, and so it reduces the need for P11D compliance. Following the tax year you will, however, have to issue the employee with written details of the benefits payrolled (along with some other information).
Payrolling benefits will require changes to current procedures and consideration should be given to these before registering with HMRC.
For a more in depth overview of payrolling benefits, as well as how RSM can help with the transition, see our previous article and accompanying flyer here.