Are you fed up with completing end of year forms P11D?

12 November 2015

Payrolling of benefits for tax

From 6 April 2016 employers will have an option to tax benefits through payroll and this means it will no longer be necessary to report payrolled benefits on P11Ds. Most employees will welcome the change as it will mean PAYE code numbers will be easier to understand, more accurate, and a great deal simpler

How it will work?

The employer will calculate the benefits during the year and then add the amount calculated to the payroll so that the tax is collected in the year. The payrolling option only applies to tax and does not extend to national insurance.

Issues to consider

  • Employee communication. 

  • Changes to payroll systems so that the correct amount of NIC is deducted and reported separately at the year end.

  • Changes to procedures to ensure the value of the benefit is calculated correctly and captured in the payroll – this is especially important when it comes to changes in benefits during the year.

  • The new rules will not apply to living accommodation, loans, vouchers, and credit cards.

  • Understanding complex rules in relation to insufficient income and making good.

The end of dispensations

Running alongside the payrolling of benefits, next year will also see the end of PAYE dispensations. Currently employers are required to report employees’ business expenses on P11Ds unless they have obtained a dispensation. From 6 April 2016 an exemption for business expenses will remove this requirement, making dispensations invalid. 

Issues to consider

  • The exemption will not apply to expenses provided in conjunction with salary sacrifice.

  • Employers will need to ensure that only tax deductible expenses are paid without being reported on P11Ds or payrolled – meaning you need sufficient processes and policies in place to identify any expenses not covered within the exemption. The exemption will also apply to scale rate expenses paid in an approved way. 

  • Employers who already have HMRC agreement to pay bespoke scale rate expenses must, before 6 April 2016, notify HMRC that they want this to continue or agree a new scale rate with HMRC. There is likely to be a rush of employers doing this in the lead up to the April deadline and so early contact with HMRC is advised.

How RSM can help

These changes will have a significant impact on employers and key decisions will need to be made. Should you wish to consider payrolling the benefits currently reported on your P11Ds, RSM’s team of specialists can help you evaluate the pros and cons of these changes for your business. To ensure P11Ds continue to remain compliant we can also help assess what should be reported taking in to consideration these changes. We can provide you with full details of the changes and explain how you can take full advantage of them. Our team will guide you through the changes that are needed in systems and processes and help you to communicate the changes to employees.

For further information please contact Graham Farquhar.