Pauline’s Payroll Problems — P11Ds & Payrolling Benefits

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Hooli is a generous employer and their HR Manager, Pauline, is about as diligent and considerate as they come. 

Ever since she joined the company seven years ago, she has made it her goal to ensure that all of Hooli's employees are happy and fulfilled each day—both professionally and personally. 

She has championed many causes, including: 

  • enthusiastically campaigning for employees to receive vouchers for cool and interesting restaurants near the office;
  • passionately supporting the idea of providing staff with access to free medical insurance; 
  • and, when lockdown started, she even organised for healthy foods to be delivered to each employee's house!

You can't really ask for much more than that from an HR professional, can you? 

The thing is, Pauline has been a keen advocate for employee benefits in spite of the fact that they have been a real administrative burden for her. 

Employee benefits: what’s it all about?

Employee benefits are an excellent way of attracting talent and retaining staff. But what are the rules and regulations in place around them? 

Benefit pain points 

When Pauline arrived at Hooli back in the summer of 2014, Hooli used a benefits provider to manage their third party relationships and employee communications. This included total reward statements and all of the information the employees would need to choose their benefits.

Hooli's finance manager was not too keen on this costly outgoing and decided that Pauline should take over duties herself. 

While this did undoubtedly save money, Pauline was suddenly required to deal with stakeholders and with all internal communications relating to benefits. Added to this, she also needed to understand the benefits Hooli provided and their individual tax implications.

The task was a daunting one, particularly as she had never performed such a role before. 

Just nine months into her role, Pauline faced her biggest challenge yet: the end of the tax year. 

Having left the previous benefits provider in the autumn, she was required to gather all information concerning Hooli's employee benefits and submit them on a P11D form. 

Without any prior knowledge of benefits processing or any significant support from her superiors, Pauline was forced to learn on the job and manage the whole process from start to finish.

Collecting all the relevant information was a lengthy and stressful process. Nevertheless, she did manage to get it done and ready for processing on each employee's P11D.

However, she didn't realise that the different benefits being processed had different tax implications depending not just on what they were but how they were administered and funded.

This error went unnoticed until after the P11Ds had already been submitted. This relatively simple, yet quite serious, mistake could not be resolved on the payroll software Hooli was using at the time.

The knock-on effect was pretty severe and, as is the case with all P11D resubmissions, paper submissions had to be sent to HMRC

Did you know?

If benefits are submitted on a P11D, employees will owe tax on benefits at the end of the tax year.

Payrolling Benefits in Kind (PBIK)

After all the problems experienced in 2015, Pauline was desperate to find an easier way of processing benefits. 

Thankfully, in April 2016, she was relieved to see a new system introduced that allowed benefits to be processed in an entirely different way. 

Payrolling Benefits — what does it mean?

Payrolling Benefits in Kind (PBIK) allows companies to alter the way they are taxed and the manner in which they report their expenses and benefits to HMRC.

Payrolling Benefits in Kind – often referred to as PBIK – was introduced to simplify the benefits process. 

With tax being collected in real-time, as opposed to the end of the tax year, and without the need to amend tax codes regularly, the change certainly made Pauline's life a helluva lot easier. 

Did you know?

Unfortunately, not all benefits can be processed via PBIK. Beneficial loans and employer-provided accommodation still have to be done via a P11D.

How did PayFit help? 

The switch to the PBIK system made Pauline's life more comfortable; however, she still felt that something was missing. 

Although she understood that processing benefits was part and parcel of her role, she was desperate to find a payroll solution that could further support her and simplify the process. 

Thankfully, PayFit was at hand. 

Payrolling benefits through PayFit really could not be easier. All that Pauline has to do is activate a toggle on the app.

Tax is subsequently collected through payroll and the P11D(b) is submitted to HMRC for employers with Class 1A NIC amounts due to be paid on the benefits. 

In addition to this, PayFit covers the tax and NIC requirements on most benefits automatically, meaning that Pauline does not have to spend her time working out what should be subject to tax and what should not.

Since switching to PayFit, Pauline estimates that the time she spends processing benefits has reduced by up to 75%. 

Get the support you need with PayFit

If you too would be interested in benefitting from PBIK, it is important to note that the deadline for signing up is 5 April. Applications can be made via your company's HMRC account.

Should you wish to follow Pauline's lead and simplify your company's payroll processes, then why not book a demo with one of our product experts today? 

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PayFit blog author

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