Payrolling benefits - what does it mean?

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Until quite recently, most company benefits - e.g. meals, health insurance, service awards, gifts, income protection etc. were added to P11Ds. However, this has now changed. Find out everything you need to know about payrolling benefits in this short article.

Back in April 2016, changes were made that allowed companies to voluntarily use an HMRC online service named Payrolling Benefits in Kind (PBIK). This new system enabled companies to change how the employees were taxed and the manner in which they reported to HMRC regarding their expenses and benefits.

What does payrolling benefits mean?

Payrolling benefits essentially means that an employee pays the tax on a month by month basis in the tax year that they received the benefit. In the past, companies would have been used to filling out all of the information on a P11D at the end of each tax year, meaning that employees paid the tax on the benefit in the following tax year.

Although the service is voluntary, companies ought to sign up no later than the 5th of April 2020 for them to use PBIK for the 2020/21 tax year and can apply online via their HMRC account.If a company misses this deadline for a valid reason, HMRC may agree that the employer can informally payroll benefits. This means that they can payroll the benefits; however, they will still need to submit a P11D form and mark the payrolled benefits as “payrolled” on the form so that HMRC know not to collect tax on this benefit again.

Why should you payroll benefits?

  • It eliminates the need for employers to complete long P11Ds on behalf of their employees. Not only does using PBIK save time, but it also reduces the chances of making any manual errors, unlike P11Ds.
  • Employees can pay the tax on the benefit during the tax year in which they receive it.
  • Companies are able to plan in advance regarding which benefits they wish to process in this way.
  • The value of the benefit is visible in the employees’ taxable gross figure on their monthly payslip.

What you need to know before payrolling benefits

  • Companies can only apply before the start of the tax year. Consequently, any benefits that are decided on after the deadline can’t be administered in this way.
  • Benefits such as employer-provided living accommodation and beneficial loans are not allowed to be processed as a PBIK.
  • Once you’ve successfully applied for payrolling benefits, you must write to your employees to let them know what this means for them.

Important PBIK information

Companies that want to register for PBIK must do so before the start of the tax year. The registration is ongoing, meaning that there’s no need to reapply each year. They will also be required to inform HMRC, using their online service, which benefits they wish to payroll, and if they would like to exclude any specific employees from the PBIK scheme. Companies will still need to submit a form P11D(b) form to report and pay Class 1A National Insurance contributions (NICs) due on the benefits.

Should a company ever wish to deregister themselves, they can do so using the same online service. It is worth noting though that this must be completed before the start of the tax year and cannot be done halfway through.

PayFit and PBIK

Payrolling benefits on PayFit is straightforward. All that is required is for the toggle to be activated. Once that has been done, the benefits can be added on the app and subsequently payrolled.

Interested in finding out more about how PayFit can help support your payroll processes? Then why not book a demo with one of our product specialists today?

PayFit blog author

PayFit blog author