Having finished the annual P11D rush last month, it occurred to me this rush was meant to be confined to the history books as a result of the ability to payroll benefits now. However, in my experience to date, very few employers seem to be taking up the payrolling option – the lead up to 6 July was certainly as busy as ever in the office – for our employment tax team at least.
On the face of it, combining both the payroll process with the benefit reporting process should be a no brainer; it should reduce employer’s compliance time and costs. This was definitely the intention when the Office of Tax Simplification made payrolling benefits the first of its ‘quick wins’ for HMRC to implement.
If my experiences to date are the norm, what went wrong? Why are so few employers’ payrolling benefits? I believe the answer stems from how it was implemented. It would seem that HMRC rushed its implementation without considering how it would best work for employers.
First, we had the issue that if employers hadn’t registered by December 2015, then HMRC couldn’t guarantee the employees tax code would be updated in time for the start of the 2016/17 tax year, potentially meaning employees would be taxed twice until the updated tax code made its way to the employer. In the meantime, employers were clearly going to suffer the brunt of the employee’s complaints that they’ve been underpaid. A position no employer wants to be in!
The payrolling option also only allows you to payroll certain benefits, leaving the remaining benefits to continue to be reported on a P11D – employer provided accommodation and interest free loans cannot be payrolled.
Added to this, employers are still required to complete form P11D(b) to report and pay over the Class 1A on benefits that are payrolled.
Where a benefit is payrolled, the employer must also provide the employee with a benefit statement at the end of the tax year, no later than 1 June, outlining the value of the benefit and the amount that has been subject to tax.
With the above outlined limitations, particularly the fact that Class 1A compliance hasn’t been streamlined and that the benefit statement sounds like a P11D by another name (albeit with an earlier deadline), you begin to see why employers are not signing up for payrolling benefits.
So, who does payrolling benefits actually benefit? I doubt for most employers there is any significant compliance saving to be had, except for the fact form P46(car) no longer has to be filed if the car benefit is payrolled.
As far as I can see, the only winner here is the people responsible for receiving, cataloguing and reviewing the completed form P11Ds… HMRC!
In implementing payrolling of benefits in kind in such a way that employers do not see the benefit in signing up for it, HMRC has missed a golden opportunity. Taking a bit more time to ensure the benefit reporting process works for HMRC and employers alike, the take up by employers would be much greater and in turn, the volume of P11Ds received by HMRC significantly reduced.
Failing to consider how the implementation would impact employers, I suspect that HMRC will have achieved very little in its own compliance savings, and I look forward to HMRC publishing figures on how many employers have actually taken up the option.
Our employment tax team are able to offer support on both UK and international employment tax issues, and should you wish to discuss benefit reporting or any other employment tax issue with them, please contact Scott Campbell (firstname.lastname@example.org).