A Reminder About Payrolling Benefits in Kind

For many years it has been the employer’s responsibility to report employees’ benefits in kind by the submission of a P11D by the 6th July following the end of the tax year that is 5th April.

Employers now have the option to collect the tax on benefits in kind provided to employees via the payroll without having to submit forms P11D to HMRC. The payrolling benefits system covers most benefits, except for living accommodation and beneficial loans.

The main advantages of using the system are:

• The employee pays the tax due as soon as the benefit is made available
• The employee will no longer need any adjustments to their tax code

The employer will be required to calculate each employee’s annual benefits (which would have previously had to be recorded on form P11D), apportion them between the respective pay period and then add these to the employee’s employment income for that period on the payroll.

Employers will still need to calculate the Class 1A National Insurance contributions on the cash equivalent (or relevant amount for optional remuneration) and complete form P11D(b).

If an employer chooses to use payrolling of benefits during the 2022/23 tax year they must register with HMRC before 5th April 2022 at the latest. As soon as an employer has registered, they must give their employees a letter explaining that benefits in kind are being payrolled and what it means for them.

Employers must also write to their employees before 1^st of June after the end of the tax year providing the following information:

• details of the benefits payrolled, for example, car fuel
• the cash equivalent of each benefit payrolled
• the relevant amount payrolled for optional remuneration
• details of the benefits you have not payrolled.

It should be clear to employees:

• which benefits have been subject to PAYE tax
• how much of the value of each benefit has been collected and tax reported on.