Payrolling Benefits in Kind

If you provide benefits in kind to your staff and are currently preparing P11D forms at the end of the tax year to report the taxable value of these benefits to HMRC, then you may wish to consider payrolling those benefits.

In April 2016 HMRC introduced the facility for employers to payroll the taxable benefits paid to their employees.  This is an entirely voluntary process which allows an employer to add the cash equivalent of the benefit as a nominal adjustment to the employee’s taxable pay processed through PAYE.  Once the value of the benefit is included in their taxable pay, the tax for the employee is calculated, collected and paid on the benefit in real time throughout the tax year.

When are applications due?

Applications to payroll benefits have to be made on or before the start of the tax year in which the employer wants to move to this system.  The deadline to apply to payroll benefits for 2018-19 is 5 April 2018. Once you have opted to payroll benefits, it will be assumed that you will continue to payroll benefits in future years.  

What is the process to register for payrolling of benefits?

Before contacting HMRC, you should first ask your software provider if your payroll software will allow you to payroll benefits.  If you use HMRC’s Basic Payroll Tools rather than third party software this will allow you to payroll benefits.  

Once you have confirmed that your payroll software is suitable, you can register with HMRC through their payroll benefits and expenses online service

In this service you can select which groups of benefits you want to payroll.  You do not have to payroll all the different types of benefits you provide.  HMRC’s systems will automatically identify all employees who have the benefits you have chosen to payroll in their tax code.  HMRC will remove the benefit from their tax code (to ensure that the tax is not collected twice) and a new code will be issued.  It is the employer’s responsibility to inform their employees that their codes will change.  HMRC do not provide a template letter for this and you must ensure that you inform all relevant employees.

If there are individual, or groups of, employees receiving a benefit where you do not wish to payroll some or all of those benefits, you can elect to opt these employees out using the online service.  It is possible to exclude a maximum of 300 employees with this system.  It is not necessary to opt out an employee who is not receiving a benefit. 

What about end of year forms?

If you opt to payroll all the benefits suppled to all of your staff you will not need to prepare P11Ds for individual staff at the end of the year.  However, you will need to prepare a P11D(b) to pay your Employers Class 1A National Insurance on relevant benefits.

If you choose not to payroll all of the benefits you provide, then any benefits not payrolled need to be reported on individual P11Ds in the normal manner.

Are there any excluded benefits?

If you provide the following benefits to your staff, these cannot be payrolled and must be reported on a P11D in the usual manner:

  • Living accommodation
  • Interest-free or low interest loans subject to the beneficial loan interest charge.

Where can I go for further guidance?

Further guidance from HMRC on payrolling benefits can be found here.  HMRC also have a short recording of a Talking Points webinar which provides an introduction to payrolling here.