Payrolling benefits, what is the impact and will it benefit a business?

On 16 January 2024 the government announced that they intend to mandate the payrolling of benefits-in-kind from April 2026. As is often the case with this type of change, there will be a consultation period and may well be significant changes before finalisation. However, it is worth considering what the proposed changes will mean to your business so you can be prepared for implementation.

In preparation any business not currently payrolling benefits should now make sure they, or their responsible department is fully prepared, but don’t panic, these changes won’t become a mandatory requirement until April 2026.

But what is payrolling benefits? 

Ordinarily, it is where the employer adds the cash equivalent of a taxable benefit, such as private health care, to the monthly salary for the individual, and tax deducted at source. Any benefit including gym membership, company cars etc will be included so it is important to review all staff benefits. 

You may ask yourself why is this being changed? it is not just another government way to reduce their costs or increase the amount of tax they receive. It is a better way to simply the treatment of income tax and NI and avoid costly errors. There are also some key savings.

• As an employer savings will be:
  • Reporting of income tax and Class 1A NICs on benefits in kind (BIK) will go through payroll software.
  • (BIK) categories more streamlined. Reduction of admin burden.
  • Register (BIK) types with HMRC to ensure accuracy of employee tax code.
• For your employees:
  • Payslip will display (BIK) type and taxable amount.
  • Accurate tax code

There are still certain requirements with relation to P11D forms. These are:

• Employers still need to submit P11D(b) forms by 6 July after the end of the tax year but do not need to complete P11D forms.
• The P11D(b) is required to report the employer’s Class 1A national insurance contributions (NICs) due on the payrolled benefits. You, as the business will also need to ensure all NIC liability with relation to payrolled benefits is paid by 22 July.  

The Process

Using a monthly payment processing period, the process to calculate the amount to be payrolled is straightforward:

• Firstly, establish the amount of taxable benefit for the year.
• Divide this equally by 12 (months of the year).
• Add this amount to the salary as a notional payment to be taxed, and where applicable NIC (Employers’ contributions calculated).

It is important to note that at this time not all benefits have to be payrolled, that is up to you as the employer to decide, together with the type of benefit procured.

If you do not already payroll benefits you will need to register with HMRC before start of a new tax year April 6^th.

Whilst this may seem complex, help is at hand. Our expert Payroll team can advise you or make it even simpler if you outsource your payroll function to us.

To find out more contact Elaine Lynch to arrange a quick chat or contact us.