Employers providing benefits in kind to their employees can reduce their year-end paperwork by payrolling those benefits.
Payrolling benefits allows employers to deal with the tax on their employees’ benefits as part of their regular payroll activities by adding the cash equivalent of the benefit to their salary each pay period. Payrolling also allows employees to pay the tax on their benefits in real time, and can reduce the amount of paperwork at the end of the tax year.
If you want to payroll benefits for the upcoming tax year 2024 to 2025, you will need to register online with HMRC before 5 April 2024.
HMRC has announced that payrolling will be compulsory for benefits from 2026. Signing up this year therefore gives you a chance to get ahead of the curve.
Payrolling and paperwork
You can choose to payroll some, or all, of the benefits you offer. The only benefits which currently can’t be payrolled are living accommodation and interest-free or low interest loans.
When it comes to the end of the tax year, you won’t need to submit a form P11D for any payrolled benefits. However, you will still need to submit one for any benefits which are not payrolled.
Instead of giving your employees a P11D, you will need to provide them written notification explaining what benefits you have payrolled. This can be via letter, email or payslip, but needs to be given to the employee by 1 June after the end of the tax year. More information on what needs to be reported to employees and when is available online.
If a Class 1A liability is payable on any benefits you provide, you will still need to submit a P11D(b), even if the benefit is payrolled.
If you do have to file a P11D and/or P11D(b) these must now be submitted electronically. HMRC recommend you file using one of the following methods:
More information
Further information on payrolling and reporting expenses and benefits in kind is available on GOV.UK.
This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.
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