Introduction to Payrolling Benefits
Since the start of the decade, HMRC has encouraged employers to adopt payrolling benefits over traditional ‘P11d‘ declarations. This shift aims to simplify the handling of taxable benefits. But what is this shift, and why is it beneficial?
Understanding P11d
‘P11d’ forms have been traditionally used to report taxable benefits given to employees, with submissions due annually in April. These benefits vary from high-value items like diesel company cars to more eco-friendly options like electric cars, valued by their ‘cash equivalent’. However, this annual reporting method presents two challenges.
Challenges with the Annual Approach
- Administrative Overload: The conventional practice of compressing all reporting into a single month often leads to a peak in workload.
- Tax Surprises for Employees: Without consistent tax deductions throughout the year, employees may face unexpected tax bills, leading to dissatisfaction and confusion.
Simplifying Taxation Through Payrolling
By integrating benefits into the regular payroll, you distribute both the workload and tax implications over the entire year. This payrolling benefits system makes things easier for you and your team, making tax deductions predictable and gradual. While many opt for external payroll services, managing this system internally is also straightforward.
Setting Up Payrolling for Benefits
To initiate payrolling benefits, you must register with HMRC before the upcoming tax year – you can do this here. It’s essential to determine the ‘cash equivalent‘ for each benefit, which will be added monthly to the payroll. This amount reflects the taxable value, with the actual tax dependent on the employee’s tax bracket.
Final Steps and Confirmation
By 1st June at the latest, ensure that your employees are informed about the payrolled benefits, their taxable values, and exceptions such as living expenses or loans. This transparency helps employees understand their tax obligations directly through their paychecks.
Ongoing Management and Adjustments
After that, it’s simple. Just amend any time a taxable benefit is taken, withdrawn, or the taxable value changes. It’s crucial to keep your payroll records updated by adjusting any changes in the taxable benefits as they arise. We are committed to providing all necessary updates for new and existing benefits, ensuring that your employees remain well-informed.
Conclusion
Payrolling benefits streamlines the management of taxable benefits, helping you avoid year-end surprises and fostering clearer, continuous communication with your employees. Additionally, the lower taxable value of benefits like electric cars under this system could make options like salary sacrifices more appealing.