Death of the P11D form!
From April 2027, ‘Benefits in Kind’ provided to employees/directors will, with only a couple of exceptions which are not common, have to be ‘payrolled’ rather than declared to HMRC on forms P11D at the end of the tax year. This can currently be done on a voluntary basis but it will become mandatory.
This means that an amount representing the benefit is included on the payroll each week/month. The employee will pay tax on this amount each pay period, and the employer will pay Class 1A on it throughout the year. At present the latter is paid in one lump sum after the end of the tax year.
It is meant to be administratively easier and to stop under and overpayments of tax arising at the year end, as the actual benefits are taxed in the year, rather than estimated benefits being included in PAYE codes or not included at all for new benefits. Not to mention they get their Class 1A NI earlier!
Of course, ‘the correct tax’ is only the case if the correct figures are included on the payroll in the first instance.
If you currently provide Benefits in Kind to directors/employees, at the moment we probably prepare your P11D forms each year, and we already ask you to keep us upto date with changes in year particularly new cars/car swaps.
If we also prepare your payroll, we already ask you to keep us upto date, this will be even more imperative as we lead upto April 2027, so that we are aware of benefits being provided at that time to bring into the payroll from 6 April 2027. We will need current details and this will be for all benefits, eg. Medical Insurance where we are unlikely to have details of the premiums being paid each month at that time.
If you prepare your own payroll, you will need to first ensure that the software you are using will allow for payrolling of benefits, but as this is becoming a mandatory requirement, we would have thought that all software, even if not now, will have this functionality from April 2027.
Then of course, you will need to deal with the benefit payrolling from April 2027, and you will need to react quickly to changes in existing benefits, new benefits provided, and cessation of benefits provided.
Regardless of who prepares the payroll, you need to be very aware of what constitutes a ‘Benefit in Kind’, so that nothing is missed and then needs to be corrected several months later.
Any corrections will need to be made by 22 July following the end of the tax year. Corrections made after that will incur penalties.
You are no doubt aware that the following are classed as benefits:
- Cars & Car Fuel
- Vans & Van Fuel
- Medical Insurance
- Some life insurances
- Loans (at nil or low interest rate)
- Accommodation
But other benefits are often missed, until we discover them when preparing year end accounts. Unless there is a specific exemption for something (eg. the provision of a Mobile Phone for mainly business use) or it can fall under the Trivial Benefit rules, then if the employer pays for anything that would normally be a personal expense, pays a personal bill, provides an asset to the employee for private use (eg we have one company/director with a motorbike), gives the employee a voucher, or gives an asset to an employee/sells it at undervalue to them – there is a benefit.
Also, Staff entertaining can be caught – if the cost of annual events (eg Christmas Party, Summer BBQ) is over £150 in total per person, the whole amount is taxable. Any other Staff Entertaining, say for a one off event is taxable in full.
Therefore, it is imperative that anything you believe might constitute a benefit is brought to our attention promptly, so that we can assess the tax position accordingly and it is dealt with correctly by whoever is preparing the payroll.
The calculation of benefits can be tricky, especially if there is any element of Optional Remuneration/Salary Sacrifice involved – and you may not know how to deal with some of the calculations, to get the benefit figure to include on the payroll.
We’re here to help with that for you, if you’re dealing with your own payroll, but we can only do this if you bring it to our attention and in a timely manner, so that you get your payroll right at the correct time.
The whole process will be a learning curve for you, and also for ourselves on the payrolls we deal with. The key will be recognising a benefit arises promptly and dealing with it straight away.
