Unique to the United Kingdom, the annual P11D process remains a muddle for many. A P11D is a statutory form required by the HM Revenue & Customs (HMRC) from U.K.-based employers detailing the cash equivalents of benefits and expenses that they have provided during the tax year to their employees. The process of filing Form P11D is an accounting function done outside of payroll and is often an afterthought for foreign businesses new to the U.K. The HMRC in the past few years launched a pilot program with some employers regarding the “payrolling of benefits in kind (PBIK).” The pilot program seems to have been successful. Employers can now voluntarily collect the tax via payroll on benefits provided to employees without having to submit Form P11D to HMRC. This process will cover most benefits except for living accommodation and beneficial loans.
Employers can continue to deal with employee benefits through Forms P11D at the end of the fiscal year, so every employer has a choice as to which route they should take.
In order to payroll benefits, employers will need to register with HMRC before the start of the applicable tax year, hence prior to 6 April 2017 for the 2017/18 tax year. This process will require the employer to calculate each employee’s annual benefits (which would usually have to be reported on Form P11D), then apportion these among their respective pay periods (i.e., monthly and add these to their employment income for that period on the payroll). Payrolling of benefits will mean employees no longer need adjustments in their tax codes for benefits in kind.
The following steps should be taken:
- The employer needs to register for PBIK with HMRC via the following link: https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll. As mentioned, this registration must be completed before 6 April for PBIK to be operated from the new tax year 2017/18. Once registration has been completed, no reregistration process is required moving forward. However, you can only PBIK from April; it cannot be set-up mid-tax year.
- The registration is continuous so you only need to tell HMRC if you decide to deregister. You can do this before the start of the tax year. If the tax year has started when you change your mind, you must wait until the end of the tax year before you stop payrolling.
- All benefits can be payrolled with the exception of employer-provided living accommodation and interest free and low interest (beneficial) loans.
- Your payroll provider would need a list of the cash benefits for each employee. When there is more than one benefit to be payrolled, each benefit needs to be itemised separately.
- Should you wish to PBIK company cars, the payroll provider would need the details of the car: registration number, make and model, engine size, date first registered, type of fuel, CO2 emissions, car list price, and date first used by the employee.
- Should you wish to make any changes in benefits during the year, advise your payroll providers with your standard changes submission.
- At tax year end, your payroll provider would calculate the class 1A due on the PBIK and also complete the
Form P11D(b). As mentioned, this is an additional service provided.
- If you decide to payroll benefits, you must communicate this decision to your employees.
As pay-rolling of benefits is voluntary and new, few payroll providers are publicising/advertising this at the current time. As it is a recent development, the payroll market wants to get a feel for the process via a couple of early adopters in order to establish the best way to manage the process.