Update on HMRC and real time benefits reporting

Employer Comments Off on Update on HMRC and real time benefits reporting

Further to our web news item of 15 April 2015 we are reminding you that from April 2016, HMRC are keen for employers to voluntarily move away from P11D reporting and report benefits in kind (BIKs) in real time each time an employee is paid.

The move to tax the value of BIKs in real time has cash flow advantages for HMRC but Class 1A NIC will still be payable by the employer on the payrolled benefits along with anything still reported on P11Ds after the tax year end. It will suit DWP also as the value of benefits in kind will eventually be factored into Universal Credit awards opposed to just cash earnings as a present.

Please note that we are advised that there is still no payroll software for the payroll taxation of BIKs. We understand that this is being developed. So before registering with HMRC you should establish if your payroll software will be able to handle the new approach to payrolling and that the correct entries are being made. Given the lack of HMRC guidance currently available it may well be more sensible at the moment to delay registering year 1 to let things settle down.

If your software will be complaint by April 2016, you can register with HMRC to become an authorised employer. You would then be able to select employees, those for whom BIKs are to remain reportable on forms P11D, to be excluded from the registration by name or national insurance number. On receipt of the registration, HMRC will remove the selected benefit(s) from the participating employees’ tax codes for the tax year 2016/17 and set a flag to stop the benefit being reinstated. For 2016/17 employers cannot payroll: loans, living accommodation or vouchers all of which need legislative changes to redefine the Cash Equivalent value. If the registration is completed by end of December HMRC say they will issue the new codes in January but as they don’t propose to support this with any guidance until the end of December many employers may not do so.

To payroll BIKs the employer must calculate the cash equivalent value of the BIK minus any amount made good by the employee and divide this by the number of pay periods left in the tax year. This figure is then added as a notional addition to gross taxable pay. It should not be added to gross NICable pay unless the amount is subject to Class 1 NICs rather than Class 1A NICs. There is a further figure complication where the notional amount would cause the 50% regulatory limit (i.e. the maximum amount of an employee’s gross pay that will be liable to income tax will not exceed 50%) to be breached. In this case the whole notional amount is excluded from the tax calculation and carried forward. Where this is the case it will mean that by the year end the original calculations of the cash equivalent value may need reworking. This will also be the case if the BIKs are newly offered to an employee or removed during the year. The employer will also want to know the amounts that have been added to the notional pay in-year so that they can account for the Class 1A on those values that will be due post year end.

For 2016/17 there will be no P11D entries for any payrolled BIKs. There may though be partial P11Ds for:

  • those who have some BIKs payrolled and some reported at year end, and
  • for those who have had payrolled BIKs for part of the year but were then excluded as it was determined that they would have insufficient cash pay for the rest of the year to allow the ‘headroom’ for tax on a national amount (e.g. those who go on maternity or sick leave)

Full P11d reporting will be required for any employees who were excluded at registration. If cars are payrolled no P46(car) forms must be submitted, nor the company car online reporting tool used by the employee as this could lead to the benefit being reinstated.

So with no further guidance due until Christmas, it may be preferable for P11Ds to continue until this becomes mandatory. It will be interesting to see quite how popular this brave new world of real time benefit reporting is!

If you have any queries or would like further assistance with regard to BIKs please give me a call.