Historically, when employees are provided with benefits-in-kind they receive a P11D at the end of the tax year, which states the total benefits received in the year. The employees must then pay tax on these benefits either by including the information on their self-assessment tax return or by an adjustment to their PAYE code to collect the tax in the following tax year.
Since 5 April 2016 it has been possible to include benefits within payroll, meaning that the employee will pay tax on the benefit throughout the year. This reduces the need to prepare individual P11Ds and provide these to employees, who then need to ensure they pay any tax due on the amounts.
All benefits can be payrolled, except beneficial loans and living accommodation. When company cars are payrolled there is no need to submit the P46 car form as all details are included in the full payment submission.
The car details or value of any benefit can be adjusted throughout the year to ensure the correct tax is being paid.
If you want to start payrolling benefits, you need to register to do so before the start of the tax year and will then need to start payrolling the benefits in the first pay period. When you register you must tell HMRC which employees and which benefits you are going to be payrolling. HMRC will remove the benefits from the employees PAYE codes so that they are not paying too much tax.
At the end of the tax year, the employee’s P60 will include the total taxable income i.e. the taxable pay as well as the value of payrolled benefits.
Although P11D forms are not required to provide to employees, a P11D(b) is still required to be submitted to include the value of all benefits that have been payrolled in the year so that you/the employer can pay Class 1A NIC.
If you are interested in payrolling benefits, you should speak with your payroll provider to find out if this is a service they can offer. If you want to do this for the 2022/23 tax year, you need to register by 5 April 2022.
Whilst this is still optional, given the push for digitisation of the tax system, we are expecting payrolling benefits to become mandatory at some point in the relatively near future.