What is payrolling benefits?
Payrolling benefits is the process that allows an employee to pay tax on a month-by-month basis through the salary they earn in the tax year that they received the benefit.
Previously, we would have needed to fill out all the information on a P11D at the end of each tax year, meaning employees paid the tax in the following year. HMRC would then collect the tax on benefits by reducing the employee’s personal allowance.
The advantages of payrolling taxable benefits, is the tax is correct in the current year without any underpayment retrospectively claimed by HMRC the following year.
Example
Fred drives a company car. Under the P11D system, at the end of the tax year, the taxable benefit is calculated as £3,600, this is entered on a Form P11D and is submitted to HMRC to be included in his tax code.
Using payrolling, the taxable benefit is calculated before the company pays Fred by adding a twelfth of it, i.e., £300, to his taxable salary each month.
P11D(b)s
To ensure all required Class 1A National Insurance contributions are paid, a P11D(b) form for all benefits in kind (regardless of whether they are payrolled or declared with a P11D) must be submitted annually before 6th July for payment by 22nd July.
For the new tax year 2021/2022
If you are interested in moving from annual P11ds to payrolled benefits, then we must register the company by 31st March 2021.
We have therefore provided a declaration/ questionnaire for you for you to complete on your client portal. Please complete this whether you do/do not provide benefits. You can then declare whether you wish to continue with annual P11d or move to payrolled benefits.
Please note for 2021/22 only
P11D’s for the tax year 2020/2021 will be produced in the coming weeks, and tax due on these benefits collected as previous years, through the tax code issued by HMRC. However this may mean an increase in tax for the coming year as payrolling benefits would reflect the correct tax for the tax year 2021/2022. At the end of 2021/2022 there would be no requirement for a P11D resulting in no arrears of tax due in respect of the benefit.
We will gather the information from the questionnaire in respect of 2020-2021 P11D’s.
If you would be happy to move to the payrolling benefits scheme for 2021-2022, please sign the section on the questionnaire.
If you would like to talk to us in more detail about payrolling and its advantages for you and your employees (or staff) then call us on 012234 444555