If you are an employer and you are not already payrolling your benefits then you will need to get ready for these changes. And to payroll benefits you need to have registered to use HMRCs payrolling benefits and expenses online service before the start of the relevant tax year.
What does it mean to payroll benefits?
This means that benefits in kind are taxed via payroll and to do this the cash equivalent of the benefit is included in the employee’s pay
What are benefits in kind?
These are benefits given by an employer to their employees which are not part of their salary or wages. Some of the most common examples include; company cars, Electric Vehicle Salary Sacrifice, medical or dental insurance (including critical illness), cash plans, gym memberships etc.
Please note that life insurance and income protection insurance are not considered benefits in kind.
How does payrolling benefits in kind work?
As an employer you will need to use HMRC approved PAYE payroll software that includes the benefits in kind functionality. The employer will need to calculate the amount of the taxable benefit provided and then divide that figure by the number of months in the tax year.
This amount will be treated as a notional payment and subject to tax only.
As an example; if an employee is paid monthly and the employer intends to payroll a benefit with a value of £1,500, an amount of £125 (£1,500/12) is put through payroll each month and taxed accordingly.
What should employers be thinking about now?
- Employee Cashflow – If you are an employer who currently doesn’t payroll benefits or chooses to exclude certain benefits from payroll then what impact is the change to payrolling all benefits going to have on your employees cash flow position – as when you initially switch some will be effectively be paying tax twice in the same tax year.
- Data – Employers will be required to report benefits in real time via payroll each month and as such careful management of data is going to be crucial in doing this correctly and compliantly.
- Employee Communication – Explaining the changes to your employees will be really important, to aid them in understanding their tax reporting requirements and changes to their monthly net pay.
- Payroll Software – Does your current payroll software support payrolling benefits effectively? Will your service/package need upgrading? Would it be sensible to run some payroll testing ahead of time?
How can Harding help you?
We can run your payroll and advise on and manage your employee benefits package, taking the regulatory and administrative weight off your shoulders.
Our payroll software is very effective in payrolling benefits in kind and we can also support you in providing employee communications. If you would like to discuss our services or this upcoming change to legislation further, please don’t hesitate to contact us.