Benefits in Kind and Payroll

Benefits in Kind have to be reported via a P11D, as these are benefits an employee receives outside of the payroll but usually needs to pay tax for, such as a company car. There is also usually a National Insurance liability for the employer.

This is no longer quite true however, as now employers have the opportunity to report Benefits in Kind via the payroll instead.

Benefits in Kind and Payroll

The main advantage for the company of using payroll to report Benefits in Kind is that there is no longer a requirement to submit the P11D forms. You currently will still need to submit the form P11D(b) to report the Class 1A NICs liability, but this is far less onerous than multiple P11Ds.

The advantage for the employee is that they pay as they go, so should not discover a tax liability when they reach the end of the year. More employees should ultimately have standard tax codes, despite receiving Benefits in Kind.

What do you need to do?

To report Benefits in Kind through the payroll you must register your intention with HMRC before the start of the tax year. If you ask to register mid-tax year, HMRC may allow this but you would still need to produce P11Ds but mark them as ‘payrolled’.

You can register most benefits to go through the payroll, and it is possible to specify individual employees if you do not want their benefits to be processed in this way.

Is there any additional work to do?

Registration is an obvious addition, but once the company has registered that benefit it will continue to be included for payroll until HMRC is notified otherwise. There is no need to re-register the same benefit each tax year.

You also will need to notify your employees. Once you have registered, you should notify them that you will be entering the benefits via the payroll, and what this means for the employee. You also need to provide information after the end of the tax year.

The end of the P11D?

It seems likely that eventually all benefits will be reported via RTI via the payroll. There may still be a need for the P11D(b) but this may well disappear too. It is not completely straightforward to process the benefit through the payroll, but it is far more streamlined than multiple P11Ds.

The P11D will probably go, but not just yet.  We are very positive so far about Benefits in Kind and payroll, but you need to make sure you register this tax year if this is something you intend to take advantage of from April ’18.

For more information see here.


1st October Pension Deadline

The Pensions Regulator has issued reminders that companies registering as employers after the 1st October will have pension duties as soon as their first member of staff starts working.

The 1st October pension deadline has crept up on us a little, but new employers must be aware of this.  Employing staff on or before the 30th September of will have a later staging date, and you can check when here.

Auto-Enrolment pensions can cause some issues, so employers must make sure they are prepared.  It does not have to be difficult, but small companies especially can spend too much time on the administration and it is all too easy to make mistakes.


Dynamic PAYE Tax Coding

From this July HMRC have introduced what has been coined dynamic PAYE tax coding. This has generated some interest in the payroll world, although it is the logical progression with RTI (Real Time Information), there are some potential issues.

The initial intention was to introduce this change at the end of May, but it was delayed until July as some fixes and further testing were required prior to the system going live.

What does this mean?

“HMRC will use real time information to make automatic adjustments to PAYE tax codes as they happen, rather than waiting until the end of the tax year.”

The aim is to reduce errors, and ensure employees pay the right amount of tax rather than being owed a refund or having a liability at the end of the tax year. HMRC will issue tax code notices as soon as they believe there has been a change in employee circumstances.

What is the actual impact of the change?

For many employees there will be no impact at all. Where HMRC are adjusting a tax code they should still notify the employee, although this does not always seem to happen. These changes should be viewed in line with the Personal Tax Accounts, where employees can see and potentially amend their live tax information.

Any issues are likely to be where HMRC might apply an estimate, and this does not match an employee’s current circumstance. Employees will then need to contact HMRC and try and get the issue corrected, which can be a frustrating and long winded process.

HMRC have put together a help pack for employers with further information on the changes with PAYE available here.

Is there anything else we can do to try and reduce the possibility of errors?

This is an HMRC automatic system, and has only just gone live, so it is early days. It is certainly worthwhile considering running Benefits in Kind through the payroll, rather than via P11Ds. One of the potential areas for error is incorrect estimates of benefits to be received in the tax year, so by reporting the benefits in real time this should be avoided.

The information supplied to HMRC from the payroll must be accurate. Starter forms must be accurate, and employees must inform HMRC accurately of any change in their circumstances.

In summary

Wait and see. This could work well, but we could get incorrect estimates and more frequent tax code notices for some employees.

 


Payroll Accuracy

This was a question raised in a recent article published by learnpayroll, The Learn Centre Ltd.  The answer would appear to be – Payroll Accuracy is very important!  They refer to a survey put together by SD Worx where 44% of respondents reported they would consider leaving their job if they were paid incorrectly.

The article looks at various questions and the response of employees.  There seems to be some variation between countries, and a surprisingly high proportion of employees perceive they have been paid incorrectly in the past.  We have not seen the questionnaire and cannot comment on how representative it is, but it is interesting to see the responses and the choice of questions.  Payroll accuracy is certainly something that needs considering.

Tax code changes

The most common reason we have questions raised is about changes in employee’s net pay, which is most often due to a tax code change.  This may be reported as a payroll inaccuracy, but obviously is in the hands of HMRC, and therefore although the tax code may be wrong it will have been applied correctly.

The employee should have a notice from HMRC before the code is changed, but these notices do not always arrive.  Once a code is applied the employee should contact HMRC; we provide the details they need on the payslip.

Payroll Accuracy – The Issues

There are three main areas of opportunity for payroll inaccuracy; preparation errors, processing errors or reporting errors

Preparation Errors

We would suggest keep the amount of work and information required to a minimum at this stage to help eliminate errors.  You should not really need to generate salaries every time if there is no change.  If a pay rate, payment or deduction is the same every time why risk a data corruption by reproducing the data outside of the payroll?

Time and attendance systems are worthwhile using for hourly paid staff; make sure you have a system you trust, and manual adjustments can be made if necessary.  It is better to send a report directly from the time and attendance software than try and transpose it, although it has to be the correct report.

Make sure you have an audit trail for all changes.  If a member of staff has a salary deduction you need to know why, as this could be reported as an error.  You should also keep new starter details as provided by your new starter, as they may give you incorrect information.

Instructions should be precise, with adequate unambiguous information, and the employees accurately identified.

Processing Errors

Once the payroll information has been prepared the actually processing begins and RTI files, payslips, pension deductions, BACS payments etc are prepared.  Data is taken, processed and results in a payroll.

Considerable care should be taken at this stage, as simple human error can again very easily creep in.  The information needs to be correctly handled, as the aim is to be compliant with HMRC and The Pension Regulator guidelines.

It is useful if there are checks within the system to make sure everything is compliant, and totals can also be checked against any totals in the preparation information.  As many checks as possible at this stage can help eliminate errors before the payroll is returned.

At Payroll Options we have multiple data validation and RTI compliance validation checks.  We also process the payroll in parallel with two members of staff, cross checking by computer to help eliminate the opportunity for human error.

If the payroll is processed in house it is useful to have some separation between preparation and processing, and an audit trail should still be maintained.

Reporting Errors

This is an interesting area, as it would imply the payroll has been processed correctly, the correct information presented to HMRC, but then an issue with the reports.  The reports must accurately reflect what has occurred within the payroll, as these will form the basis of financial journals and potentially reporting to pension companies and payments to HMRC.

Consistent reporting is the key here.  If the reports are the same every time the payroll is processed, then there should be no opportunity for incorrectly configured reports to be used.  It is useful if the reports are presented to someone other than the person processing the payroll.

 

It is possible to have accurate payroll, but processes must be maintained and all stages must be understood and communicate effectively.  There must also be adequate feedback and any issues quickly addressed.


Childcare vouchers scheme

The Childcare Vouchers Scheme closes to new joiners in April 2018.

If an employer chooses to offer a Childcare Vouchers Scheme, it is possible for employees to purchase childcare vouchers through payroll as a salary sacrifice.  A maximum fixed amount can be provided free of tax and National Insurance, and the employer does not have to report anything to HMRC as long as the amounts are below these thresholds.

The scheme is still live, companies can still join, and employees can join existing schemes.  After April 2018 these schemes will continue to run but will be closed to new joiners.

Thresholds

The limits for childcare vouchers are as follows:

For an employee that joined the scheme before 6th April 2011:  £55 per week or £243 per month

For employees that joined on or after 6th April 2011:

Rate of Income Tax Weekly Limit Monthly Limit
Basic £55 £243
Higher £28 £124
Additional £25 £110

If the contributions exceed these limits then the benefit would be reported through a P11D (or payroll if applicable) and class 1 national Insurance is due on the amount above the limit.

Childcare Options

Salary sacrifice is a benefit that is received in exchange for a reduction in salary.  So if you are considering offering childcare vouchers as a salary sacrifice scheme, advice should be sort for the implications to your company and employees.

There are now far more options for tax free childcare, and parents can already apply for these.  Childcare providers should have this well in hand, as the roll out of the new schemes have already started.

The new schemes do not need to be put through the payroll and it appears that parents will have more control.  Tax-Free Childcare cannot be used at the same time as childcare vouchers, and HMRC have online calculators parents can use to try and work out which scheme is best for them.