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February 29, 2016
New Payrolling BIKs Scheme – Time saver or added headache
Wouldn’t it be great if you didn’t have to report your employees’ benefits to HRMC following the end of the tax year? Well, that’s what the Government is now offering employers.
The new ‘voluntary service’, which launches in April, will allow employers to payroll most of their employee benefits (Benefits-in-Kind) in order to avoid filling in P11Ds and dealing with P46 Car forms. Instead, they must deduct them in real time each time the employee is paid.
The deadline for this is fast approaching and, if they want to sign up, employers must register with HMRC by the 5th April 2016 in time for the 2016/17 Tax Year.
However, while this might sound fantastic from a time saving perspective, there is actually a lot to think about and it could turn out to be extremely complex. For example, payrolling is not possible for some benefits such as living accommodation, beneficial loans and credit vouchers and tokens, adding confusion into the process.
Will it save employers any time?
With all the added complexities, payrolling BIKs may not save any time at all – therefore, you need to think about it carefully before signing up. The biggest time and cost saving will be for HMRC as they strive to reduce the number of P11Ds they deal with each year – which is around 4.2 million.
If you don’t wish to payroll Benefits-in-Kind (BIKs), then you don’t need to do anything and things will continue as they are.
Here’s our 14-point guide to ‘payrolling BIKs’ to help you understand what is involved…
1. If you are already payrolling some Benefits-in-Kind through payroll, this must cease on the 5th April 2016 regardless of whether you are going to make that decision to payroll or not. Currently, any BIKs processed through payroll are classed as dispensations by HRMC. All dispensations must end on this date. If you still wish to payroll your BIKs through payroll then you will still need to register with HMRC.
2. If you decide to payroll BIKs it will last for the whole of the next 12 months and cannot be changed. It will continue until you notify HMRC in time for the subsequent tax year.
3. When you register, you will need to decide which benefits to payroll, if there are any individuals for whom this would not apply to and exclude them. You cannot payroll Beneficial loans, Living Accommodation, Credit Cards & Vouchers.
4. You need to inform your workforce individually if you decide to change from using P11Ds to payrolling. This is because they would see a change in the amount of tax deducted on the payslip – HMRC have provided a suggested letter to use.
5. Individuals may decide to approach you not to payroll their BIKs through payroll.
6. Initially, some individuals may see that their tax code is still reduced because they already owe tax on benefits from the previous tax year. It will also show the tax for their benefits in real time (through the payroll) during 2016/17.
7. Even though you have opted to payroll your BIKs, you may still need to deal with P11Ds for those benefits that you haven’t payrolled, those that receive the excluded items (see item 3) or those individuals whom you have excluded.
8. Inform your Payroll Department/Payroll Provider well before the first pay date in April following the 6th April. They need to set up the payment parameters and to input the data for the individuals concerned.
9. Where individuals repeatedly do not have sufficient money to recover the tax, you are allowed to withdraw them from payrolling. You must then remove them from HMRC’s PBIKs service and revert to P11D. This is one of only two reasons where you may change the decision taken prior to 6th April, the other being where the Benefit is withdrawn.
10. 1st June each year is a new date to keep in mind where, if you do not detail the items payrolled separately, you will need to provide an annual statement to the employee of these and the values. It is also a new date by which any ‘make good’ payments need to have been made to the employer (e.g. Private Fuel). Otherwise, this will need to go through Payroll on the next available pay date.
11. You will still need to complete a P11D(b) in respect of Class1A employer NIC’s on these benefits regardless of these being payrolled, and pay over this amount to HMRC by the 22nd July each year.
12. You may well need to change your HR routines to make your leaver process more efficient. Why? …because a recalculation of Benefits-in-Kind ensures that the correct amount has been recovered for the period the employee was employed within that tax year (prior to their leaving date). Ideally, this should be done in time before the final pay is processed so that amendments to the BIK figures can be made during their notice period. Otherwise, this may lead to adjusting the taxable pay-to-date or P11D action, dependent upon circumstances.
13. You must also inform your Payroll Department/Payroll Provider as soon as there is a change or termination to the benefit being provided so that the payroll system can be amended accordingly.
14. P11Ds, in respect of 2015/16, are still required by the 6th July 2016
Is it worth it?
As you can see, there is a lot to think about. The complexities added to the Payroll/HR process may mean that any time saved is taken up with dealing with queries and administering this new way of dealing with Benefits-in-Kind. There may also still be some P11Ds, albeit a reduced number of them.
Finally, HMRC’s guidance on this is still being modelled as we speak so there may be some final tweaks before we get the complete picture. You can register for the scheme here.
With 48 years’ experience in payroll, John (now retired) worked in both the public and private sector including 18 years in outsourcing. His previous roles included Payroll Manager, Operations Team Manager and Best Practice Consultant.