Tax Tip Tuesday! Is it worth me payrolling benefits to my employees?

What are the advantages and disadvantages of payrolling benefits to your employees? Let’s take a look…..

HMRC first introduced the ability for employers to payroll taxable benefits to employees in 2016.

Payrolling means that any benefits you provide to your employees is treated as cash equivalents, so the necessity of completing a P11D form is no longer required, benefits are in effected ‘payrolled’ into staff salaries and employees pay tax over the tax year each month via their salary versus additional tax having to be paid via employees’ tax codes.

Payrolling benefits is entirely voluntary for employers, but if you do decide to help your employers this way, you will need to register with HMRC before the start of the tax year, for example, for tax year 2020/21, starting on 6th April 2020, you need to register by 5 April 2020. Less administration and compliance reporting for you as an employer and spreading the cost of your employees’ tax due over the tax year period .

The main disadvantage is that as an employer you will need to calculate the ‘cash equivalent’ of the benefit and then spread this over the year so that the correct amount is shown in each monthly or weekly payroll.

Employers’ class 1A National Insurance Contributions will still be due on the normal due date for payrolled benefits and any other benefits you provide to your employees’, using the usual P11D(b) process.

Can I payroll all benefits to my employees?

You can payroll all benefits except employer-provided living accommodation and interest free and low interest loans.

HMRC has issued further guidance on payrolling benefits to understand fully the benefits and disadvantages of payrolling benefits.

Written by Shaima Todd.