Voluntary payrolling of benefits in kind

By Tolley in association with Vince Ashall
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The following Employment Tax guidance note by Tolley in association with Vince Ashall provides comprehensive and up to date tax information covering:

  • Voluntary payrolling of benefits in kind
  • Overview
  • Registration
  • Using the online PBIK service
  • Payrolling BIKs
  • What value to payroll
  • Other situations affecting the payrolled value
  • Making good a benefit other than car and van fuel benefit
  • Making good car and fuel benefit
  • Communication to employees
  • Class 1A NICs

There is a new legislative framework in place to allow for voluntary payrolling of Benefits in Kind (BIKs), available for tax years 2016/17 onwards.

ITEPA 2003, s 684(2), item 1ZA; SI 2003/2682, regs 61A–61L
Overview

As the system is voluntary, employers can choose whether they wish to payroll benefits in kind and also which of the benefits they provide are to be payrolled. Payrolled BIKs do not need to be reported on Form P11D  at year end. Before deciding whether to payroll or not, employers should ensure that their payroll software has the facility to deal with payrolling. Not all payroll software was initially amended to cater for the payrolling of BIKs from 2016/17. Indeed, HMRC’s own payroll software (Basic PAYE Tools (BPT)) did not support payrolling until the 2017/18 tax year.

Any employer-provided BIK can be payrolled except for:

  • interest free and low interest loans
  • living accommodation

The BIKs excluded from payrolling (as listed above) and any BIKs that the employer has decided not to payroll must still be reported on Form P11D.

Payrolling can only begin from the start of a tax year and has to apply for whole tax years. This means that an employer can only withdraw from payrolling at the end of a tax year.

Registration

Before employers can start payrolling BIKs, they must register with HMRC using the online Payrolling Benefits in Kind (PBIK) service. Registration must be made before the start of the tax year. Ideally HMRC would like registration to be made before the annual coding process begins, which is usually around 21 December. This is to prevent the employer receiving multiple tax codes for their employees.

Employers who used the previous informal payrolling arrangements

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