H M Revenue & Customs announced in January 2024 that the payrolling of benefits in kind is to become mandatory. This will reduce the administrative burden on H M Revenue & Customs and employers alike.
What are benefits in kind?
Benefits in kind are any benefits given by an employer to its employees (or directors), which are not part of their salary or wages. The most common of these include company cars, medical or dental insurance and childcare vouchers.
This is the form currently used by employers to report their employee’s benefits to H M Revenue & Customs. The form determines how much income tax is payable on the benefits received in the tax year ended on the previous 5 April. It also determines the company’s Class 1A national insurance liability.
What does this mean for me?
This will mean that that the reporting of income tax and Class 1A national insurance benefits in kind, which is currently done by filing a P11D(b), will need to be done via a payroll scheme from April 2026.
What is payrolling benefits in kind?
Payrolling benefits in kind means that benefits given by the employer are processed through the payroll scheme, by including the monetary equivalent of the benefit in the employee’s pay. For example, if your employee has a benefit with a value of £1,200, an amount of £100 (£1,200/12) is put through their payroll each month, and then taxed accordingly.
How does the change benefit me?
The payrolling of benefits in kind will make the process simpler, as your employees will be taxed in real time rather than retrospectively. Once the system is set up there is very little administration, and no form filling at the end of the year.
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