Payrolling – yes or no?
25 April 2019
This article was featured in the May 2019 issue of the magazine.
Samantha Mann MAAT MCIPPdip, CIPP senior policy and research officer, presents findings from responses to a survey recently conducted
There was a time, not so very long ago, before real time information (RTI) processing was introduced and before the Office of Tax Simplification (OTS) began their vital work, when the word ‘payrolling’ would have had little or no meaning to many payroll practitioners.
Yet the taxation of the value of the benefits in kind (BIKs) through payroll processes was an area that many CIPP members at the time were keen to see become a standard part of the payroll process.
Since then a number of research projects and consultations have been carried out to establish how payrolling could best be delivered and finally in April 2016 HM Revenue & Customs (HMRC) introduced a new and entirely voluntary online service for payrolling BiKs and expenses (http://bit.ly/2uL3egN).
Pros and cons of payrolling
One of the biggest ‘win, win’ outcomes predicted as a result of the delivery of the online payrolling service was that for those employers that registered to payroll their BIKs using the online service, P11D returns would no longer need to be submitted (and subsequently processed by HMRC).
The disadvantage is that not all reportable BIKs are yet included within the service. The value of BiKs of any living accommodation and/or beneficial loans provided cannot be payrolled for employers using the service.
Class 1A National Insurance contributions (NICs) are still due on the value of BIKs and whilst it is widely anticipated that (in time) this cost could become a ‘real time’ payment for employers, it is at present still an annual payment that is reconciled to the value of the BIKs processed throughout the tax year using the P11D(b) return.
Another disadvantage yet to be overcome, is that agents and payroll service providers cannot register to use the service on behalf of their clients. For many, this is proving to be something of a stumbling block.
One of the overwhelming advantages suggested to us has been the simplicity in which the service works. Anecdotal evidence provided by CIPP members and from professionals working across all affected sectors, is that the service has worked well, both for themselves and for their employees. Indeed, for a new digital service, it appears to have received a remarkably small number of complaints – and indeed seems to be delivering what the OTS suggested in its report Review of employee benefits and expenses (http://bit.ly/2Uj4QgP): “This new framework would be supported with clear HMRC guidance, including detailed information on how employers could payroll specific benefits. There would also be a streamlining of HMRC processes to remove benefits more quickly from the employee’s tax code when HMRC has been notified that the benefit is either being payrolled or is no longer being received by the employee. The mechanics for payrolling benefits should include a clear process for handling errors and an effective integration with real time information.”
The OTS also noted in that review that if medical cover, cars/vans and motor fuel were to be payrolled, that would account for 81 per cent of the income tax and NICs revenues from employee benefits.
Yet the take-up numbers of employers registering to payroll their BIKs remains low. Why is that?
...reconciled to the value of the BIKs processed throughout the tax year using the P11D(b) return...
Barriers to payrolling
Throughout February and into March 2019 the policy and research team, together with HMRC, ran a survey to gather information to help inform HMRC what barriers currently exist which prevent employers and their agents from choosing to payroll BIKs.
Just over one in three respondents (35%) confirmed that they currently payroll BIKs, giving these reasons for doing so:
no burden of P11D returns
saved costs by not using P11D software provider
software doesn’t have the functionality to produce P11D returns
easier to payroll the benefits than ‘P11D’ them
accurate and real time tax calculations for employees
to take control over changes to employees’ taxable pay and offer added value to them
belief that payrolling is the future.
Almost two in three respondents (65%), however, do not currently payroll BIKs. In response to the question whether there were any barriers that were preventing them from doing so, the results show that:
processes are too complicated – 38%
guidance is not clear – 41%
agents cannot register on behalf of clients – 17%
registration needs to be more flexible, not just once a year – 33%
additional reasons – 31%, comprising:
the risk of double taxation
little or no buy-in from the business (it is not compulsory)
P11D returns are still required for some other benefits such as beneficial loans and living accommodation
payrolling benefits would greatly increase end of year admin
unsure of software capability.
What would encourage payrolling?
It is clear that with 63% of respondents asking for easier processes, something isn’t quite hitting the mark but whether that is the reality or simply a perception has yet to be established.
In the survey, ability to payroll all benefits received 35% of the votes with agent registration being seen to be important with 24% share of the vote.
Additional requests indicate that being able to start payrolling at any point in the year – and not just for new employers or those that had not previously provided a benefit in kind – was important. Further, the P11D(b) return as an ongoing mechanism for reconciling class 1A NICs was seen to be discouraging.
The recently mandated requirement to include car benefit data in the full payment submission (FPS) also received some criticism with respondents asking that this requirement be simplified. The comments received mirror the anecdotal comments that were made during the 2018 national forum meetings.
...easy to see why many would choose not to take on additional burdens that they don’t have to
Is payrolling the future?
The taxation of expenses and benefits in kind remains a complex and complicated area, quite often requiring specialist support from tax professionals. Even allowing for the improvements that have come about as a result of the work of the OTS, we still don’t see a future where payrolling is a standard option – at least not without a significant restructure of the tax system and the arrangements that enable that system to work.
For payroll professionals who are constantly challenged with complying with a wide range of mandatory requirements, it is easy to see why many would choose not to take on additional burdens that they don’t have to. So, it would appear that HMRC and HM Treasury still have some way to go to persuade and enable employers and their agents to deliver a significant reduction in the number of P11D returns that continue to be submitted each year.
Thank you to everyone who responded to our payrolling survey during February and March. As always, please do not hesitate to contact the policy and research team via email at [email protected] to share your experiences on this, and any other area of payroll operation.