With the end of the tax year just around the corner, it’s time for employers to consider how they’ll be reporting employment benefits.
We’ve set out the options to report and pay the income tax and National Insurance (“NI”) arising from benefits in kind and due to HM Revenue & Customs (“HMRC”).
What are employment benefits?
Employers can provide their employees and office holders with a variety of benefits to incentivise new talent and give them that extra sweetener on top of basic salary. Common examples are medical insurance, gym memberships, company cars and interest-free loans. We’ve prepared a checklist that summarises common benefits provided to employees, and that may need to be reported to HMRC – if you’re unsure if you have taxable benefits to report, see the checklist here.
P11D forms
P11D forms are the most common way to report non-cash benefits provided to employees. Separate P11D forms for each employee receiving benefits and a P11D(B) form to declare the total Class 1A NI due by the employer must be submitted to HMRC by 6 July 2024 for the tax year ended 5 April 2024.
The employees will be subject to income tax at their marginal tax rate on the “cash equivalent” value of the taxable benefit. The income tax due will either be collected via the employee’s PAYE tax code or their self-assessment tax return (if they submit one). The employer will be due to pay Class 1A NI at 13.8% by 19 July 2024 (or 22 July if paid electronically).
The 2023/24 Class 1A rate is a reversion to the lower, pre-2022/23 rate after the last year’s temporary rise and subsequent reversion.
PAYE settlement agreement (PSA)
An employer can also enter into a PAYE Settlement Agreement (PSA) with HMRC to report certain types of benefits. These allow the employer to settle the tax liability on ‘minor or irregular’ benefits on behalf of the employee. Under the PSA, the income tax liability is payable by the employer on behalf of the employee, and it is calculated on a ‘grossed up’ basis. This can prove to be expensive because the total of the income tax and NI due (Class 1B NI at 13.8% for 2023/24) can be as much as the cost of the benefit itself (in the case of higher rate and additional rate taxpayers). However, this is the recommended method for reporting minor benefits like staff entertaining, where an employer does not wish to burden their employees with the tax due.
HMRC must be notified before 6 July after the tax year end for which you first wish the PSA to be in place. The PSA calculations detailing the income tax and NI due should be submitted by this date. The income tax and Class 1B NI liability is then payable by 19 October (or 22 October if paid electronically).
Again, the Class 1B rate has reverted to the lower 13.8% level for 2023/24 after the temporary increase to rates applied in the previous tax year.
Payrolling benefits
It’s possible to opt for ‘payrolling benefits in kind’, with the income tax due collected via the payroll in monthly instalments. A P11D(B) submission is still required for the payment of the Class 1A NI, but individual P11Ds aren’t required. As above, the P11D(B) will be due to be submitted to HMRC by 6 July with the Class 1A NI due for payment by 19 July (or 22 July if paid electronically).
The payrolling of benefits requires a registration to be in place before the start of the tax year you wish to start using the scheme. If you wish to payroll benefits for the tax year ending 5 April 2025 you should act to put this in place before 5 April 2024.
Mandatory requirement to payroll benefits from April 2026
HMRC recently announced that it will be mandatory for all benefits in kind to be payrolled from April 2026. This simplification will remove the requirement for P11D forms to be prepared and issued to employees annually.
Currently, employers still have an obligation to report and pay Class 1A NIC separately using form P11D(b), but HMRC outlined that the reporting and paying of Class 1A NICs will also move to be processed via the payroll software in the future.
Further guidance on the upcoming changes and points to consider ahead of the change can be found in our recent article here.
If you require any assistance with regard to the reporting of taxable employee benefits, bearing in mind the 6 July deadline, please contact us at CT as soon as possible.
