This news article is an updated version of our 2022 bulletin.
With the end of the tax year just a few months away, it’s time for employers to consider how they’ll be reporting employment benefits.
There are three options when it comes to reporting and paying the income tax and National Insurance (“NI”) 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. A checklist summarising common benefits provided to employees, which may need to be reported to HMRC, is available on our website – if you are unsure if you have taxable benefits to report, you can use the checklist which is available 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. There is only a short window for the preparation and submission of these forms, as P11D forms for the tax year ended 5 April 2023 need to be submitted by 6 July 2023.
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 tax return if they submit one. The employer will be due to pay Class 1A NI at 14.53% by 19 July (or 22 July if paid electronically).
A slightly higher Class 1A rate has been applied for the 2022/23 tax year to account for the temporary rise and subsequent reversion of the rates during 2022/23. This rate may revert to the previous pre-2022/23 levels from April 2023.
PAYE Settlement Agreement (PSA)
Alternatively, an employer can 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 as the total of the income tax and NI due (Class 1B NI at 14.53% for 2022/23) can be as much as the cost of the benefit itself (in the case of higher rate and additional rate tax payers). However, this is the best method for reporting minor benefits like staff entertaining, where an employer does not wish to burden their employees with any tax due.
HMRC must be notified before the 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, a slightly higher Class 1B rate has been applied for the 2022/23 tax year and may revert to the previous pre-2022/23 levels from April 2023.
Payrolling benefits
It is 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 with regard to the payment of the Class 1A NI but individual P11Ds are not 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 does require 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 2024 you should act to put this in place before 5 April 2023.
If you require any assistance with regard to the reporting of taxable employment benefits, bearing in mind the 6 July deadline, please contact us at Chiene + Tait as soon as possible.
