Retaining good quality employees can be difficult, for years larger employers have been doing this by providing their employees with perks, or benefits. Smaller employers are starting to join in and are looking into providing benefits to employees but can be concerned about the extra red tape and have to consider not only the cost of the benefit but the cost of administering that benefit as well.
One of the benefits that is becoming more common with employers who have a smaller number of employees is private medical insurance. There are now a number of providers who cater for or specialise in the Micro and SME market, and many of these offer much more competitive rates than an employee can get independently.
But if you provide your employees with such a benefit isn’t it taxable? Doesn’t that mean that you will have to report it to the tax man on a P11D and won’t the employee get a bill when they do their return? Well Yes, and No it doesn’t have to be.
From the 2016-17 tax year something called ‘Payrolling Benefits’ was introduced. This means that the value of the benefit received can be taxed in real time removing the requirement to report the benefit on each employees P11D, thereby saving your business time and money by not needing the staff to process the P11D’s inhouse or not using your accountant/payroll provider to process these for you. There is still a need to report the total value of the payrolled benefit on the P11D(b) for Class1A NI purposes but this is by far less time consuming than generating multiple P11D’s. The other benefit of payrolling benefits is that employees pay the tax on the benefit while they are receiving it and don’t have to pay a tax bill when they complete their tax return 10 months after the end of the tax year.
If you are interested in Payrolling Benefits then you will need register with HMRC prior to the start of the tax year and speak with your payroll provider. If you miss the registration it does not mean that you are unable to payroll benefits, this just needs to be done informally and a P11D must still be completed. Once you are registered for payrolling a specific benefit with HMRC then this registration carries forward to future years for that benefit. Most payroll software and payroll providers should be able to set you up for payrolling benefits on their applications without any difficulty.
At the present time all benefits can be payrolled with the exception of employer provided living accommodation and interest free / low interest (beneficial) loans. These benefits must still be reported on a P11D.
If you do choose to payroll benefits you do not have to payroll everything that can be payrolled, for example many businesses start with private medical insurance as this impacts the majority of their employees and then move onto company cars in the following year once they are comfortable with the set up, each benefit must be registered for payrolling separately.
If you would like to find out more about payrolling benefits contact Andi Herrington, Director or Payroll Services at Wallis Payroll on firstname.lastname@example.org or call on 01933 409488.
Originally published in All Things Business April 2018