Benefits in kind and expenses in the payroll

HMRC have published a consultation document on payrolling benefits in kind. The idea is that payrolling benefits in kind would remove the need for employers to complete P11Ds.

Whilst this may seem like a good idea, particularly to HMRC, who would save massive administrative costs, there are many potential problems.

For example, how would a business which provides a company car to an employee cope, when the P11D calculations and reporting is currently done by their adviser after the year end? If the calculation is done at the beginning of the year, how will any changes to the company car be revised? How will reimbursed expenses be dealt with, particularly where an employee is able to claim tax relief personally?

The annual P11D/P9D/P11D(b) returns, together with the associated procedures, and the P46(CAR) could be abolished. Instead employers would be required to record on form P11 and report details of the value of the benefits and expenses they provide on a modified P14/P60, with a summary of the Class 1A NICs due being provided on the P35. There would be no need to report details of new company cars or changes in-year on P46 (CAR).

However, this system would involve information being reported earlier and tax due would need to be paid over sooner. For employees the most noticeable change would be in relation to the timing of payment of the tax due on their benefits and expenses.

As part of the proposals HMRC are also looking to abolish the £8,500 threshold, thus bringing all employees within the charge to tax on all benefits!

Whilst the plans to abolish P11Ds are not intended to take place until 2011, the removal of the £8,500 threshold is expected to take place before that.

Of course, we will keep you informed of any developments.

Internet Link: Consultation document

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