“to make the tax system simpler and fairer”
The government announced Tuesday 16th January 2024 as part of a package of measures that supports its ambition to simplify and modernise parts of the tax system. They claim to be doing this by using the efficiencies of digital service to drive public sector productivity and exploring further opportunities to make the tax system simpler and higher fairer.
Mandating the payrolling of benefits in kind (PBIK)
The government is proposing to mandate the reporting and paying of Income Tax and Class 1A National Insurance Contributions (NICs) on benefits in kind via payroll from April 2026. This is to continue building on progress already made on the government’s ambition to fully digitalise the reporting of benefits in kind.
Mandation is claimed as simplifying the tax affairs of 3 million people and reduce the need for them to contact HMRC!
They go on to claim that this measure will reduce administrative burdens for thousands of employers and HMRC by simplifying and digitising the process of reporting and paying tax on all employment benefits. It will remove the need for 4 million end of year returns to be submitted to HMRC.
HMRC is to engage with stakeholders to discuss the proposals to inform design and delivery decisions and draft legislation will be published later in the year as part of the usual tax legislation process.
HMRC also say they will also work with industry experts to produce guidance, which will be made available in advance of 2026 introduction.
They indicate thar further information will be published via usual communication routes, such as through the employer bulletins.
Is this the end of P11D software?
An increasing number of employers have moved over to Payrolling. For many benefits it is fairly straight forward, but for others it can be a nightmare in obtaining accurate and on time data. Although payroll software can handle elements of the reporting requirements, it has not always been the source of benefit calculations.
Some benefits are especially difficult to predict and calculate in real time. Company cars can be a challenge in gaining accurate and timely fleet information. The biggest difficulty has also been in the area of employer provided loans exceeding £10,000.
Whether P11D software is retained in some other form to aid calculation and maintenance of benefits we will have to see.
Is legislative change free?
As this a compulsory legislative change, will it be free? As solicitors are always dealing with legislation, it may be worth asking if they work for free.
It is likely that software may need some change and adaption, however data and processes will require major revisions. Project work completed within an employer and their reward team and partners including their payroll service partners. Will all provide their resources, time and effort for free? Employers will need to budget for the change as there will obviously be added costs.
Is this the end of tardy data?
We can wish! Employers and their reward partners may need to improve their timings in gaining accurate on-time information for payroll processing.
Is it the end of P11Db Class 1A each July
Well we can hope and there is a hint of it. So Class 1a liabilities for benefits which have to be reported on P11Db even where payrolled may transform to real time Class 1a required to be paid monthly. Watch this space.
Other areas of ‘simplification’
The simplifying of holiday entitlement and pay proposed by the Department of Business and Trade (DBT) is far from simple. Hopefully these HMRC related items will be, however, Payrolling is not as simple as some would hope.
The following lists the other related subjects:
- Enhancing the non-reimbursed expenses service
- Amending the parents’ National Insurance Credit (Child Benefit)
- Tax Simplification for alternative finance
- Reform of the UK law in relation to transfer pricing, permanent establishment and Diverted Profits Tax
PAYadvice.UK 16/1/2024