SumTotal Blog

Benefits in kinda

September 7, 2017



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Perks. From gym membership to the company cars, it is these ‘extras’ that are perhaps more beloved and more lauded than our monetary remuneration. Okay so perhaps not more, but they are a starting point, a deal – breaker or maker – and given the current employment landscape and a certain predilection of some Millennials to switch jobs every few years, they play an ever increasing and important role in the draw and retention of desired talent.

While having free meals or massages at your desk are a great boon in the workplace, if as the employer, the provider of these ‘extras’, you do not ensure that where it applies, the tax on the ‘benefit’ as been paid, you are giving your employee a most unwelcome ‘perk’ and one that could potentially land them with a hefty tax bill.

Remember these extras, while considered part of a salary, are classified as benefits in kind and some are taxable and others not. This ‘are they or aren’t they?’ is confusing, but the situation gets even more confusing by the fact that if an error does occur, it can be the employee who is faced with an underpayment demand, not the employer.

The process for taxation of taxable benefits is quite straightforward really. Every country has their own rules and procedures, so it is the responsibility of the relevant department in each to know and follow the regulations. Here in the UK, once it is established whether tax is due on the benefit in kind, the employer then completes the relevant tax form, a P11D, with the details of the benefit values for the appropriate tax year, as well as working out the Class 1A National Insurance contributions on said benefits. If this does not happen, the employee could receive a P800 form declaring an underpayment of tax.

Obviously everyone involved would prefer not to have this happen, but is there something an employer can do to ensure it never happens?

Yes.

Include them with your payroll. How?

By including any benefits in kind as ‘tax not pay’ amounts, a payroll system will automatically produce P11Ds with all the calculations, including Class 1A National Insurance returns.  Additionally, and this adds even more benefits, if the solution includes self-service options, the employees can themselves view their current and/or historical P11D forms online. Now that’s a great perk!

What makes using a payroll system even more advantageous is that we are increasingly seeing the tax process change. Currently, Her Majesty’s Revenue and Customs (HMRC) is encouraging benefits in kind to be taxed and reported via payroll which means as more organisations adopt this approach, it is likely the P11D form will gradually become obsolete. With the inclusion of taxable benefits as part of the normal payroll process, the tax is then calculated and deducted at source and the relevant information included on the statutory real time information (RTI) returns, therefore eliminating the need to produce the P11D form.

In short, with a payroll system, an organisation can streamline the payment process, adapt to tax regulations changes while providing employees with peace of mind with the knowledge that their ‘perks’ are not going to come with a price.

Check out SumTotal’s Payroll Solution.

 

 

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