All About Payrolling Benefits In Kind
Benefits in Kind (BIKs) are a notoriously complex area for payroll experts, employees and employers alike. The good news is that there are moves afoot to help with payrolling benefits-in-kind. However, the not so good news is, for now, it’s not all plain sailing. If you’re a business owner who’s concerned by BIKs and would like to find out more about your options for an easier life, read on.
The background to simplifying how BIKs are managed
Benefits in Kind have historically been reported to HM Revenue and Customs (HMRC) for processing using form P11D, but payrolling them would ultimately mean that this would no longer be required. In April 2016, HMRC introduced a way of processing BIKs online. A completely voluntary solution, it means that certain employers who avail of this opportunity no longer have the burden of having to submit P11Ds for processing.
The drawbacks of the current online system for payrolling benefits-in-kind
As mentioned, opting to use the voluntary online solution to payroll BIKs means that some employers no longer have to submit P11Ds. However, the snag is that there are certain benefits in kind that can’t yet be reported in this way. For example, the reporting of living accommodation and beneficial loans online is not yet a possibility. What this means is that certain employers who have decided to report online could find themselves in a situation whereby they have some BIK that they can report online but still have some P11D requirements. This makes the system clunky and cumbersome for some.
Another issue with the online solution is the payment of Class 1A National Insurance Contributions. At this moment in time, payment is still an annual, rather than real time, based on the information gleaned from the P11D, which again means that this system isn’t fully streamlined.
A further disadvantage that is being hailed by many is that payroll providers are, as yet, unable to register to use the online service on behalf of their clients. This is likely to be a stumbling block for many SMEs.
Possibly because of these issues, it is estimated that less than a third of employers currently use this system. What this suggests is that future developments are required to bring it up to the level required to get close to full engagement. However, all of these things said, it is only fair to acknowledge that the service is getting an enthusiastic thumbs up from early adopters and industry experts, which is encouraging.
Why you might want to payroll BIKs
Any new service, particularly in the accounting and financial arenas take time to gain momentum and user confidence. What is encouraging when it comes to payrolling benefits in kind is that feedback from users who have moved over to this option confirms that the system is simple and works well for both employers and employees, despite the fact that it’s not yet fully integrated with real time information.
When it comes to potential, it has been reported by the Office of Tax Simplification that if medical cover, cars, vans and motor fuel could be payrolled it would account for the processing of over 80% of employee benefits in kind. However, despite the size of this opportunity and the simplicity of the system, the payrolling of BIKs is still particularly slow in gaining followers. Yet people who have made the leap to payroll benefits in kind have reported some great reasons for doing so that include no longer having to process P11Ds; saving on software costs, finding the system easy and feeling more in control.
Granted, the early adopters of this system are (more than likely) big believers in the benefits of payrolling generally and are more susceptible to take every opportunity to automate that they can. So why do a reported > 65% still choose to ignore this opportunity? Here are some of the reasons why:
- A recent report in Payroll Insight suggested that over one third found the processes too complicated and over 40% complained of unclear guidance.
- Add to this, the fact that agents can’t register on behalf of clients;
- You have to register before the start of the tax year;
- There are still some benefits can’t yet be payrolled;
- And the fear of double taxation
Soon you can see why, for many people, retaining the status quo of P11Ds is their preferred solution.
Here’s why we think payrolling benefits in kind is a good idea
- It means you relieve yourself of the burden of completing and processing P11Ds.
- You could potentially save on software costs.
- For many, payrolling BIKs is easier than P11D-ing them.
- It enables more accurate and real time calculations.
- It gives you more control.
Where do you go from here?
With a large number of current users asking for the system to be simplified, there is the possibly that something that isn’t quite right yet. Or, it could be that users need more time to get used to the system? Either way, only time will tell.
At a high level, it appears to be priority in terms of further development that the system allows agents to register their clients and provides the possibility to payroll all benefits in kind. At a lower, more detailed level, things like being able to start payrolling at any time of the year; removing the need to reconcile Class 1A NICs using the P11D return, and including car benefit data in FPS are hailed as being important.
There is no getting away from the fact that Benefits in Kind are a tough nut to crack when it comes to payrolling. They are, by nature, complex and don’t lend themselves easily to automation but this system takes us at least part of the way.
If you’re struggling with P11Ds or see an opportunity to make your life easier by payrolling BIKs but would like more information, why not get in touch? At Payplus we have experts on hand to help make your payroll as stress free as possible. And when it comes to the decision between payrolling benefits in kind or P11D-ing them, we will help you make the right choice for your business and your employees.
Get in touch today for a completely no-obligation discussion. Payroll needn’t be a pain when you’ve got the right team on board.