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KEY POINTS
- Form P11D is in the top ten 'irritants' for businesses
- The payrolling of benefits works well abroad.
- What are the National Insurance contributions implications?
- The cashflow benefits for employers and employees.
- Should the £8,500 limit be abolished?
Since the publication of HMRC's consultation document on how the 'payrolling' of benefits in kind (BIKs) might work, there has been a mixed reaction.
I was very surprised by this, because previously all I heard was complaints about the current process and I had assumed that people would seize, with both hands, this once in a lifetime opportunity to shape something better.
I think it very unfair for this consultation document to be described as a 'crazy idea' particularly when the concept previously received wide support from the payroll and the accountancy profession.
For me, it all started approximately five years ago, when payroll professionals were asking their institute to lobby on their behalf to abolish the P11D form.
After approaching HMRC, who at that time did not show any willingness to look into this proposal, the Institute of Payroll Professionals (IPP) decided to start collating research on the concept.
Then we had a stroke of luck: KPMG carried out a survey on behalf of HMRC to identify administrative burdens on business, whether due to regulation or an information obligation such as a form (Administrative Burdens — HMRC Measurement).
No surprises then that the P11D form was in the top ten list of irritants. As a member of HMRC's Administrative Burdens Advisory Board (ABAB) one of my roles is to work with representatives of all sizes of business and challenge the burdens currently placed on business.
The P11D survey
The IPP had received strong support from its members to abolish the P11D, and so we conducted a P11D survey. This was to support and dig deeper into the findings from the KPMG report. It highlighted an overwhelming desire to remove the form P11D.
Members of other professional bodies also expressed their enthusiasm for something different. The question then was how would HMRC know what to tax an individual on without a form?
I was very fortunate to have been invited to Ireland to speak to the Irish Revenue and some employers about payrolling, and also to the American Payroll Association conference in Las Vegas where I again spoke to payroll professionals and the Internal Revenue Service (the USA equivalent of HMRC).
These professionals all said that payrolling worked well, and although — like all new systems — it had teething problems in the beginning, they would not want to go back to a P11D-like process or indeed start one.
Expenses and benefits
In his article Disaster in the making, Robert Maas, a very well respected accountant, disagrees with the IPP's thinking. In one paragraph he states that small businesses will need to learn about benefits and expenses.
I find this a confusing statement; surely if the small business operates any form of benefit now for an employee it would need to know the rules? I understand that the company may employ the services of an accountant to do this.
However, one of the many complaints I have heard from accountants is about the small employer who arrives a day before its reporting deadline, whether self assessment tax return or forms P11D, etc, and dumps a bag of receipts in front of them expecting them to balance and submit their returns to HMRC.
If the expense and benefits part was being carried out on a monthly basis, surely this routine would be easier than trying to remember everything at the year end?
The IPP does recognise that proper guidance and education will be required for all businesses, but particularly for the small business.
It is important that small businesses do not feel that they have to incur the additional costs of an accountant each month for advice due to a lack of guidance.
As the consultation document suggests, there will be many considerations should this concept come to fruition, not least the period over which the benefit in kind charge is calculated.
For example, if medical benefits commence in March for the first time, but are to cover the period of the next twelve months, would it be fair to calculate the whole tax and NI due in that one month?
Obviously the IPP hopes that common sense solutions will be found, even if these involve slight changes in policy.
The IPP believes that the concept of payrolling is workable, but anyone who thinks our current benefits in kind can just be payrolled without at least some tweaks is in a different world.
The NICable element
Another point Robert makes is that those benefits that are now liable to Class 1 National Insurance contributions are already payrolled.
I think that it is important to clarify this, as it is only the NICable element that is payrolled; the tax liability will still be reported on the P11D.
However, I do support his comment that if we payroll for National Insurance on some benefits now, why then should Class 1A remain outside the scope for change?
The IPP would not, however, support all benefits that are subject to Class 1A being made Class 1 for employee purposes.
Staying with Class 1A, the IPP sees no real reason why employer's Class 1A liability could not be processed on a monthly basis and even paid to HMRC in the normal payment cycle.
The latest survey conducted by the IPP — and promoted by other professional bodies — shows that, of those that responded, more than 60% would prefer it to be paid monthly.
I think an important consideration for businesses would be the cashflow disadvantage of doing this, but would that outweigh the inconvenience of an annual payment and separate records?
The article also states that the form P45 would need to include these elements of National Insurance in addition to PAYE, but as the liability for Class1A would remain with the previous employer I am not sure why.
Bones of contention
When an IPP masters student decided to base his dissertation on payrolling, the student found that the research supported our belief that the introduction of payrolling would assist with their employees' cash flow, rather than — as Robert suggests — create more queries.
This research was conducted within the student's own company and when employees were asked whether they would prefer to have their benefits processed through the payroll, 95% (82 respondents) said that they would.
Another bone of contention in the consultation document is the question on whether or not the form P9D (and the £8,500 threshold limit) should be abolished. Again this idea was also put forward by the IPP, and we were therefore pleased to see the question being asked.
There will be mixed opinions, particularly from those who would be affected.
Many IPP members have said in the past that as most people who qualify are part-time, full-time employees should not be discriminated against. If a benefit is a benefit, then we should all pay tax on it regardless of our income.
However, the IPP would support an exemption process for those in the voluntary/charity sector and who have no or very low earnings; for example, where a car is provided to carry out their voluntary work.
Conclusion
Payrolling has proved a success in other countries, so why not here? There is so much legislation that is outdated and benefits in kind are no exception.
Now is our chance to look at the rules seriously and make a difference. So I would encourage readers to respond to the consultation document; and instead of trying to stop changes for the better, provide constructive feedback as to how we might all make it work for everyone.
Otherwise we could well be stuck with the current P11D process for years to come, and how many employers would thank us for that?
Karen Thomson MIPPdip is associate director of IPP Policy & Research.The IPP survey, which other representative bodies also promoted, can be found on the institute's website.
