Our dedicated Payroll Team is ensuring that our clients and local businesses in and around St Albans and Hertfordshire stay informed about ‘enforced’ Payroll changes. Whether you're a business owner or a member of a broader Payroll and Accounts department, it's going to be essential to adapt your processes. Alternatively, consider outsourcing to a seasoned Accountant offering comprehensive Payroll services. Stay up-to-date with our expert guidance and news on this subject.
Additionally, for business owners and payroll teams, consider the deadline of 5 April 2024. This date serves as the registration deadline for payrolling benefits for the upcoming tax year. Further details on this can be found below.
How are HMRC and the government changing the reporting of expenses and benefits in kind for employees?
HMRC published a policy paper on 16 January 2024 confirming and detailing that the government would be mandating the payrolling of benefits in kind (BIK) and expenses from April 2026.
In the policy paper HMRC have stated that "Each year, HMRC receives 1.1 million claims for tax relief from employees on their expenses. These claims are submitted through existing online services, or via digital or paper forms, resulting in some claims being manually processed. To simplify the process for many employees claiming tax relief on their expenses, and for HMRC to automatically process claims, the government is designing a new, online service for employees to claim tax relief on all of their expenses in one place, meaning employees will get relief sooner. HMRC will provide further details in later this year."
As always, the changes are being presented as a simplification for employees but are actually part of HMRC's digitisation roadmap where they hope to automate everything as far as possible irrespective of the loss of service for taxpayers.
This big news story had the foundations laid in earlier years with:
- the abolition to paper P11D submissions to HM Revenue and Customs (HMRC), which came into effect from April 2023 and...
- the government’s pledge “to modernise the tax administration framework, make better use of real time… information”.
How the reporting of benefits in kind and expenses currently works
Employers have two options when it comes to reporting their BIKs and taxable expenses – for now.
The first option, often referred to as the legacy process, is to report via a P11D submission. This adjusts the employees’ tax codes the tax year after the benefits or expenses were received. This can cause problems with employees’ understanding of why tax codes change mid-tax year, as P11Ds don’t need to be reported to HMRC until 6 July following the tax year end in which the employee received the benefit. This means that an employee could wait over a year before seeing any tax related to benefits they’re receiving being deducted from their pay. P11D(b) submissions share the deadline of 6 July, and employer class 1A National Insurance contributions (NICs) must be paid by 22 July (if paying electronically).
The second option for employers is to 'payroll benefits'. This method allows the benefits and expenses to be taxed in real time through pay as you earn (PAYE), meaning there’s no mid-year tax code changes (not down to these benefits received anyway), and less confusion caused for employees.
This is all promising, until we hit the stumbling block taking shape in the form of employer-provided living accommodation or interest-free and low-interest (beneficial) loans. These two benefits cannot be payrolled, and therefore, any employer providing these benefits must also complete P11Ds, even if they payroll other benefits, for example, company cars. Arguably, another stumbling block is the requirement to report P11D(b) submissions to HMRC, as currently class 1A NICs cannot be payrolled for taxable benefits and expenses.
Do you want to start payrolling benefits?
If you aren’t currently payrolling benefits but want to do so for the new tax year, you can register to do so up to 5 April 2024. There are guidance pages on gov.uk or, if you have a million better things to do, then let Visionary Accountants' payroll team in St Albans do the heavy lifting for you!
Key considerations
The main considerations key stakeholders will be seeking to address with HMRC teams working on this policy are:
- ensuring the calculation methods for employer-provided living accommodation and beneficial loans are updated and can be processed via payroll software
- ensuring working sheets are available for employers and agents to help with calculating the values to be payrolled when using HMRC’s basic PAYE tools
- being mindful of the changes needed to payroll systems, and the time taken to make those changes, should there be considerable legislative change required to bring the plans to fruition
- pushing for real-time payments of class 1A NICs, to eliminate the P11D(b)
- allowing for student loans to be calculated alongside payrolling – this currently doesn’t happen, and the workaround is for employees to complete a self-assessment tax return.
Next steps – when will the changes take place?
The team at HMRC confirmed ministers have requested this change doesn’t go out to public consultation in the traditional way we’re all accustomed to. Instead, they’ve asked HMRC to liaise with key stakeholders to discuss this at length, ahead of implementation come April 2026.
HMRC confirmed it will work with Accountancy and Payroll Institutes and their members to seek their views on how benefits will be processed as a result of the changes, recognising that the input of payroll professionals will be key to successful implementation.
In other news...
Upcoming changes to NMW and NLW
The Government has announced the biggest increase to the National Living Wage in more than a decade, as a response to the cost of living crisis. It will rise by 9.8 per cent from April, increasing from £10.42 to £11.44 per hour. For the first time, it will be expanded to cover 21 and 22 year olds.
Theses rates were recently accepted from the Low Pay Commission’s recommendations on National Minimum Wage (NMW) and National Living Wage (NLW) rates to apply from April 2024. The rates recommended by the LPC are set out below.
|
NMW rate ph from 1 April 2024 |
Increase in £ph | Percentage increase | |
|---|---|---|---|
| National Living Wage (21 and over) | £11.44 | £1.02 | 9.8% |
| 18-20 Year Old Rate | £8.60 | £1.11 | 14.8% |
| 16-17 Year Old Rate | £6.40 | £1.12 | 21.2% |
| Apprentice Rate | £6.40 | £1.12 | 21.2% |
| Accomodation Offset |
£9.99 |
£0.89 | 9.8% |
The Government stated that "This will be the largest ever increase in the minimum wage in cash terms and the first time it has increased by more than £1. The size of this increase is driven by the strength of pay growth across the economy, which is forecast to continue into next year (2024)."
Clearly wage increases of this size are of serious concern to employers battling significant input cost inflation, higher taxes, ever increasing regulation and a slowing economy. The Government's view is that, having taken employers' concerns into account... "we believe our recommendation will restore the real value of the NLW, which has been eroded through the recent cost of living crisis. Our judgement is that this increase will not cause significant risk to employment prospects." So that's alright then!
This is another reason why budgeting and planning is so important for businesses and employers. If you aren't receiving regular, professional Management Accounts in a Financial Reporting Pack then you are flying blind.
Changes to Workplace Pensions reporting
The Pensions Regulator is asking employers to change the information they submit each month for employee workplace pensions contributions.
The Pensions Regulator (TPR) requires providers and employers to monitor the contributions paid into their workplace pensions schemes. Employers have a responsibility to ensure contribution amounts are accurate and in line with any contractual agreements they have with their employees.
What's changing?
To comply with TPR rules on monitoring contributions to a pension scheme, employers need to make changes to the information they’re required to supply when submitting contributions to Pension Scheme Providers (PSP). From May 2024, it will become mandatory for employers to provide a worker’s pensionable earnings each time they submit a contribution.
Pensionable earnings for your workers should be provided within the “Earnings in current contribution period (£)” column, or similar, when submitting a contribution and we would recommend that you don’t wait until May 2024 to start providing this information. If you use a payroll provider, you will need to make sure they include these details in the payroll files they provide to you (unless you use Visionary Accountants' services in which case you don't need to ask!).
If using salary exchange for pension contributions, you will need to provide PSPs with the worker’s pre salary exchange pensionable earnings.
Important: It won’t always be possible for PSPs to correct any errors made when uploading your contribution schedule. Therefore, it is important that data uploaded as well as the validations which are presented to you each month are thoroughly checked and correct.
You can find more information about monitoring of contributions in Code 05 and Code 06 on the TPR’s website.
These are just more great reasons to outsource payroll and workplace pensions services to professional bureau providers. The clients of Visionary Accountants don't have to worry about these headaches, so you may hear a collective sigh of relief in and around St Albans, Hertfordshire and London!