There is less than a year to go before all employers must tax benefits-in-kind via the payroll, the Chartered Institute of Taxation has warned.
Benefits-in-kind are non-cash benefits provided by employers to employees or directors. Common benefits include company cars, private medical insurance and gym membership.
While the benefit is paid for by the employer the recipient is required to pay Income Tax and potentially National Insurance contributions (NICs) on the value of the benefit, as if this value had been added to their salary.
Additionally, the employer must pay employer NICs on the value of the benefit. According to HMRC more than 3.5 million employees receive a taxable benefit-in-kind.
Currently, most employers compute the value of a taxable benefit after the end of the tax year and report it on a P11D form to HMRC and the employee. This means the employer potentially has up to 15 months to calculate, verify and report the value of a benefit.
From 6 April 2027 it will be a legal requirement to report and pay Income Tax and NICs on most benefits-in-kind and taxable expenses payments via payroll rather than waiting until the end of the tax year.
Sarah Hewson, Vice-Chair of the CIOT's Employment Taxes Committee, said:
'Mandatory payrolling of benefits will have a big impact on employers, employees and software providers. Don't leave it too late to get ready for this change.'
Internet link: CIOT