HMRC are emailing people suggesting that Benefits In Kind (BIKs) are actioned through the employee’s tax code on a current year basis and requesting registeration for payrolling of benefits prior to the tax year start so the BIK value can be removed from tax codes.
We have heard this assertion before and believe clarification is needed.
We received the following email from HMRC which we believe is genuine.
Good afternoon
I work on HMRC's payrolling benefits in kind project and have had some feedback about concerns that if an employer registers to payroll their benefits for 2016/17 the benefit will not be removed from their employees' codes.
In fact it will. Here is the reason:
Even though the value of the benefit in the code tends to be the value for the previous year, this is not because it is collecting the code for the previous year. It is an estimate for the current year, based on the latest information we have, i.e. the actual amount for the previous year as reported on the P11D.
Because there is usually an increase to the value year on year, at the end of the year when the reconciliation is done, there is usually an underpayment due (the difference between the estimated amount and the actual amount for that year).
So the value of the benefit is indeed being removed from the 2016/17 codes. Any underpayment for 2015/16 will go into the codes when the 2015/16 P11Ds are processed, but, unlike previous years, no amount for the benefit will go back in the code at that time.
So, what is the issue?
The email suggests that Benefits In Kind (BIKs) are actioned through the employee’s tax code on a current year basis. Hence the need to register for payrolling of benefits prior to the tax year start so the BIK value can be removed from tax codes.
We have heard this assertion before and believe clarification is needed because, with the possible exception of company cars, HMRC do not have the information to proceed on a current year basis.
Take the example of an employee being provided with private health insurance from January 2015:
The value will have been reported on the P11D in July 2015 and will represent three months of the annual value. HMRC don’t know that the value is only three months’ worth, they only have a figure – the P11D doesn’t contain a start date for the BIK – so HMRC cannot scale it up. Neither do HMRC ‘double up’ the value to start taxing BIKs on a current year basis. Even if the P11D value is a full year’s value HMRC are always playing catch up as BIKs were never reported ‘in year’ apart from cars via the P46(Car) process.“Even though the value of the benefit in the code tends to be the value for the previous year, this is not because it is collecting the code for the previous year. It is an estimate for the current year, based on the latest information we have, i.e. the actual amount for the previous year as reported on the P11D.“
For this statement to be true (and make sense), somewhere along the line HMRC have to code out more than a year’s worth of the BIK value otherwise they are always playing catch up because P11Ds aren’t submitted until 6th July following the end of the tax year.
As a team we have been in different employments where we have received BIKs and our thinking is based on our experience and what is being told to us by delegates on the PU course when we cover payrolling of benefits. They have all thought that in the first year of payrolling benefits, employees will suffer a “double whammy”. Tax deducted through the payroll on the Bik for the current year, and a reduced tax code reflecting the tax due on the BIK provided in the previous tax year.
We have written to HMRC expressing our concern and will be keeping readers up to date with HMRC’s response on the matter.
Having said that, if HMRC are following the procedures outlined in their email, then I am sure employees and employers will rejoice as long as HMRC do not come back at a later date and apologise for the error and start taking tax on the lost year.
