Taxation of Benefits-in-Kind – HMRC reviews responses to payrolling consultationMonday, July 28th, 2008
In December 2007, in a consultation document entitled Benefits in kind and expense payments in the payroll – a fresh approach, HMRC published proposals to
- abolish the £8,500 earnings rate threshold, below which form P9D reporting rules apply, from April 2009, and
- introduce taxation of all benefits and expenses through the payroll by all employers from April 2011.
The consultation period ran until 14 March 2008.
In April 2008, HMRC published a brief statement, thanking those who responded to the consultation on the proposal to collect tax and NICs on benefits and expenses through the payroll and promising to give an update at the time of the Pre-Budget Report at the end of 2008.
With regard to the proposal to scrap the £8,500 annual earnings rate threshold, HMRC revealed that responses to the consultation indicated that the removal of the threshold would have an adverse impact on low-paid employees and possibly the voluntary sector. As a result, the Government had decided that the threshold will be retained and the proposal will be withdrawn.
HMRC has now published a summary of the responses to the consultation and given some rather non-committal views on the way forward. HMRC received 67 written responses, held eight meetings and employed two research companies to discuss the proposals with employers and employees.
The overall response was negative, with most respondents against the proposals. Other saw the benefits of employer choice but were opposed to compulsory payrolling. Many thought that the changes would increase administrative burdens, especially for small employers. A large number of respondents did not view the P11D reporting regime as burdensome; their greater concern was with the method used to calculate the value of particular benefits. And a recurring theme among the responses was that clarification of a number of issues was necessary before support could be given to the concept of payrolling.
Among the many issues raised by respondents were:
- there was more support for the existing year-end reporting procedures, because they are well established and provide time after the year end to get the figures right, and because it is seen as a separate process to PAYE
- the problem is not the completion of the forms but the method by which employers have to calculate the amounts to put on the forms
- simplification of the current complex legislation would likely overcome the perceived problems with P11D reporting
- employers saw the need for statutory backing but not compulsory payrolling of all benefits; the preference was for choice rather than compulsion, with the option to payroll those benefits that suited them best
- employers do not want to complicate P45 procedures by including details of benefits and do not want any responsibility for collecting tax due on benefits provided by the previous employer
- the concept of estimating the value of benefits and making later adjustments was generally unacceptable; unless HMRC is prepared to accept best estimates as the final figure, those benefits should be reported as at present.
HMRC acknowledges that, if payrolling is to be introduced in some form, a number of issues raised will need further detailed consideration and analysis. The next update is expected to be at the time of the 2008 Pre-Budget Report.
Summary of Responses: Benefits in Kind & Expense Payments in the Payroll
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