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Farewell to P11Ds but is it the end of the story?

Farewell to P11Ds but is it the end of the story?

Farewell to P11Ds but is it the end of the story?

Wednesday 1 May, 2024

Deadlines are synonymous with working in payroll. Anyone who deals with payroll knows there are certain dates in the year by which certain activities must be carried out and relevant reports or payments submitted. 

The deadline to send P11Ds to HMRC and employees who need one by 6 July is one of those deadlines that should be etched into your mind. If you haven’t already started thinking about doing this, here’s your polite nudge!

Additionally, a P11D(b) must be sent to HMRC by the same date, which confirms the amount of class 1A national insurance contributions (NICs) due from the employer. Don’t forget that the date by which those class 1A NICs must be paid is 22 July if paying electronically, or 19 July if paying by cheque.

Recent change

These are long established deadlines and processes which many will be extremely familiar and comfortable with. Last year, we saw a change to the way P11Ds could be submitted to HMRC. From 6 April 2023, the forms could only be submitted online and not in paper format, except in circumstances where the employer was deemed as being digitally excluded. 

Large swathes of employers were already sending their P11Ds online anyway so no big change for them, but organisations who previously sent paper forms have reported that this was a substantial change for them.

Although many are embracing the move to digital, it was felt that the announcement didn’t allow enough time for employers and payroll teams to get ready for the shift in process. An earlier notification could have been provided to iron out any problems which arose and to protect against unintended consequences of the changes.

What’s on the horizon?

So, as long as you've been following our regular updates, you’ll have seen there has recently been extensive discussion and coverage of the fact that from 6 April 2026, the payrolling of benefits in kind (BiKs) will be made mandatory. Or, at least, this is the timescale set out by HMRC. Time will tell if this deadline is feasible. 

This is something the payroll industry has long been preparing for, particularly as HMRC has been referring to the P11D process as the “legacy process” in its communications for some time now.

Based on the feedback regarding the move to online only P11Ds, we need to be mindful of the short timeframe being granted in which to make the move to mandatory payrolling.

HMRC has already been very actively engaging with stakeholders, including the Chartered Institute of Payroll Professionals’ (CIPP) policy and research team, to ensure the current hurdles we see in implementing the change can be ironed out ahead of the proposed implementation date.

So, what are the challenges we see?

1. Some benefits can’t currently be payrolled

Not all benefits can currently be processed via the payroll. P11Ds must be submitted for those benefits even where employees have other benefits processed in real time through the payroll. 

This means you could be carrying out two separate processes for the same person, payrolling certain benefits for an employee, while also producing a P11D for them for those benefits which can’t be put through the payroll in real time. 

Those benefits are:

  • living accommodation provided by the employer; and
  • interest-free and low interest (beneficial) loans.

Before making payrolling mandatory, a way needs to be found to allow for the real time reporting of these types of benefits.

2. Cashflow considerations

As the change will mean that tax is due on benefits in real time, this could impact some employees who are used to receiving their benefits one tax year and then paying the associated tax through their tax code in the following tax year. 

This is something that will need to be communicated well in advance of the change to ensure people can budget effectively and not put them into hardship. If this is not possible, it may be that the employer needs to think of a workaround process to help their staff through this period.

Equally, in the transition year (if this is when the employer opts to start payrolling benefits and not before), it could be that individuals have a tax code which reflects benefits enjoyed in the previous tax year, while also paying for benefits they are currently receiving in real time through the payroll. 

This would effectively mean double taxation during the transition year. Just another thing to think about in terms of protecting the financial wellbeing of staff, which employers of choice should be doing.

It is hoped that HMRC will propose some sort of remedy that will avoid any issues for employees and employers in this transition period. HMRC has previously stated that no such issues will arise, but stakeholders have been vocal that this may present challenges. As with any big change, communication will be key to ensuring there’s little to no backlash from affected individuals.

3. P11Ds as a paid-for service

Many payroll providers offer the P11D service as a bolt-on to their payroll services, and charge extra for this. While we’re not suggesting this falls under HMRC’s responsibility, it’s still something worth thinking about, as the change could potentially have an impact on the revenue of some payroll service providers and subsequently the level of service they’re able to provide.  Of course, this isn't a worry for clients of Visionary Accountants who are used to receiving excellent service - no matter what HMRC throw at us!

There are other areas of consideration too, all of which the CIPP is hoping to raise with HMRC, through discussion with its members and the wider payroll profession. 

We will keep you posted on developments via our regular articles and social media posts.

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