Policy paper

Extending the real time collection of tax on benefits in kind: voluntary payrolling

Published 16 March 2016

Who is likely to be affected

Employers, employees, payroll providers and payroll software providers.

General description of the measure

The measure will amend primary legislation to allow HM Revenue and Customs (HMRC) to make changes to the Pay As You Earn (PAYE) Regulations (‘the Regulations’). The changes to the Regulations will enable the voluntary payrolling of non-cash vouchers and credit tokens.

Policy objective

The payrolling of non-cash vouchers and credit tokens provides an opportunity to reduce employers’ reporting obligations to HMRC. The collection of tax in real time will create efficiencies for employers and a simplified system should prove easier for employees to understand. Payrolling will reduce the likelihood of an over or underpayment of tax.

Background to the measure

The Office of Tax Simplification (OTS) recommended the introduction of a legislative framework to allow employers to payroll some, or all, of the benefits they provide to their employees on a voluntary basis.

Budget 2014 announced a number of measures aimed at simplifying the administration of benefits in kind and expenses, including voluntary payrolling.

Finance Act 2015 introduced legislation giving HMRC new powers to make regulations allowing employers to voluntarily payroll some benefits in kind (BiKs) for tax from the 6 April 2016. Non-cash vouchers and credit tokens were excluded from the payrolling of benefits in kind legislation in Finance Act 2015 as HMRC concentrated on developing the framework for voluntarily payrolling the BiKs that are most commonly provided by employers and so are the largest by volume and value.

This measure will extend the scope of HMRC’s powers, enabling the Regulations to be amended so that employers can choose to payroll non-cash vouchers and credit tokens from 6 April 2017.

Detailed proposal

Operative date

HMRC will amend the Regulations in the summer of 2016 to enable employers to choose to payroll non-cash vouchers and credit tokens from 6 April 2017.

Current law

A taxable benefit arises when, by reason of the employment, an employee receives a voucher or credit token. Chapter 4 of Part 3 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 charges vouchers and credit tokens to tax as earnings. Non-cash vouchers and credit tokens give rise to an income tax liability as if the employee had received a sum equal to the cost of providing the voucher or credit token.

Part 11 of ITEPA provides for a PAYE system, where employers deduct income tax at source from an employee’s salary. Section 684 ITEPA requires HMRC to set out the detailed provisions for PAYE in Regulations. These are the Income Tax (PAYE) Regulations 2003 (2003/2682) (the “PAYE Regulations”).

In general, when HMRC knows that a BiK is available to an employee, HMRC uses its powers in Part 2 of Regulation 19 of the 2003 Regulations to amend the employee’s PAYE tax code. The intention is to deduct the right amount of tax from the employee’s salary for the tax year, taking account of the value of the BiK.

Part 4 of Chapter 2, Regulation 85 of the PAYE Regulations requires employers to send HMRC annual returns of other earnings, including vouchers and credit tokens.

The voluntary payrolling framework, set out mainly in Chapter 3A of Part 3 of the PAYE Regulations (as introduced by the Income Tax (Pay As You Earn) (Amendment No. 4) Regulations 2015 (2015/1927)) enables employers to opt to payroll car, van, car and van fuel and other BiKs, such as medical insurance and subscriptions for tax from the 6 April 2016.

Where an employer choses to payroll the tax charge on BiKs its obligation to make a return (form P11D) under Part 4 of Chapter 2, Regulation 85 of the PAYE Regulations is dis-applied. Employers are required to report the value of these BiKs through Real Time Information. The PAYE Regulations set out how the cash equivalent of the BiK provided to an employee is to be calculated. The cash equivalent is treated as PAYE income which is liable to deduction using the PAYE Tax Tables.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to amend section 684 of ITEPA to allow HMRC to amend the PAYE Regulations to include non-cash vouchers and credit tokens in the framework for voluntary payrolling. HMRC will amend the PAYE Regulations in the summer of 2016 to enable employers to voluntarily payroll non-cash vouchers and credit tokens from 6 April 2017.

Summary of impacts

Exchequer impact (£m)

2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
–	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The measure is not expected to impact on individuals, households, family formation, stability or breakdown.

Equalities impacts

There are no equality impacts arising from this measure.

Impact on business including civil society organisations

This measure is expected to reduce the administrative burden on employers who choose to voluntarily payroll non-cash vouchers and credit tokens. The reporting burden on employers will be eased as the obligation to submit P11Ds will be reduced or removed.

Employers currently payrolling on an informal basis will benefit, as there will be no obligation to return a P11D for non-cash vouchers and credit tokens.

There will be a negligible one-off cost to employers adopting payrolling of non-cash vouchers and credit tokens - reflecting the need for employers to familiarise themselves with guidance, register with HMRC and make the requisite changes to their payroll system.

Estimated one-off impact on administrative burden (£m)

One-off impact	(£m)
Costs	negligible
Savings	–

Estimated ongoing impact on administrative burden (£m)

Ongoing average annual impact	(£m)
Costs	–
Savings	0.13
Net impact on annual administrative burden	-0.13

Operational impact (£m) (HMRC or other)

The measure is expected to deliver a small administrative saving for HMRC as a result of a reduced number of BiKs returned on form P11D. The administrative savings are anticipated to be negligible.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact Employment Income Policy Team on email:

employmentincome.policy@hmrc.gsi.gov.uk.