Payrolling: changes affecting benefits and expenses
Work out the taxable amount of benefit to put through your payroll if something changes, such as an employee leaving.
You can deduct and pay tax on your employees’ benefits and expenses through your payroll. This is known as payrolling.
If things change, such as an employee leaving or a company car change, you’ll need to recalculate the taxable amount to go through your payroll.
Employee leaves
The employee’s benefit will usually end on their last working day. You should calculate how much taxable benefit to payroll in their remaining paydays. To do this:
- work out the revised taxable amount for the days in the tax year they had the benefit
- take away the amount payrolled for the tax year to date
- payroll the remaining amount over the remaining paydays
If the employee has had their final pay, you can not payroll the remaining amount. You must tell HMRC so the tax can be collected directly from the employee.
Employee keeps their benefit up to the end of the tax year
You might let your employee keep their benefit up to the end of the tax year after they leave.
Take the amount payrolled for the paydays they’ve had away from the taxable amount for the whole year. This will give you the amount still to be taxed.
You’ll need to add this amount to any remaining payments of wages.
If the employee has already had their last payday, let HMRC know so they can collect the tax owed.
Example: employee gives notice in December that their last day is 28 February
The employee has a company car. The taxable amount is £5,200. This is £14.24 a day (£5,200 ÷ 365).
They will have had the car for 329 days to 28 February. 329 x £14.24 = £4,684.96 revised taxable amount.
£433.33 was payrolled each month (£5,200 ÷ 12). £433.33 x 9 paydays so far = £3,899.97 payrolled to date.
£4,684.96 - £3,899.97 = £784.99.
The balance of £784.99 should be payrolled over the remaining 2 paydays – £329.49 each payday.
Value of an employee’s benefit changes
An example of this could be where a new company car is provided, a premium for medical insurance changes or additional payments are made using a company credit card.
You’ll need to work out a revised taxable amount to payroll. To do this:
- work out the old taxable amount, up to the day before the value changed
- add this to the new taxable amount, from the date the value changed to the end of the tax year
- take away the amount payrolled to date in the tax year
- payroll the remaining amount over the remaining paydays in the tax year
If you’ve made your final Full Payment Submission (FPS), you can carry this amount over to the next tax year.
Example: employee gets a new company car on 1 August
The original taxable amount was £4,800. This is £13.15 a day (£4,800 ÷ 365).
There were 117 days to 31 July, before the value changed. 117 x £13.15 = £1,538.55 taxable amount before the change.
The new taxable amount is £6,000. This is £16.43 a day (£6,000 ÷ 365).
There are 248 days left in the tax year. 248 x £16.43 = £4,074.64 taxable amount from the date of the change.
The total taxable amount over the whole year is £5,613.19 (£1,538.55 + £4,074.64).
£400 was payrolled each month (£4,800 ÷ 12). £400 x 4 paydays so far = £1,600 payrolled to date.
Total taxable amount £5,613.19 - £1,600 leaves £4,013.19.
This should be payrolled over the remaining 8 paydays – £501.64 a month.
Correcting the taxable amount
If you used the wrong taxable amount by mistake, you’ll need to recalculate the amount to payroll. To do this:
- work out the correct taxable amount for the full tax year
- take away the amount payrolled to date in the tax year
- payroll the remaining amount over the remaining paydays
If you have already submitted your final FPS, you can carry this amount over to the next tax year.
Example: mistake with company car value
The original taxable amount was £4,800. The employer realises after 4 months that the correct value is £6,000.
£400 was being payrolled each month (£4,800 ÷ 12). £400 x 4 paydays so far = £1,600 payrolled to date.
£6,000 - £1,600 = £4,400.
The balance of £4,400 should be payrolled over the remaining 8 paydays – £550 each payday.
Changing the number of paydays
You might need to change the number of paydays, for example, because an employee changes from weekly to monthly pay. To recalculate the amount to payroll, you need to:
- work out the taxable amount of the benefit for the whole year
- take away the amount already payrolled
- payroll the remaining amount over the remaining paydays
Example: employee changes from weekly to monthly pay at the end of November
The employee has a company car. The taxable amount is £5,980.
£115 was payrolled each week (£5,980 ÷ 52). £115 x 34 paydays so far = £3,910 payrolled to date.
£5,980 - £3,910 = £2,070.
This should be payrolled over the 4 monthly paydays from December to March – £547.50 a month.
Change means the tax payable is more than 50% of the pay
If deducting tax for the recalculated benefit means the employee’s tax will be more than 50% of their pay.
Carry forward a change to the next tax year
If you’ve made your final FPS, you can carry forward the amount that has not been payrolled to the next tax year.
Add the amount still to be payrolled to the first wage payment in the next tax year.
If any change means the taxable amount has reduced, the employee will pay less tax or get a refund.
For Self-Assessment, employees must make sure they report the correct amount of tax paid for the year of assessment, irrespective of any amounts carried forward to the next tax year.
Class 1A National Insurance contributions payable on the benefit can not be carried forward to the next tax year. These are payable by 19 July after the tax year end.
Employee has left and no further paydays to payroll the benefit
If an employee has left but there is still a part of the benefit to be taxed, you have 2 options. HMRC will contact the employee for the unpaid tax, whichever option you choose.
Option 1: include the balance in your FPS
Report the taxable amount in taxable pay to date in your FPS and tell HMRC that the employee has left if you’ve not already done so.
Option 2: include the balance on form P11D
Include the untaxed balance on form P11D for the period that the employee had the benefit that was not included in payroll.
Last updated 16 May 2017 + show all updates
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Welsh language version of page added.
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First published.