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Benefits in Kind Changes Due April 2016

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Benefits in Kind Changes Due April 2016

A major shake up in the benefits-in-kind (BIK) regime is due to hit on 6th April 2016.

Rules dealing with BIK have remained fairly static since 1979.

The coming shakeup was announced by HMRC’s Office of Tax Simplification and reflects legislation set out in the Finance Act 2015.

 

 

Two major shakeups

 

Two of the most significant BIK alterations due to hit in April 2016 include:

  1. Abolishing the £8500 threshold
  2. Allowing employers to transfer BIK taxation to HMRC through their payroll system rather than via employees’ tax code

The current BIK regime: £8500 threshold

Current laws require employers to submit form P11D.  This form details an employee’s BIKs where the employee earns more than £8500 per annum. P11D is generally accompanied with a payment settling BIK taxation and employer’s Class 1 NI contributions for the period in question.

Employers submit form P9D detailing BIKs for employees earning less than £8500 per annum. Form P9D excludes many BIKs including private use of a company vehicle and private medical insurance. P9D does not require employers to pay Class 1 NI contributions on BIKs received by employees earning less than £8,500 per annum.

Abolition of £8500 threshold

From 6th April 2016 the law will require all employees to pay BIK taxation regardless of their annual earnings. Likewise, employers must pay Class 1 NI contributions on all BIKs their employees receive. Click here for HMRC’s official guidance on these changes relating to Class 1 NI contributions relating to BIK.

Payrolling of BIK taxation

From 6th April 2016 employers will be able to settle BIK tax and Class 1 NIC through their payroll system. Initially, employers will be restricted to payrolling BIKs relating to company vehicles, vehicle fuel and medical insurance. More BIK items are to follow. Employers must register their intention to payroll BIK taxation. A registration form to do so is set to go live in the coming months.

Winners and losers

The abolition of the £8,500 threshold is clearly going to reduce the amount of disposable income available to Britain’s lowest paid workers. Changes may also increase the administrative burden faced by many small businesses who are not able to automate this process through their payroll system. The Association of Accounting Technician details potential disadvantages of these changes. Click here for more information.

However, changes to BIK will no doubt ease the administrative burden currently faced by many mid-to-large sized businesses, particularly those who are able to automate BIK payments into their standard payroll set-up. Employers will be able to avoid the need to return form P11D. Form P9D is eliminated entirely.

The current £8500 threshold means employers must continuously monitor their employees’ earnings to determine when BIK taxation becomes due. The abolition of the £8500 threshold removes this burden since all employees will need to pay BIK regardless of earnings. Many employers will be pleased by this development, particularly those lacking a system capable of automatically detecting when BIK taxation applies to specific employees.

About The Financial Management Centre

The Financial Management Centre offers a payroll service that works in harmony with the coming BIK legislation set to kick in on 6th April 2016. Ensure your company complies with the new rules by contacting your local office today.