Payrolling of Benefits – What are the changes?


Many larger employers are in favour of this proposal, as it would save them a lot of time at the end of the year. Similar legislation was successfully introduced in the Republic of Ireland in 2004.

A decision will not be announced until the 2008 Pre-Budget report whether the proposed new legislation will be passed. If it is passed, it will come into effect in April 2011.

The important thing to note is that under the new regime, the requirement to calculate the taxable value of a benefit (i.e. the cash equivalent that the employee will have to pay tax on) will not disappear. Only the year end reporting requirement on the annual form P11D will be removed.

So if this change occurs, will your business be able to cope with the new demands placed on it?

The three key questions that you should be asking are: –

  1. Does my business possess the necessary IT infrastructure to gather raw benefits data from suppliers on a monthly basis?
  2. Is my current payroll system capable of calculating the cash equivalents of these benefits and process these figures monthly?
  3. How will my business cope with the rise in employee queries of how the taxable benefit values appearing on their payslips have been derived?

Most businesses already possess the IT infrastructure to report benefit values annually. E.g. medical health insurance premiums are normally reported to you annually by your insurer. However under the proposed new regime you will have to ensure that you can receive and process these details on a monthly basis.

There are no payroll systems that can calculate cash equivalents of all benefits-in-kind. Payroll companies have traditionally steered clear of developing benefits and expenses software because of complex benefits legislation. For this reason, most businesses currently use dedicated benefits and expenses software. Unfortunately most software serving this niche has been designed to meet the current legislative requirements and are year end P11D form fillers only.

Finally, a method of communication with your employees of exactly how the monthly taxable benefit values have been derived will have to be established. Ideally an employee should be informed of how the benefit has been worked out and not just have an unexplained figure appearing on their payslip. This in turn can provide valuable feedback information from your employees when they experience a change in their benefits provisioning, thus ensuring you are minimising any potential mistakes being made.

The answer to all of these questions is a benefits software package that can calculate the monthly figures to feed into your payroll system after importing the raw data from your supplier’s monthly spreadsheets. The system should also be capable of emailing a detailed statement to the employee of how that month’s benefits figures have been arrived at.

As the UK market leaders in benefits and expenses software, PAS Ltd has already developed a suite of products that meet all of these requirements and more.

For more information contact:

Graham Whitehouse
Sales Manager,
on 0161 820 7113
or email