Employees may receive something other than cash as part of their salary.

This non-cash part of the remuneration is known as a benefit-in-kind. The benefit will have a cash equivalency, and the employee will be taxed on that cash equivalency. One way that the employee can reduce their tax liability is to contribute something, usually cash, toward the cost of the benefit. This contribution is known as ‘making good’ and the timing of the ‘making good’ payments vary according to which process, payrolled or non-payrolled, is used to inform HMRC of the benefit.

The fact that there are different, several, or no deadlines for the reporting of benefits, depending on which of the two methods is used, has led to some confusion. This confusion over the deadlines has prompted the Office for Tax Simplification, employers and representative bodies to ask for clarity in the matter.

The government, in Budget 2016 proposed a consultation with the aim of simplifying the process by aligning the dates of non-payrolled benefits-in-kind with those of payrolled benefits. Below is an outline of current and proposed practice for ‘making good’ payments for payrolled and non-payrolled benefits-in-kind.

Payrolled benefits

From April 2016 employers have had the ability to tax the benefits-in-kind through the payroll system. This has simplified the tax position of the employee as the tax liability will be spread over the tax year and it has also reduced the administrative burden placed on the employer.

As part of the legislative framework deadlines were laid down as to when the ‘making good’ should happen. The deadlines were that all ‘making good’ for benefits-in-kind should happen by the year end, except for fuel benefits, when the ‘making good’ should happen by 1 June following the end of the tax year. It was these deadlines that the government proposed to be used for non-payrolled benefits.

Non-payrolled benefits

As previously mentioned, at present non-payrolled benefits can have either several dates, or none at all by which ‘making good’ payments have to be made. In proposing the alignment of ‘making good’ payment dates the following questions were asked.

Q1. For company cars, company vans and the other benefits-in-kind set out above, are there any practical difficulties in ‘making good’ by the end of the tax year? Please provide reasons for your answer and set out which benefit-in-kind the difficulties refer to.

Q2. Are there any practical difficulties with ‘making good’ for car and van fuel benefit, credit tokens and beneficial loans by 1 June following the end of the tax year? Please provide reasons for your answer and set out which benefit-in-kind the difficulties refer to.

Q3. For employer-provided loans, should interest paid after the benefit-in-kind has become final and conclusive be taken into account?

Q4. For non-cash vouchers and credit tokens, would there be difficulties in having to make good within the earnings period in order to remove the NICs liability?

There were a variety of different responses to the above four questions, with a number of issues raised, but the overwhelming concern being expressed by the respondents was that of the tight timescales if the payrolled benefits-in-kind deadlines had to be met. It was maintained that employers needed more time to gather the information and make the relevant calculations necessary to cost the benefit.

Many respondents suggested that as they were used to the 6 July deadline, and as procedures for declaring benefits-in-kind on the P11D were already in place to meet that deadline, it would make good commercial sense to build on those processes and have any ‘making good’ by date as the traditional 6 July date.

Though the government’s original intention was that all deadlines be aligned to those of payrolled benefits, the responses to the consultation led the government to a re-think.

The outcome of the consultation was that the payrolled dates were unworkable for non-payrolled benefits, and instead, the government has agreed that the ‘making good’ of the non-payrolled benefit deadline is now to be 6 July following the end of the tax year.

This date is to be in place from April 2017 for benefits producing a tax liability for tax year 2017‑18 and beyond.

Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.