It can be used on the taxable element of a school place where the entire fees are paid for under a salary sacrifice arrangement.
Rather than accounting for tax once a year through the submission of form P11D, the new service allows employers to automatically account for tax each pay day throughout the year. The service, called 'the payrolling benefits and expenses online service', came into effect at the start of the current tax year and should help reduce the administrative burden on employers and their payroll departments.
Employers had to register by 6 April 2016 in order to use the service for the current tax year. Those who missed the date for registration can now register in order to start using the service from April 2017.
Under the new service, the annual cash equivalent of the payrolled benefit is divided by the number of pay days the employee has in the tax year, and is taxed as if it were additional cash received in each pay period.
The introduction of the service applies to all benefits in kind, save for: accommodation, beneficial loans, non-cash vouchers and credit tokens. From April 2017 the service will be extended to include non-cash vouchers and credit tokens.
In February 2016, HMRC published some useful guidance about the new payrolling service. We set out below some key points to note:
Schools which operate a salary sacrifice for school fees scheme can use the new service to account for the tax payable on the marginal cost of the school place (being 15% of the full value of the place).
The service can therefore only be used for employees who sacrifice more than 85% of the school fees. As many employees choose to sacrifice the whole cost of the place, this service could ease the administrative burden on HR and/or finance teams.
However, still having to account for Class 1A NICs by submission of form P11D(b) may negate the administrative advantages it offers. Therefore, at this stage schools may feel that it is only worth keeping a watching brief on the service.