Contractors’ Questions: Is Spring Budget 2023 moving to payroll benefits-in-kind helpful?

Contractor’s Question: An umbrella contact of mine told me that as part of Spring Budget 2023, the government is apparently going to use tech systems to let employers payroll benefits-in-kind. The thinking is this will reduce burdens on employers, but wouldn’t it really help employees too, as it should give a bit more certainty regarding the tax position when the benefit-in-kind is provided, no?

Expert’s Answer: The UK's Spring Budget did indeed announce payrolling of Benefits in Kind (BiKs), which could have a small-ish impact on limited company contractors and umbrella companies' employees.

BiKs are non-cash benefits that employers provide to their employees, such as company cars, health insurance, and gym memberships.

Now and to come

Under the current system, employees are responsible for declaring their BiKs on their tax return and paying the appropriate tax and National Insurance Contributions (NICs).

While the ability to voluntarily payroll BiKs has been around for a long time, the new system will mean that employers will be responsible for declaring, deducting and paying the tax and National Insurance Contributions (both employee NI and employer NI) on BiKs.

Beneficiaries?

As to the beneficiaries, the move should simplify the process for employees and ensure that they are paying the correct amount of tax, so in that sense, the announcement at chapter 4.95 of Spring Budget 2023 represents good news for umbrella company employees.

The reversion of the NI rate to 13.8% is, however, bad news for employers including limited company contractors.

Additionally, the revised requirements are likely to cause some issues for limited company contractors. First, it will increase the admin overhead and NICs cost of BiKs, as their company will be responsible for paying the associated tax and National Insurance Contributions. Yet, as directors, they’re still likely to have to submit a P11D anyway.

Too early to tell

In terms of whether this move to let accountants payroll BIKs on behalf of employers will really be helpful, as your contact, the chancellor and others have implied, it is difficult to say for sure.

On the one hand, the new system will simplify the process for employees and ensure that they are paying the correct amount of tax. On the other hand, it is likely to increase the cost and admin burden of dealing with BiKs. Only time will tell whether the new system will be a net positive or negative for limited company contractors.

The expert was Chris Bryce, the chief executive of the Freelancer & Contractor Services Association (FCSA).