Benefits in kind and tax codes

[lincs]

Quick query.

Obviously benefits in kind are taxable, but it says in my book that they usually get charged by lowering the tax code and thus taking the tax by giving them less free pay.

I'm a bit puzzled by this:

Question 1) Are we saying that the employer never takes the tax for P11D benefits - the tax office sorts it all out?

Question 2) The tax office wouldn't know what the P11D benefits are until they receive the P11D so it would seem to me that they cannot issue the tax code for the current year. Do they work one year behind or something?

Thanks in advance
Adrian

[deanshepherd]

1) The employer collects the extra tax by running the payroll as normal but with a different tax code.

2) It depends what the benefit is. New cars or changes to car and fuel benefits are notified quarterly to HMRC so the tax code gets adjusted pretty quickly. Most other benefits will lag a year behind but they will adjust the tax code even further to play catch up.

I remember when I left my last job and went self-employed I got stung for 'catch-up' tax on my season ticket.

It is far from an exact science!

[lincs]

Thanks Dean, think I might have more queries soon!

PS how do HMRC get informed quarterly on car and fuel benefits? Is there a specific form i.e. P??

[twd]

The form used is P46(car)

[lincs]

Another question on P11D! Its silly really.

The P11D system just seems like such a mess to me.

As kindly answered above an employer will fill in a P11D and the tax office will adjust the tax code reducing the personal allowance in the following year.

But often employees getting benefits will also be filling in a tax return. I take it if this happens and the benfits are listed on the tax return, the tax office are clever enough to marry up and investigate any discrepancies between the employers P11D and the employees tax return? They won't get all muddled up and try reducing the personal allowance twice or anything?

Sorry its just that my exams ask a question with a calculation giving about 5 marks then ask you to waffle about how it works for another 20 marks.

[deanshepherd]

I think this is probably one (of many!) situations where practical realities are probably not best brought up in an exam question response.

Basically, tax codes are adjusted when HMRC get some new information. This may be the submission of forms P11D by the employer or the submission of a Tax Return by the individual or simply phoning up HMRC and telling them.

You also have the predicament of adjustments to tax codes in relation to earlier years (or box 18.2 and 18.2 adjustments as they are known).