HMRC: BiK Corrections Guidance on Estimates and Adjustments

• Employers must always report the correct taxable value of benefits in kind, using reasonable estimates when the exact value is unknown.
• In-year corrections for BiK inaccuracies can be made via a further Full Payment Submission (FPS) up until April 19th following the end of the tax year.
• Corrections made after April 19th are considered previous year adjustments and require a specific FPS submission under the Real Time Information (RTI) corrections process.
• Additional Income Tax liabilities from corrections are due by April 19th (or April 22nd electronically), with interest accruing from this date.
• Additional Class 1A National Insurance contributions are due by July 19th (or July 22nd electronically), and interest only applies from this later deadline.

Employers must diligently report the correct taxable value of benefits in kind, utilizing reasonable estimates when necessary and promptly adjusting these figures to ensure compliance and avoid interest charges.

Employers are fundamentally obligated to accurately report the taxable value of all benefits in kind (BiK) provided to employees. In situations where the precise taxable value of a benefit is not immediately ascertainable, HMRC guidance permits the use of a 'reasonable estimate.' This initial estimate serves as a placeholder until the definitive value can be confirmed.

To facilitate this process, employers should proactively engage with their payroll providers. Early communication ensures that payroll teams are aware of the estimated taxable value of benefits as soon as possible, allowing for smoother integration into payroll calculations. The use of an estimate, however, always necessitates a subsequent adjustment once the exact taxable value becomes clear, ensuring ultimate accuracy in reporting.

Should an inaccuracy in BiK reporting be identified during the current tax year, employers are required to account for any necessary adjustments within that same tax year. This is typically achieved by updating the relevant year-to-date figures through the next regular Full Payment Submission (FPS). If the final pay period of the tax year has already passed, a further FPS must be submitted to incorporate the corrected values.

Employers have a window to submit these further FPSs for in-year inaccuracies up to and including April 19th following the end of the tax year. For instance, if an employer initially estimated a medical benefit at £100 per month but later confirmed the annual value to be £1,500 instead of the anticipated £1,200, they would adjust subsequent monthly payroll reports. The shortfall in Income Tax for previous months is automatically collected from the employee's remaining salary, while underpayments of Class 1A National Insurance contributions (NICs) are collected via the employer's PAYE bill over the rest of the tax year. Crucially, if a reasonable estimate was used and adjusted promptly, the employer is not considered late in paying Income Tax and NICs.

Any correction to the taxable value of benefits in kind made on or after April 20th following the end of the relevant tax year is classified as a previous year adjustment. For these situations, employers must submit a further FPS, adhering to the established Real Time Information (RTI) corrections process. This applies whether the initial reporting contained an inaccuracy or was based on a reasonable estimate where the final value was unknown.

When submitting such an FPS for a previous year, specific details are required. These include indicating that it is a 'Previous Year' submission, along with the original payment date, original payment ID, and the original tax week or month. HMRC then utilizes this comprehensive information to update the employee’s year-end tax position and reconcile any outstanding liabilities, ensuring the accuracy of historical records.

Adjustments to benefits in kind can result in additional tax liabilities, and employers must be aware of the associated payment deadlines to avoid interest charges. Any additional Income Tax liability arising from these corrections is due by April 19th, or April 22nd if payment is made electronically. Interest will begin to accrue from this statutory due date if the payment is not received on time.

For additional Class 1A National Insurance contributions, there is an extended statutory deadline of July 19th, or July 22nd for electronic payments. Interest on these Class 1A NICs will only be charged from this later statutory due date. Employers must diligently report the correct taxable value of benefits in kind, utilizing reasonable estimates when necessary and promptly adjusting these figures to ensure compliance and avoid interest charges.

Compliance officers and legal advisors must be aware of HMRC's specific procedures and deadlines for correcting Benefits in Kind (BiK) and expenses, particularly when using estimated values. Adhering to the FPS submission rules and payment deadlines for Income Tax and Class 1A National Insurance contributions is crucial to avoid interest charges and ensure accurate employer compliance.

Source: Original reporting via HMRC guidance