National Insurance

Update on voluntary payrolling of benefits from April 2016

Posted by David on February 15, 2016
Expenses and benefits, HMRC, National Insurance, News articles, Payroll / Comments Off on Update on voluntary payrolling of benefits from April 2016

HMRC has recently set out the framework by which employers will be able to collect tax voluntarily on specified benefits through payroll thus avoiding (or very substantially reducing) the annual P11D return cycle.

From the outset

Decide which benefits you wish to payroll: Employers may elect for some but not necessarily all benefits to be payrolled, e.g. to include medical benefits but not company cars. Many employers see this a way of ‘easing themselves in’ to the new process, especially if HMRC does experience any teething problems.

Also note that the election will cover the whole of a particular section of the P11D; so that if for instance you use Section M of the P11D to record two or more different types of ‘Other’ benefits, you would need to be sure that all such benefits (previously included within that P11D section) can now be payrolled.

Benefits which specifically cannot be payrolled are: vouchers and credit cards/tokens, employer provided living accommodation, and beneficial loans (currently sections C, D and H of the form P11D).

Are there any employees you wish to exclude? The presumption is that all employees receiving benefits within that ‘P11D section’ will now be payrolled, unless HMRC is told otherwise. Whilst it is possible to tell HMRC if you need to exclude particular people, it remains to be seen how effective HMRC is in recognising any such exclusions.

Make your election in good time: HMRC requires the employer to register before the start of the tax year – this can be done via the online ‘PAYE for Employers’ service. Employers who have informally payrolled benefits in the past are still required to register as this previous process is being phased out.

Another point to note is that you can’t change your mind part way through the tax year.

If you decide you want to ‘opt out’ for a future tax year (having previously opted in) you would need to inform HMRC before the start of that new year.

Removing benefits from tax codes: Once you have made the election, HMRC states that they will remove the benefits in kind, previously included within each employees’ tax coding, automatically. This may prove to be an interesting conundrum for HMRC, if say the tax coding currently includes two or more P11D items under the generic description of ‘benefits in kind’ (one of which is now payrolled and the other one isn’t) and we wait to see if HMRC’s systems are subtle enough to detect the difference.

Tell the employees: Although the latest HMRC guidance says that you ‘must’ provide employees certain information at the outset, we cannot see that requirement reflected within the new Regulations. Nonetheless any sensible employer would be well advised to let employees know, i.e. before the employees start to receive their updated tax codings (and before they notice the changes to their payslips). Whilst HMRC does suggest sending a letter to affected employees, the department does acknowledge there is no required or set format for such notifications, and the employer will generally choose the method which is most effective for them e.g. email, intranet, separate notices on pay statements etc.

During the year

Tax the benefit via PAYE: You must include the relevant benefit as an amount which is subject to PAYE tax, but not NIC, and spread this over each payment period of the year. Of course this is not an actual payment in cash so, in payroll terms, the easiest way of ensuring the correct calculations may be to also include the benefit as a net pay deduction.

Maximum PAYE deduction is 50% of pay: Employers must ensure the maximum PAYE deduction of 50% of pay is not exceeded. Note that the benefit is a deemed rather than an actual payment of income; so the 50% maximum must be applied to the pay before the deemed benefit is added in. Most employers will probably rely on their payroll software supplier to spot any potential issues here. In practice we can envisage some potential issues in cases where employees are on unpaid sick or maternity leave (i.e. where their benefits in kind continue).

Dealing with leavers: The employer should include the cash equivalent of the benefits within any P45 taxable pay to date figure.

HMRC does also confirm that the employer may adjust the final pay period(s) of leavers, to ensure that, as far as possible, the employee pays the correct amount of tax on the benefit up to the date of leaving. If such an adjustment is not possible before the employee has left (e.g. there is no further payment due), there are two choices; either the employer adds the ‘untaxed’ element of the benefit to  taxable pay and enters this on an amended FPS, but without adjusting the taxable pay to date, and sends this to HMRC advising the employee has left, or the value of benefit not collected via payroll must be returned on form P11D. Whichever of the two option is chosen, HMRC’s current guidance is that the department will itself seek to recover the unpaid tax direct from the employee.

Other ‘in year’ benefit changes: If for instance an employee changes their company car during the year, the employer would normally calculate the actual benefit for ‘car 1’ plus the estimated benefit for ‘car 2’ (both calculations reduced as appropriate for days unavailable). Any benefit value not already taxed would then be spread over the remaining pay periods of the year.

HMRC does acknowledge there will be occasions where the ‘correction’ is not processed before the end of the tax year, and in these circumstances will accept that any sum not taxed in ‘year 1’ can be taxed in ‘year 2’. NB: the Regulations appear to be drafted on the premise that the employer will always know about such changes instantaneously, however in reality that may not always happen (e.g. in a large organisation where information cannot always be shared immediately between departments). We would therefore hope that HMRC will apply some common sense and latitude here.

Correcting calculation mistakes made: Similarly HMRC accepts the occasional recalculation will be necessary e.g.  where the estimated number of paydays or actual benefits have been calculated wrongly. The same might apply if a company car fuel benefit applied which had not been recognised and payrolled (e.g. because an employee failed to make good the full private fuel as expected). Again some amount of year end cross-over is permitted so that any benefits not payrolled in ‘year 1’ can be payrolled in ‘year 2’

At the year end

Employee information: The new Regulations do confirm that the employer should include the cash equivalent of the benefits within any P60 year end figure. The timescale is the same as for forms P60 (i.e. 31 May following the year end), and it is assumed that most payroll software will be able to incorporate any necessary data on the form P60 itself.

Forms P11D will of course still be required for any benefits which were (for whatever reason) not payrolled.  Many sections of the current form P11D incorporate a section showing ‘amount made good or from which tax deducted’, however this is not so for company car or fuel benefits, hence we assume the P11D form will either be reworded or further HMRC guidance issued.

Submit form P11D(b) and pay Class 1A NIC: As only PAYE tax has been collected via payroll, the employer’s NIC obligation will be largely unchanged. As things stand, forms P11D(b) must still be submitted by 6 July following the end of the year, with the Class 1A NIC remaining due and payable by the following 19 July date.

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Anti avoidance and employment taxation: an ET4B summary

Posted by David on November 01, 2014
HMRC, National Insurance, News articles, Payroll, Status / Comments Off on Anti avoidance and employment taxation: an ET4B summary

In recent months you may have read about the introduction of various anti-avoidance measures which have been introduced in April 2014. Examples include measures to target onshore and offshore employment businesses, as well as new rules to be considered for LLPs.

Unfortunately much of the material issued is highly complex, and (of necessity) somewhat long-winded. Whilst much of this seems disconcerting, for many readers it will be simply a case of ensuring they have a high-level understanding of each measure, and then focusing on any aspects of particular relevance to them.

With this in mind, ET4B has produced a number of individual summary guides, which outline in simpler terms (and hopefully in plain English) the key issue of each new measure, i.e. what behaviours etc each seeks to challenge, what is the potential result, how this interacts with other similar legislation, and (most importantly) who is likely to be liable if the particular rules etc apply. In order to put this into context, our guidelines also compare and contrast how each new measure ties in with certain other employment tax ‘anti-avoidance’ initiatives (some of which were brought in play a number of years ago).

We would invite you to click on the links below, in order to obtain our ‘bite sized’ summary of each measure.

IR35 Intermediaries Legislation
Managed Service Companies (MSC) legislation
Workers engaged by Onshore agencies on a ‘falsely self-employed’ basis
Workers supplied via Offshore agencies
Overseas loan schemes
‘Disguised remuneration’ legislation
Payments via Limited Liability Partnerships (LLPs) to ‘salaried’ members or  partners

We hope you find this information of use. If you do require our input e.g. to help in understanding any of the measures in more detail, please contact us at ET4B.

Although the documentation reflects our current understanding, please also bear in mind that some of the legislation has yet to be enacted, and (in some areas) precise details and guidelines have yet to be clarified.

 

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OTS recommendations – a whole new ball game, or tinkering with the rules?

Posted by David on February 19, 2014
Expenses and benefits, Flexible Benefits, HMRC, National Insurance, News articles, Payroll / Comments Off on OTS recommendations – a whole new ball game, or tinkering with the rules?

At the end of last month the Office of Tax Simplification (OTS) published its eagerly anticipated Second Report into the tax treatment of Employee Benefits and Expenses.

Not everyone will wish to read all 86 pages of the Report, therefore we have produced a summarised version, together with some of ET4B’s own observations, in this attached document. However the fundamental questions addressed boil down to two things; can interpretation and administration of the rules be made any simpler, and can HMRC do more to help employers in their (sometimes reluctant) role as informal ‘tax assessor and collector’.

Amongst some fairly significant changes proposed by the OTS, the main ones are as follows:

– HMRC should actively encourage employers to voluntarily payroll benefits.
– There should be a legislative P11D exemption for benefits which have been fully taxed and NIC’d via payroll.
– The scope of PAYE Settlement Agreements (PSAs) should be widened. In addition, an online PSA return completion process should be introduced, and the current need for employers to ‘apply’ for a PSA should be abolished completely.
– There should be a clearer definition of certain benefits.
Dispensations to be replaced by a statutory exemption.
– Abolition of the £8,500 ‘higher paid’ P11D threshold.
– Simplification of Travel and Subsistence and other expenses deduction rules.
– Simplification of NICs generally.

Substantial changes may not happen overnight and so employers must continue to meet their existing ongoing obligations. At ET4B we pride ourselves in being able to abbreviate these complex matters significantly, translating these into plain English and simple guidelines, whilst of course keeping a close eye on possible future changes. If you feel ET4B can assist your own organisation in this rapidly changing environment please do not hesitate to contact us.

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ET4Bs Autumn 2012 Newsletter

Posted by David on November 15, 2012
CIS, Expenses and benefits, Flexible Benefits, National Insurance, News articles, Payroll, Status / Comments Off on ET4Bs Autumn 2012 Newsletter

017_ET4B Autumn 2012 Newsletter

This Newsletter contains details of recent employment status and IR35 issues, an RTI update, and information on other topical employment tax matters

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ET4Bs Spring 2012 Newsletter

Posted by David on May 01, 2012
Expenses and benefits, HMRC, National Insurance, News articles, Payroll, Status, Termination Payments / Comments Off on ET4Bs Spring 2012 Newsletter

016B_ET4B Spring 2012 Newsletter

This Newsletter contains  details of HMRC’s recent ‘IR35’ update, information on a recent stark reminder for employers operating salary sacrifice arrangements without adequate HMRC clearance, and much more.

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ET4Bs Autumn 2011 Newsletter

Posted by David on November 01, 2011
CIS, Expenses and benefits, HMRC, National Insurance, News articles, Payroll / Comments Off on ET4Bs Autumn 2011 Newsletter

015_ET4B Autumn 2011 Newsletter

This Newsletter provides an update on the RTI proposals, VAT on salary sacrifice, third party benefits and much more.

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