Benefit in Kind

ET4Bs Winter 2018 Newsletter

Posted by David on February 11, 2018
Flexible Benefits, HMRC, News articles, Payroll, Status, Termination Payments / Comments Off on ET4Bs Winter 2018 Newsletter

ET4B’s Winter Newsletter 2018 looks at some of the more pressing matters currently on our, and our clients’ agendas.

One aspect affecting nearly all employers is the changes planned on treatment of employment termination payments. Upon implementation the changes are now being justified on a robust agenda of ‘fairness and clarity’, with the previous pretences of extra ‘simplicity’ and tax-neutrality having been dropped.  This presents the prospect of more work for employers and more tax/NIC to pay (for almost every employer and employee).

A few specific points of interpretation in respect of the new termination payments rules have very recently (14 February 2018) been clarified by HMRC in its February 2018 Employer Bulletin.

Firstly, HMRC has confirmed that payments made on or after 6 April 2018, but relating to a termination before that date, would fall under the ‘old’ rather than ‘new’ rules.

Secondly HMRC confirms that genuine redundancy payments (whether statutory, or non-statutory i.e. at enhanced rates agreed between employer and employee) should not be looked at under the new Post Employment Notice Pay rules i.e. they will still qualify for the £30,000 exemption. This is consistent with existing treatment which in effect goes as far back as the ‘Inland Revenue’ Statement Of Practice 1 of 1994 – so it would been a major disappointment if HMRC had decided to take a more stringent view here.

Finally the Employer Bulletin does confirm that the proposed withdrawal of Foreign Service Relief on termination payments from 6 April 2018 is still intended, but remains subject to further Parliamentary Approval.

Other than termination payments, the Newsletter looks at other hot topics concerning the government’s ongoing concern on employed v self-employed status, the increase in HMRC minimum wage reviews, changes in tax treatment of flexible benefits (or Optional Remuneration Arrangements to use the current terminology), possible changes to the way employee expenses are treated, and the proposed further uplift in taxation for diesel company car drivers.

We trust you find the Newsletter of interest. If you think we can assist, on these or any other employment/worker related matters, please of course contact us contact us.

Tags: , , , , , , ,

ET4Bs Spring 2017 Newsletter

Posted by David on March 04, 2017
Flexible Benefits, HMRC, News articles, Status / Comments Off on ET4Bs Spring 2017 Newsletter

ET4Bs Spring 2017 Newsletter includes updates on new legislation applicable to salary sacrifice and flexible benefits (or ‘Optional Remuneration Arrangements’ to use the latest terminology), as well as changes to ‘IR35’ obligations in the Public Sector and a range of other employment related updates.

Tags: , , , , , , ,

Government paranoia over salary sacrifice persists

Posted by David on February 28, 2017
Expenses and benefits, Flexible Benefits, HMRC, News articles / Comments Off on Government paranoia over salary sacrifice persists

A significant change effective from 6 April 2017 is the new legislation applicable to salary sacrifice and flexible benefits (or ‘Optional Remuneration Arrangements’ to use the latest terminology). Non-cash benefits provided to employees on an ‘Optional’ basis (i.e. where the employee has a choice whether or not to receive the benefit) will then be taxed on the higher of the amount of salary the employee gives up or the value of the benefit they actually receive. However, given that the most common salary sacrifices (pensions, employer provided childcare, and Cycle to Work schemes) will be excluded from the new rules, this seems unlikely to swell the Exchequer’s coffers as much as expected.

In our own view, the new legislation is extremely ill-conceived (both in concept and in practical application). Nonetheless, and despite reasonable objections and suggested alternatives being put forward by many professional bodies, it is due to become law very soon. In short, it is a highly complex and significant change (i.e. taxing what the employee might have received rather than what they actually receive), for what might be very expensive to administer and police, and of course a resultant loss of flexibility for the employer/employee.

We think the new arrangements will most commonly affect in-house benefits, accommodation benefits, and ‘company car or cash’ schemes (if provided optionally). For example, if the employee elects for an efficient and clean company car (as opposed to taking a cash allowance so they can buy their own gas guzzler), they will be caught within the new rules unless the car’s CO2 rating is 75g/km or less!

Following the 2016 Autumn Statement it was announced that some of the changes are to be phased in; there will be no alteration to the treatment of existing employee agreements on company cars, living accommodation, or school fees benefits, until April 2021, and for other existing benefits, until April 2018.

Whilst there may be a temptation to think that ‘nothing needs to be done’ until these later dates are reached, this is certainly not the case. This transitional ‘grandfathering’ will only apply if arrangements have been definitively entered into with each employee, by 5 April 2017. Also HMRC has said that subsequent contractual changes, renewal (including auto renewal) or modification (i.e. made after 5 April) will have the effect of cancelling any such transitional exceptions. Given there are many ways in which a contract can be updated or amended (some involving specific employee elections or employer confirmations, others being undertaken on a one-off basis and some periodically), it will be vital that any new contracts or contractual changes, both before and after 5 April, are considered and implemented effectively.

Whilst some changes may be needed, we don’t see this as the end of ‘flexible benefits’ as a concept. We believe that a quite a lot of existing flexible remuneration policies may be retained, well within both the letter and the spirit of the new law. However, more than ever before, careful drafting of employer policies and employee agreements will be essential.

Tags: , , , , , ,

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.

Tags: , , , , , , , ,

HMRC updates to booklet CWG(2) – transparency or opacity?

Posted by David on June 09, 2015
Expenses and benefits, News articles, Payroll / Comments Off on HMRC updates to booklet CWG(2) – transparency or opacity?

HMRC has recently published its latest annual update to its booklet CWG(2), i.e. the Employers Further Guide to PAYE/NICs, for the year 2015/16.

The CWG(2) does tend to retain the same basic paragraph and section numbering year on year, and it occurs to ET4B how easy it would be for HMRC to flag up or highlight any updated sections (within this and other updated guidance). Indeed it is difficult to fathom why the department does not opt to highlight changes to this (92 page guidance), clearly and directly?

Some of the main changes to the booklet would appear to be as follows (the page and paragraph numbers of the guide are shown in brackets for reference):

  • Details of the new 0% rate applying to certain employer Class 1 NICs, for employees under the age of 21, are now included (page 6, para 4).
  • Some of the examples scenarios potentially applying, when the regular date for employee pay is on a non-banking day, are now elaborated upon (page 9, para 4).
  • Guidance on Lump Sum payments from pension schemes (page 19, para 20) now refers to the more general use of the “Uncrystallised Funds Pension Lump Sums” (UFPLS) terminology, following changes in the rules permitting access to defined contribution pension funds.
  • Guidance on workers supplied by agencies has been developed, in an attempt to reflect some of the new and additional PAYE/NIC obligations for  onshore (page 51, pre-para 110) and offshore (page 60, para 125) agency workers.
  • For PAYE due on employment related securities and similar non-cash payments, the guide now reflects the recent legislative change that PAYE not recovered within 90 days of the end of the tax year now constitutes a benefit in kind (page 82, para 161). The previous 2014 version reflected the old rules where PAYE had to be made good within 90 days of the receipt of the non-cash payment, to avoid the benefit charge.

Tags: , , , , ,

ET4Bs Winter 2014/15 Newsletter

Posted by David on January 08, 2015
CIS, Expenses and benefits, HMRC, News articles, Status / Comments Off on ET4Bs Winter 2014/15 Newsletter

 

Please click here for a copy of the ET4B Winter 2014_15 Newsletter

In our Newsletter we provide additional details on changes proposed by the Office of Tax Simplification (as confirmed in the Chancellor’s Autumn Statement), an update on the current round of HMRC ‘Know Your Customer’ reviews (aka PAYE Compliance Reviews), the abolition of the IR35 Business Entity Tests, and further information on the new reporting obligations which will apply to employment agencies from April 2015.

 

Tags: , , , , , , , ,