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Employment Tax- It's more than trivial

11th December 2014

The draft Finance Bill (2015) has introduced a number of changes which will have an impact for all employers. Some of the proposed changes will come into effect from 6 April 2015, with others not until 6 April 2016.

Abolition of the £8,500 threshold for benefits in kind
There has been a call for some time to provide consistency in the reporting of benefits in kind for all employees regardless of the level of their earnings. 

The removal of the £8,500 threshold will mean that all employees will potentially be liable to tax on the benefits in kind they receive. Clearly no tax will be due where the employee’s income from all sources is less than the personal allowance (£10,600 for the 2015/16 tax year). 

However, the employer will be liable to Class 1A National Insurance (“NI”) on all benefits in kind reported on forms P11D. Similarly, there will potentially be an increase in the tax and National Insurance liabilities due where employers have entered into a PAYE Settlement Agreement with HM Revenue & Customs (“HMRC”). 

Limited exemptions
A new exemption will be introduced in respect of Ministers of Religion earnings at a rate of less than £8,500 to ensure that the majority of the benefits in kind they receive will remain exempt from income tax and NI.

A similar exemption will also apply for board and lodging provided to carers where they are living in the home of the person they are looking after.

The changes will come into effect from 6 April 2016.

Simplifying the administration of employee benefits and expenses 
Currently, where an employer pays any expenses or provides benefits in kind then these need to be declared on an employee’s P11D each year. Strictly employees are required to claim tax relief on any reimbursed expenses which were incurred “wholly, exclusively and necessarily” in the performance of their employment. 

Where an employer can demonstrate that they had adequate controls and procedures in place, then HMRC will grant them a Dispensation, resulting in only taxable benefits in kind being declared. 

From April 2016, an exemption will be introduced for reimbursed expenses which are incurred by the employees “wholly, exclusively and necessarily” in the performance of their employment. This exemption will replace the current Dispensation arrangements.

Salary sacrifice
HMRC have seen a number of arrangements, which in their view comprise aggressive tax planning, where employees receive a proportion of their “pay” as tax-free allowances. Consequently, the exemption mentioned above will not apply where such arrangements are in place, and in particular where they form part of a salary sacrifice arrangement.

Overall the changes will no doubt be welcomed by employers. There will be a greater dependency placed upon employers to “self-evaluate” the expenses paid to employees and care will need to be taken to ensure the correct tax and NI treatment is applied.

The proposed changes will come into effect from 6 April 2016.

Trivial benefits
For some time there has been a call for a statutory provision to replace a HMRC concessionary practice where a small gift is given to an employee, say at Christmas, is exempt.

Gifts, including non-cash vouchers with a value of £50 or less, can be provided free from tax and NI without any need to report them on a P11D or include them as part of a PAYE Settlement Agreement.

The exemption will come into effect from 6 April 2015.

Pay-rolling of benefits in kind
Following representations made to the Government it is intended that the tax and NI due on certain benefits in kind can be collected through the payroll. This will be undertaken on a voluntary basis and will include the following benefits:

  • Car
  • Car fuel
  • Medical Insurance; and
  • Subscriptions, including gym membership.

Further details are awaited as there will be a requirement to make a number of changes to the PAYE and NI Regulations. However, for employers who provide the benefits listed above, it will help reduce their reporting obligations. The changes will also provide greater certainty for employees as the tax they are due to pay on their benefits will have been collected from their salary.

The changes are due to come into effect from 6 April 2016.

Summary
As with any changes in legislation there will be “winners and losers”. The changes set out above are intended to reduce the compliance burden for employers and should, we  believe, be seen as a good thing.

There are still a number of other significant areas which are the subject of further consultations, for example:

  • Provision of living accommodation
  • Termination payments; and
  • Employment status.

We will update you when we hear of any further developments, but it is likely that this will be after the General Election.

If you would like to discuss any of these changes, or any other Employment Tax issues, then please do not hesitate to contact Nick Bustin, Head of Employment Tax, on 020 7969 5578 or via email  nbustin@haysmacintyre.com

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