With the 6th July deadline approaching for employers to report employee benefits and expenses I am aware of changes brought in on 6th April 2016. Can you explain the main changes that an employer needs to be aware of?
For employers who provide non-cash benefits to employees, the run-up to 6 July can be a busy time as that is the deadline for telling HMRC about the benefits and expenses that their employees received in the previous tax year.
The regime for taxing benefits and expenses was radically overhauled from 6 April 2016. As part of the overhaul, the £8,500 threshold and the concept of a ‘lower paid’ employee were abolished and with it the special rules that had previously applied to employees with earnings below the magic £8,500 barrier which meant that they were not taxed on the vast majority of benefits provided to them.
For the 2016–17 and later tax years, employers have the option to deal with most benefits in kind via their payroll – but only if they registered to do so before the start of the tax year. Under payrolling, the tax on benefits and expenses is deducted from the employee’s cash pay, along with the tax and National Insurance on that pay. The cash equivalent value of the benefit is treated as if it were extra salary paid to the employee at his or her normal pay interval. As most benefits in kind are liable to Class 1A rather than Class 1 National Insurance contributions, this ‘notional’ pay is not included in gross pay for National Insurance purposes. As payrolled benefits are notified to HMRC throughout the year, there is no need to tell HMRC about them after the year-end. Consequently, they do not need to be included on a P11D.
Another change that took effect from the 2016–17 tax year was abolition of the dispensation regime and the introduction of a statutory exemption for paid and reimbursed expenses. Under the former dispensation regime, where a dispensation was in place in respect of a particular benefit, that benefit could be ignored when completing year-end returns. Dispensations came to an end on 5 April 2016 and have no relevance to 2016–17 expenses and benefit returns.
Form P11D(b) is the statutory Class 1A return and also the declaration that all required P11Ds have been submitted. A P11D(b) will be needed regardless of whether the taxable benefits and expenses provided in the year have been payrolled or notified to HMRC on form P11D. It is important that any payrolled benefits are not overlooked when completing the P11D(b) and the employer’s Class 1A liability. Employers who have not provided expenses and benefits in 2016–17 may think they can safely ignore the P11D(b). However, if they have provided benefits and expenses in the past and HMRC have issued a P11D(b) or a P11D(b) reminder notice, the employer must make a nil declaration – or risk a penalty.
Forms P11D and P11D(b) for 2016–17 must reach HMRC by 6 July 2017, and employees must be given details of their taxable expenses and benefits for the year by the same date. Penalties are charged for late and incorrect returns. Class 1A NICs must be paid by 22 July where payment is made electronically and by 19 July where the liability is paid by cheque. Interest is charged if it is paid late.
The 2016–17 year-end does not look the same as that for 2015–16, and there will be further changes to take into account next year too. The benefits and expenses landscape will continue to shift and employers will need to keep abreast of these changes to ensure that mistakes are not made in their year-end returns, as these may prove costly.
The advice in this column is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.