Posted on 22 January 2015
New tax exemption for qualifying expense reimbursements - removal of dispensation agreements
From 2016/17 the government intends to introduce a new tax exemption for business expenses. This will remove the need for employers to complete P11Ds in respect of such expenses, or to obtain a P11D dispensation.
P11D dispensations provide certainty that HMRC accepts that no PAYE tax/NIC liability arises for all the items covered. Not only does this reduce P11D reporting, but, if the employers records reflect the working practices agreed in the dispensation, in the event of a HMRC Employer Compliance Inspection, it is significantly more difficult for HMRC to recover retrospective liabilities of PAYE tax/NIC on those expenses agreed in the dispensation. This valuable protection will no longer be available. It is likely that HMRC will publish model rules showing what will be acceptable in terms of checking expenses and keeping records. These are likely to be generic in nature, so employers will need to consider carefully how best to make sure that the rules are adhered to.
If you would like to discuss how to maximise the opportunities to re-negotiate your dispensation agreement with HMRC before the 2016/17 tax year, please get in touch. During the transition period to the new regime, HMRC are likely to have to recognise recently agreed dispensations, so there is still protective value in acting now to get an effective dispensation agreement in place in the next few months.
In addition, the new exemption is not intended to cover travel and subsistence expenses reimbursed under a salary sacrifice arrangement. Employers who have such arrangements in place will need to consider whether any other tax reliefs are available and how they are going to communicate the loss of tax/NIC relief to employees.
Real time collection of tax on benefits in kind and expenses through voluntary payrolling
There has been a recent consultation issued by HMRC on the voluntary payrolling of benefits in kind (BIK). The Government now proposes to introduce a statutory framework for the voluntary payrolling BIK with effect from 6 April 2016. This will enable employers to include the value of BIK in taxable pay and deduct the tax due in each pay period via the payroll.
Employers will have to calculate the taxable value of BIK at each payroll run, rather than at the end of the tax year as now, which arguably increases the administrative burden and the chances of making an error. In addition, although forms P11D will not be required, it is likely that employers will have to provide a statement of BIK to employees.
Trivial benefits exemption - proposal
Trivial benefits provided to employees, i.e. gifts on the occasion of illness, marriage and the birth of a child, are taxable as BIK unless HMRC agrees otherwise, usually as part of a dispensation.
Following a recent period of consultation the Government has accepted a recommendation from the Office of Tax Simplification (OTS) to create a statutory trivial benefits exemption, and the proposal is that it will cover items costing less than £50. This is still only a proposal, the details of the rules for this possible exemption and the relevant legislation is not yet in place.
Please continue to treat trivial benefits as BIK, unless you have them specifically covered in a dispensation.
Abolition of the £8,500 lower-paid employment threshold
Under current rules, many BIK for individuals with earnings less than £8,500 are not liable to income tax. It has been announced that the £8,500 threshold will be withdrawn from 6 April 2016. From this date, employees will be subject to income tax on BIK in the same way, regardless of their earnings. This will increase the income tax liability of individuals who receive benefits and would previously have been outside the tax charge, and it could have a significant impact on some businesses.
Abolition of employer's National Insurance contributions (NIC) up to the upper earnings limit for apprentices aged under 25
To encourage employers to employ young apprentices, and to support the creation of a more highly-skilled workforce, it has been announced that the Government is abolishing employer's NIC (currently at 13.8%) on earnings up to the upper earnings limit (currently £41,865) for apprentices aged under 25. This will come into effect from April 2016.
Travel expenses paid by intermediaries such as umbrella companies
The Government is concerned that overarching contracts designed to create a single employment for individuals who undertake a series of assignments for intermediaries, in particular umbrella companies, are being used by intermediaries to enable employees to claim tax relief for the expenses incurred in travelling between their homes and places of work in circumstances where this relief is not available to employees who are not in an umbrella company arrangement. Without the overarching contract, the employees would not be eligible to claim the tax deduction, as a condition for the relief is that the employee does not spend most or all of the period of employment at their normal place of work.
The Government has announced a review and will publish a discussion document. Depending on the outcome of the review, it is likely PAYE tax/NIC become payable on these expenses. The intermediaries and employees will either have to bear the additional cost of these liabilities or pass them on to the end user.
Improving the operation of the Construction Industry Scheme (CIS)
The Government recently published a consultation on the operation of CIS, formulating proposals aimed at reducing the regulatory burden of operating the scheme and reducing HMRC's administrative burden.
If you would like more information on any of the above or any employment tax related issues, please do not hesitate to get in touch with me.