As we begin another tax year, we review the changes introduced by HMRC which came into effect from 6 April 2017. It is also important for employers to ensure that they report the necessary 2016/17 year end information in line with previous changes and the rules currently in place.
Payrolling of Benefits
We previously welcomed the introduction of the voluntary payrolling of benefits scheme from 6 April 2016 which saw a large number of employers take the decision to sign up. This allowed employers to process certain taxable benefits provided to their employees through payroll on a real time basis over the tax year which removed the requirement to complete P11Ds for 2016/17.
Although the requirement to complete P11Ds was removed by this process, employers are still required to return a separate form P11D(b) by 6 July to report the Class 1A National Insurance Contributions due.
From 6 April 2017, HMRC will continue to offer the service of payrolling benefits to employers, however non-cash vouchers and credit tokens can now also be included in the scheme. It will continue to be the case that employers who operate the scheme will remain required to return their Class 1A National Insurance liability on a form P11D(b) each year.
For employers who have not yet signed up to payroll benefits, although you will still be required to submit P11Ds and a P11D(b) for 2016/17 and 2017/18 if you did not complete registration before 5 April 2017, if you wish to join from 2018/19 registration must be completed before 5 April 2018. It is critical that the introduction of payrolling benefits is planned carefully and built into your existing payroll process to ensure compliance is achieved. Most importantly, employee communication is crucial to minimise the impact on your HR and payroll teams following the transition.
Although the arrangement is currently voluntary, given its success in the first year and the continuing option to payroll, we would suspect that in the future HMRC will make this compulsory for employers providing benefits to their employees.
Removal of Dispensations
From April 2016, HMRC removed the operation of dispensations and introduced a new exemption from paying income tax and NICs on qualifying business expenses, paid or reimbursed by employers. This means that where an employer is reimbursing an employee’s actual costs, paying the HMRC benchmark rate or a bespoke flat rate agreed with HMRC, there is no requirement to report the amounts to HMRC on form P11D or apply for a dispensation. 2016/17 will be the first year where P11Ds will no longer have these expenses reported.
All other non-qualifying expenses will still be subject to tax and NICs as they are now. Employees will still be able to claim tax relief for tax deductible expenses not reimbursed by their employer.
Although the reduction in administrative burden has been widely welcomed by industry, the new system does place a greater burden on employers to ensure that they are compliant with how they internally process expense claims and we do expect HMRC to take a robust approach to ensuring companies are compliant.
HMRC have made clear that they will expect companies to have in place a thorough checking system to ensure that they and their employees are applying the new regime correctly to ensure that expenses that are being claimed are only those which qualify as genuine business expenses. This underlines the importance for companies of ensuring that their expense policy is clear and fits with the new legislation and that employees are also aware of the rules.
As a result of the new legislation surrounding the £50 exemption on trivial benefits provided to employees, from 6 April 2016, employers are no longer required to report such items on a form P11D or via Pay As You Earn Settlement Agreements (PSAs) at the year end, and 2016/17 reporting will be the first year impacted by this change. However, employers will still be required to ensure they keep good records of who has received trivial benefits and the values to provide to HMRC in the event of any enquiries.
Employers must also continue to ensure that HMRC’s criteria on what is a trivial benefit is met for the favourable income tax and National Insurance treatment to apply.
Current examples that HMRC accept as ‘trivial' benefits in kind are small gifts (such as a bouquet of flowers) given to an employee to celebrate a personal event, such as the birth of a child, or small items such as a box of chocolates given to an employee for Christmas. Some employers may already have agreements in place with HMRC as to the maximum value of a trivial benefit in kind, but this welcome change allows for clarity for all employers, and should mean a reduction in the amount paid via your PSA.
In the Autumn Statement 2016, it was announced that significant changes would be made to numerous salary exchange arrangements currently available to employees. Although arrangements relating to pension, childcare, cycle to work and ultra-low emission cars will remain safe, the tax and employer’s national insurance benefits of all other salary sacrifice schemes will be removed from April 2017.
This will directly impact employees as they will see an increase in their tax and national insurance due to HMRC for the year and as a result will see a decrease in their take home pay. This will also mean an increase in employer’s national insurance due.
However it was confirmed in the Statement that arrangements currently in place will be protected until April 2018, with arrangements for cars, accommodation and school fees remaining protected until April 2021.
HMRC have also announced changes to the tax advantageous childcare support employees are entitled to which are due to be implemented from 2017. For more information, please see our blog outlining the changes -http://blog.aab.co.uk/childcare-which-scheme-is-best-for-you
Alignment of Employee and Employer National Insurance
From April 2017, the National Insurance paid by employees and employers will be aligned. As a result, it has been confirmed that employees and employers will now begin to pay National Insurance on weekly earnings above £157.
If you are unsure of your obligations come the end of this tax year or require more information on how the changes coming up may impact you or your business, please get in touch with Charlotte Stewart (firstname.lastname@example.org) or your usual AAB contact.