How to Stay Safe from HMRC
19 August 15 | By: Jas Jhooty
Last week emTax attended a meeting (along with other stakeholders) with HMRC’s policy unit to provide our views on draft new regulations on three important new benefits and expenses measures. The measures being discussed were the: -
A lot of important information was provided by HMRC during this meeting relating to the practical measures of how they intend to implement the above new measures. This week’s article will focus on the first two measures and will be followed by an in-depth report next week on how Payrolling of Benefits will operate in practice.
Regular readers of our newsletters will be aware that the much trumpeted Trivial Benefits exemption was unexpectedly withdrawn at the eleventh hour from Finance Act 2015. HMRC confirmed that the £50 Trivial Benefit will be reintroduced in the Autumn Statement and will definitely be in Finance Act 2016.
The £8,500 threshold is being abolished from 6 April 2016. This will simplify processes for employers because:
a) the P9D return will be withdrawn; and
b) employers will no longer need to monitor employees with benefits in Kind (BiKs) and earnings close to £8,500 threshold.
This change will increase fairness as it will mean that all employees are taxed on their BiKs in the same way. Employers will pay additional Class 1A National Insurance contributions on BiKs for those employees earning at a rate of less than £8,500.
Lower paid ministers of religion are protected from these changes by a new exemption in the Finance Act 2015.
Also excluded are carers who are provided with accommodation in the home of person they care for & volunteers. HMRC confirmed that there is no limit for out of pocket expenses paid to volunteers.
In its second report on employee benefits and expenses, the Office of Tax Simplification (OTS) made recommendations to simplify rules and reduce burdens on employers. The Finance Act 2015 replaces the dispensations regime with an exemption for qualified expenses that are paid or reimbursed by employers. The exemption comes into force on 6 April 2016.
Within current rules, when the employer pays or reimburses allowable expenses they must either:
Most payments of expenses will be exempt if the employee would have been entitled to tax relief in full for that expense. Employers will no longer have to report expense payments on form P11D – they will either be exempt or will need to be put through the payroll.
Employees will not have to make a separate claim for tax relief on payments of allowable expenses where the exemption applies. All current dispensations will cease to exist from 5 April 2016.
The exemption will not apply to expenses and BiKs that are provided as part of a relevant salary sacrifice arrangement. Expenses will have tax and NICs deducted through payroll (but not reported on form P11D), whilst BiKs will need to be reported on the P11D.
There will be no change to the rules on which expenses qualify for tax relief. Employers paying non-allowable expenses will still need to put those through the payroll and deduct tax and NICs. Employees will still be able to claim a deduction in respect of non-reimbursed expenses. The exemption will apply to all employers.
Checking and record keeping requirements will be broadly similar to those for payments made under a dispensation. Employers can continue to pay actuals or scale rates – flat rates that are agreed with HMRC as being calculated to do no more than reimburse the expenditure incurred by employees on allowable expenses.
Under the new exemption all employers will be able to use the benchmark scale rates or apply to use bespoke scale rates.
1. Benchmark scale rates: the maximum amount an employer can pay or reimburse their employee for qualifying subsistence expenses without having to conduct a sampling exercise.
2. Bespoke scale rates: where an employer conducts a sampling exercise to evidence amounts are representative of expenses incurred and applies for an exemption. The employer will also need to have a checking system to demonstrate that the deduction is allowable.
Further guidance about bespoke scale rates, including models for checking systems, will be published later this year.
An employer can pay or reimburse the following in respect of qualifying travel in any one day:
1. £5 where the duration of travel is 5 hours or more
2. £10 where the duration of travel is 10 hours or more
3. £25 where the duration of travel is 15 hours or more and is ongoing at 8pm on the same day.
Where employers have paid or reimbursed an amount of £5 or £10, they can also pay or reimburse an additional £10 where travel is ongoing at 8pm on the same day.
A day is a 24 hour period commencing at midnight.
There will be a transitional arrangement in place for employers who, within the 5 years prior to 6 April 2016, have agreed an arrangement with HMRC for a bespoke scale rate in their dispensation.
They will be able to apply to retain the bespoke scale rate without conducting a sampling exercise; and those agreements will expire on the 5th anniversary of the rate last being agreed or updated.
However be warned that this application must be made in writing before April 2016. If no application is made HMRC have confirmed that they will treat these bespoke scale rates as Round Sum Allowances and will seek to subject tax & NICs on them.