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Find out about the important information contained in HMRC’s latest Employer Bulletin
20 January 17 | By: Jas Jhooty
HMRC’s latest Employer Bulletin provides some valuable practical guidance on how the recent changes announced in the Autumn Statement will impact on employers.
With certain exceptions all other Benefits-in-Kind (BiKs) provided through salary sacrifice arrangements, including currently tax exempt BiKs (such as mobile phones), the value of the BiK for income tax and Class 1A NICs will be the higher of the current taxable value or the cash foregone. There will not be a Class 1 NICs liability, unless one already exists on the benefit (such as in the case of vouchers). Employers and employees are still free to use salary sacrifice, but with the tax and Class 1A NICs advantages removed.All arrangements entered into before 6 April 2017 will remain under the pre-2017 valuation rules until the earlier of:
- Change, renewal (including auto-renewal) or modification of the arrangement, or
- April 2018 (April 2021 for cars with emissions of more than 75g CO2/km,
- accommodation and school fees).
This is a deliberate and cynical ploy by the Government to accelerate the implementation date of this change. HMRC are (or should be aware) that nearly every reputable salary sacrifice scheme contains an annual window for employees to make changes to their flexible benefits.
More guidance on this is eagerly awaited and has been promised to be made available in February.
Personal Service Companies providing services to the Public Sector
From April 2017 individuals working through their own limited company providing their services into the public sector will no longer be responsible for deciding whether the intermediaries’ (IR35) legislation applies. This responsibility will instead move to the public sector employer, agency, or third party that pays the worker’s intermediary. The employer, agency or third party will decide if the rules apply to a contract and if so, make sure the relevant income tax and NICs are deducted and reported through PAYE in real time.
HMRC have promised to provide help for public sector employers and agencies and will introduce clear, objective tests for employers to use to decide at the point of hire whether or not they need to even consider the new rules and then to quickly and decisively identify those engagements that are clearly caught by the rules. For cases that are less clear cut, HMRC will develop a simple and straightforward digital tool to provide employers engaging an incorporated worker with a real-time HMRC view on whether or not the intermediaries’ rules need to be applied.
The new legislation does not intend to alter in any way the existing employment status factors. It remains to be seen if this HMRC tool will actually be reliable as no-one outside of HMRC has seen it yet. With the implementation date for these changes being April 2017, it is imperative that Public Sector employers implement a due diligence process now, to firstly identify whether any of their suppliers are Personal Service Companies and then go on to assess whether or not this new legislation applies to their invoices. Then a methodology needs to be arrived at to account for the PAYE tax & Class 1 NIC expected to be deducted from any of their invoices received post April 2017.
Trivial BenefitsMore details on how the new exemption for Trivial Benefits will apply have been published To qualify as a ‘trivial BiK’ conditions A-D must be met:
- Condition A – the BiK must not be cash or a cash-voucher;
- Condition B – the BiK must cost £50 or less;
- Condition C – the BiK must not be provided as part of a salary sacrifice or other contractual arrangement; and
- Condition D – the BiK must not be provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.
Importantly there is no cap on the number of trivial benefits that can be given to employees (including retired/former employees) unless the employer is defined as a close company in which case an annual cap of £300 applies.
Payrolling of Benefits
The regulations have been extended to allow for payrolling of all benefits except for living accommodation and interest free or low interest loans. HMRC are hoping that more employers will register to payroll benefits as the window to register for the current year was ridiculously short with their registration service not going live until almost the end of the 2015/16 tax year.
Payrolled benefits do not have to be reported on the end-of-year P11D. HMRC are currently losing a host of company car information from those employers who have elected to payroll their employee’s company car and related benefits. For this reason, from April 2018 it will be mandatory for employers to report this information through the Full Payment Submission (FPS). Those employers who currently have payroll software that facilitates the submission of company car information, can voluntarily submit this through the FPS from April 2017.
Tax relief for employeesHMRC are actively encouraging employers to inform their employees that they can claim tax relief that the employer has not already paid for including various items such as:
- repairing or replacing small tools
- cleaning, repairing or replacing specialist clothing, such as a uniform or safety boots
- business mileage, (where an employee uses their own vehicle), or fuel costs, (if using a company car)
- travel and overnight expenses
- professional fees and subscriptions paid to some approved professional organisations
This is a first for HMRC and is surprising especially when you consider how understaffed they are, that they are encouraging taxpayers to increase their workload.
How emTax can helpAs this Employer Bulletin illustrates, there are a lot of changes to employment taxation coming this year. Our consultants can help you to implement these changes:
- whether it advising you on how to change your benefits policies so they will not be affected by the new salary sacrifice rules;
- or advising you on how to implement a due diligence process for identifying and assessing affected Personal Service Companies working for the Public Sector.
We are also currently totally updating our annual P11D Benefits & Training package to include up-to-date information on how to payroll benefits and how to prepare for the changes outlined in this bulletin. More details on this will be the subject of next week’s newsletter.
Please do not hesitate to contact us if you want any more information about any of these matters.