If you or your business employ anyone (including directors), then you will shortly have to consider your year-end employer compliance obligations.
The same rules are in place for all employers, from large businesses with bespoke benefits packages, to small businesses or individuals who employ a single person, such as a nanny or carer.
As a minimum, this will include making final payroll submissions to HMRC and issuing P60s to employees. Commonly there are also P11Ds to consider if your employees have received any benefits during the tax year, along with some other less well known obligations that can arise in some circumstances. This leaves a short window at the end of the tax year for employers to both understand and meet their reporting requirements for one tax year whilst preparing to start the next. In addition to the multiple responsibilities and deadlines for employers, HMRC have a range of penalties for missing filing deadlines, making late payments or correcting errors.
Please read our payroll guidance, for further information on the year end process. If you need assistance with any aspect of your payroll reporting or need any advice before completing your own submissions, please speak to your usual contact at PKF Francis Clark.
Forms P11D and benefits in kind
Many employers provide benefits and expenses to employees over the course of a tax year and are obliged to report them to HMRC. This can include obvious items such as company cars and medical insurance, along with more obscure items that employers may not consider to be a benefit. For more details please see our Employment Benefits factsheet.
There are specific rules and rates to adhere to, and any variation to these rates must be agreed with HMRC before being paid to employees. Please see our Employee Expenses factsheet to consider your checking process and the expenses you pay to employees. You may also find our Travel and Subsistence factsheet helpful.
The government has sought to simplify some rules over the last few years. One such simplification is the introduction of trivial benefit rules, whereby certain benefits with a value of £50 or less no longer need to be included on forms P11D. This is good news for an employer who provide small incentives not linked to an employee’s performance, such as a small Christmas hamper or non-cash voucher.
When relying on the new trivial benefits rules, it is important to seek advice to ensure that the tax free benefit you decide to provide really is tax free. If not, that ‘tax free’ benefit will incur further costs both to the employer and the employee.
The benefits and expenses provided to employees over the course of a tax year are commonly reported to HMRC on form P11D. One form is required for each employee or director with a value of benefits to report. The total is then included on form P11D(b) and the employers liability is calculated. All forms must be submitted to HMRC by 6 July, with any employer liability payable by 19 July each year.
These forms also affect the employee’s tax position for the year, so it is important to consider whether forms P11D are the appropriate forms to use. There are alternative forms available for certain benefits and we can help you to consider the most appropriate options.
We have an experienced team that can assist with every aspect of your payroll and year-end compliance. We can help you consider tax efficient incentives, ensure your internal policies and procedure are compliant, and complete forms P11D or any other forms as required.
PAYE Settlement Agreement (PSA) and benefits in kind
The PSA allows employers to settle the tax and national insurance due on certain benefits on behalf of their employees. This is especially helpful where an employer may consider it inappropriate for the employee to pay the tax due or where it is difficult to split the cost between employees. Most commonly, this will include non-cash vouchers outside of the trivial benefits rules or social functions not covered by the annual party exemption.
As the name suggests, this is an agreement between the employer and HMRC. The agreement must be in place by 6 July 2018 for the 2017/18 tax year, otherwise the benefit will need to be included on individual forms P11D. Employers are advised to apply for an agreement in advance of providing a benefit where possible, so they can be certain of the tax treatment before the benefit is provided.
The deadline for submitting a PSA calculation is 31 July each year, with a payment deadline of 19 October. These are more generous deadlines than for forms P11D and with just one form to prepare, it can reduce the administrative burden by reducing the number of forms to complete.
The Government is looking to simplify this process from 2018/19 by removing the requirement to agree a PSA in advance. This is expected to reduce the administrative burden on employers and allow a decision to be made annually on the best treatment for the benefits that need to be reported. HMRC are currently considering this change and are expected to make an announcement in April 2018.
Our payroll services team can assist in agreeing the PSA with HMRC, preparing and submitting the PSA calculations, and considering the PSA items to ensure the most appropriate treatment.
Recent developments on travel expenses
Relevant to employees as well as employers, HMRC has just published new guidance on the taxation of employee travel. With an increasing focus on home working and working across multiple locations, calculating out what you’re allowed to claim as allowable work travel vs dis-allowable commuting costs can make a big difference. Please speak to your usual PKF Francis Clark contact for further information, should you require it.
Termination payment changes
There has long been a widespread misconception that the first £30,000 of all termination payments were exempt from employment income tax. This was in fact always subject to a number of limitations, for example, payments in lieu of notice were not within the £30,000 limit and payments to over 50s are sometimes viewed by HMRC as a retirement benefit. However, from 6 April 2018 new rules are coming in that mean that some payments for breach of contract will also be subject to employment income – where that payment relates to the amount that would have been due as basic pay during a notice period, it will now be taxable. Whilst the £30,000 exemption continues to apply in some circumstances, termination pay is now more likely than ever to be subject to income tax and national insurance.
Given that the taxation of termination pay is not straightforward and is frequently adversarial, we would therefore recommend advice is sought if you find yourself in the unfortunate situation of having to consider it.
Employee/director shareholdings and share plans
In addition to the payroll and benefits reporting employers will be familiar with, there are also tax reports to make if a company has implemented any share plans or if any employees or directors have bought shares in their employing company or group. The transactions that need to be reported also include situations where employees or directors sell shares for more than ‘market value’ or similar taxable transactions relating to employee/director shareholdings. The various charging provisions are quite complex and can catch out (for example) share buy-backs where minority director-shareholders sell their share back to the company without taking into account any discounts for minority shareholdings. The reporting also includes the annual returns required for EMI plans. We have produced a detailed factsheet on the reporting requirements, but please contact your usual PKF Francis Clark contact for further information and assistance.
International Assignments – Short term business visitors
If you have had short term business visitors (for example secondees from overseas) working for you during the year, you must operate PAYE for them from day one and notify them to HMRC by 19 May 2018 where they have been with you for more than 30 days. There are substantial relaxations to these rules if you enter into an ‘Appendix 4’ agreement with HMRC. We have produced a factsheet on global mobility issues – please contact your usual PKF Francis Clark contact for further details.
Martin Brown (firstname.lastname@example.org) – 01823 275925
Scott Campbell (email@example.com) – 01752 301010
Julia Clutterbuck (firstname.lastname@example.org) – 01803 320100