This article provides a round-up of the payroll changes coming into force on 6 April 2016 that entrepreneurial business employing staff will need to be aware of. There are 3 key changes affecting payroll from 6 April 2016.
Payrolling benefits
From April 2016, there is a new system of voluntary payrolling of benefits that will allow employers to report and account for tax on
certain benefits and expenses via the RTI system rather than on Forms P9D or P11D. Cars, fuel, healthcare and gym subscriptions can all be included but beneficial loans, living accommodation and vouchers cannot be payrolled.
Employers who want to register for 2016/17 should do so via their government gateway by 5 April
2016.
Once registered, HMRC will identify the employees who are affected and will issue revised tax codes which exclude the payrolled benefits.
Once
the tax year has started you must continue to payroll the benefit or expense you've registered for the whole tax year or for as long as you provide it.
This new system enables you to collect the tax due on benefits and expenses by adding a notional value to your payroll run.
Before making the first relevant payment to an employee in a tax year, you need to calculate the cash equivalent of the annual benefit (say a company car benefit of £3,000). You then need to determine the number of payments to be made to the employee in the tax year and divide the cash equivalent by the total number of payments to be made. So if paid
monthly, divide the £3,000 car benefit by 12 to arrive at a notional value of £250 per month. This notional value is included in the monthly payroll for tax calculation purposes. The individual should not see any difference to their monthly tax as previously their coding reflected the car benefit.
All payrolled benefits are
reported in your Full Payment Submission so no P11d or P46(Car) is needed but you do still need to complete Class 1A form P11d(b).
Removal of the £8,500 higher paid employee rule
Currently, only directors and higher paid employees pay tax on benefits such as cars and medical insurance; employees earning less than £8,500 per annum are not taxed on such benefits. Historically, couples have been able to take advantage of this by employing the wife in the business in return for a small salary of say £5,000. As neither a director nor higher paid
employee, she could then be given a company car tax-free – providing the benefit calculation does not put her above the £8,500.
From 6 April 2016, with the exception of ministers of religion, all employees will pay tax on all benefits and there is a new exemption for live in carers. Board and lodging
provided on a reasonable scale at the home of the person they care for, will not be a taxable benefit.
Reimburses expenses exemption
Currently, many employers have a dispensation in place for business expenses that are reimbursed to employees. Where no such dispensation exists, employers must report reimbursed expenses on the employees' P11d s and employees must record these amounts as benefits on their self-assessment returns, making a claim on the return for the allowable cost element.
From 6 April 2016 dispensations are scrapped and a new statutory exemption is introduced for reimbursed business expenses. These amounts will not be reportable on the P11d nor by employees on their self-assessment returns.
The exemption applies to expenses that would attract a deduction under current legislation but it does not apply to salary sacrifice arrangements.
For the exemption to apply, there are two qualifying conditions that need to be satisfied:
- Payer must operate a system to check that the employee is incurring and paying for the expenses
- Neither the payer nor anyone operating the system knows or could reasonably know or suspect that expenses were not incurred or not deductible
Employers can apply to HMRC to
reimburse expenses at a flat rate. Once approved, these flat rate amounts would also qualify for the reimbursed business expenses exemption.
Once the flat amounts are agreed, HMRC will issue an approval notice which will specify the:
- rate at which the expenses are to be paid or reimbursed
- date from which this takes effect (earliest date is the date of the notice)
- date of expiry (no more than 5 years after the date of commencement)
- type of expenses to
which the approval notice applies.
HMRC will have the power to revoke these approval notices if an officer considers there is reason to do so and the revocation can be backdated to the date of approval.
Noel Guilford
Noel Guilford is
the principal of Guilford Accounting a small business accountancy practice specialising in advising owner-managed businesses on current accounting, finance, and tax matters. You can reach him via email at noel@guilfordaccounting.co.uk or by phone at 01244 660866. He is the author of the best selling book 'Figure it out - an entrepreneurs guide
to understanding your business numbers' which you can obtain by visiting http://guilfordaccounting.co.uk/figureit out.