Current and forthcoming changes for 2018/19
Recap of key employment tax changes that will affect benefits in kind arising in 2018/19 tax year
- HMRC official rate of interest remains at 2.5% for the calculation of beneficial loans and living accommodation benefits in kind.
- Increases in CO2 emissions %, fuel benefit and van benefit amounts as in previous years. Maximum % remains capped at 37%.
- No income tax liability will arise on vehicle charging facilities at or near an employee’s workplace providing that these are generally available to all employees at that workplace.
- New rules regarding simplified PSA, optional remuneration agreements and termination payments (outlined further below).
Voluntary ‘payrolling’ of Benefits in Kind (BIK)
Employers can register with HMRC to report and tax benefits via the payroll, rather than through an employee’s tax code. This is voluntary and employers can choose which benefits to include in the payroll. All BIK can now be payrolled except beneficial loans and living accommodation.
The amount added to the employee’s salary each pay period and subject to income tax is the cash equivalent of the benefit, divided by the number of payments to be made to the employee in the tax year.
If your business is considering payrolling BIK then it is advisable to register well before the 5 April deadline to prevent employees being issued with multiple PAYE codes.
Employers wishing to payroll any BIK for 2018/19 tax year would have needed to register with HMRC by 5 April 2019.
Once registered, a P11D is not required for those BIK which have been registered to be payrolled, as it is assumed these benefits will also be payrolled in the future. Employers will still be required to complete a P11D(b) to cover Class 1A NICs on employee benefits that are not exempt.
Where a benefit has not been included in payroll, it must continue to be reported to HMRC by the employer on a Form P11D. A separate P11D will be required for employees with both payrolled benefits and non-payroll qualifying benefits.
Employers need to pay Income Tax and Class 1 NICs on an element of all termination payments from 6 April 2018, whether or not they are contractual payments.
This means that whenever a termination payment is made before the expiration of the contractual notice period (for employments ended on or after 6 April 2018), the payment needs to be divided into post-employment notice pay (PENP), earnings that the employee would have received had they been given and worked their full and proper notice; and amounts which are not PENP.
PENP is taxable and the amount of the termination payment which is not PENP (remaining balance) is taxed under the rules for termination payments (and taxable to the extent that it exceeds £30,000).
This exercise needs to be carried out for every termination payment which is made to an employee before the notice period has ended.
In addition, with effect from 6 April 2018, foreign service relief on termination payments was removed for all UK residents, apart from seafarers where any payment or other benefit is received after 13 September 2017 for an employment that terminated on or after 6 April 2018.
From 6 April 2018, rules were due to come into effect meaning employers would be liable to pay Class 1 secondary NICs on any part of an employees termination payment that exceeds the £30,000 threshold. This has been delayed until 6 April 2020 and provides an opportunity to implement any larger redundancy programmes before this date.
Parents whose youngest child is 11 or under can get up to £2,000 a year (or £4,000 where disabled) towards their childcare cost through Tax-Free Childcare. The money can go towards a whole range of approved childcare, including nurseries, childminders, nannies, after school clubs, play schemes and home car agencies. The childcare provider must
be signed up to the scheme before they can be paid.
You cannot get Tax-Free Childcare at the same time as claiming Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers. It is worth considering which type of support is best.
The provision of a workplace crèche or nursery is not affected by the introduction of the new government scheme and continues to be an exempt benefit.
Please note existing childcare employer schemes are closed to new entrants from 5 October 2018. Employees who joined an employer scheme before this date can continue to benefit from the limited exemption as long as the employer continues to offer the scheme (or until the employee leaves).
Optional Remuneration Arrangements (OpRA)
In recent years, legislation has limited the tax and national insurance contribution (NIC) advantages of the tax exemptions applying to certain benefits and applies where a benefit is provided to an employee under an ‘optional remuneration agreement’. There are two types of arrangement;
- the employee gives up a right to receive earnings (i.e. salary) in return for a benefit.
- the employee chooses to receive a benefit rather than an amount of salary.
Where the legislation applies, the actual amount taxed (and subject to NI) will be the higher of the cash amount that the employee would have received (‘amount foregone’) or the taxable benefit determined under benefit rules. Where salary is exchanged for an exempt benefit, the taxable benefit amount is deemed to be nil, so the employee will now always be taxed on amount of salary foregone.
Previously this only applied to new arrangements entered into on/after 6 April 2017. As of 6 April 2018, the new rules apply to existing arrangements entered into before 6 April 2017.
Where the benefit is the provision of a car with emissions > 75g CO2/km, living accommodation or school fees, the transitional rules apply for a longer period. The new rules will not apply to these benefits until 6 April 2021, unless there is a change, renewal (including auto renewal) or modification of the arrangement prior to this date.
From 6 April 2019, there are changes regarding the provision of cars and vans to employees with an element of private use. When a taxable car/van is provided through OpRA, the amount foregone includes associated costs (e.g. insurance) and the value of any capital contribution is adjusted when the car is only made available for part of the tax year.
You don’t need to do anything if your employees are sacrificing salary for provision of pensions advice qualifying for exemption, provision of cycles and cyclist safety equipment, tax-free employer provided childcare vouchers, contributions to registered pension schemes and car with ultra-low CO2 emissions (75g/km or less). The advantages of a salary sacrifice scheme will be retained in these cases.
Exemption for expenses related to travel
Employers have previously had a statutory requirement to check receipts or other types of documentary evidence even where using HMRC or benchmarked subsistence rates, to ensure that some relevant expenditure had been incurred.
From 6 April 2019, a new condition has been introduced such that employers are simply required to check that the employee has undertaken qualifying travel (travel for which a deduction from earnings would be allowed). The concessionary use of overseas scale rates will also be allowed from this date.
Simplified PAYE Settlement Agreements (PSAs)
PSAs allow employers to settle an employee’s tax liability on minor/irregular benefits and expense payments, such as staff entertainment or payment of qualifying relocation expenses (amounts exceeding £8,000). This means that employees effectively receive the benefits net of tax, with the tax liability settled by the business.
Prior to 2018/19 tax year, employers were required to renew their PSA agreements annually and in advance.
From 2018/19, employers can create an enduring agreement, which does not need to be renewed. This means the PSA will be ongoing unless varied or cancelled.
Calculation of the tax due under a PSA must be carried out after 5 April and sent to HMRC by 31 July. Payment is due on 22 October if made electronically (or 19 October if otherwise).
Measures announced at the time of Budget but not yet legislated
- For 2019/20, the car fuel benefit charge increases to £24,100 (2018/19: £23,400).
- Cash equivalent of a company van benefit for 2019/20 increases to £3,430 (from £3,350). Van fuel benefit charge increases to £655 (from £633).
- From 6 April 2020, responsibility for operating off-payroll working rules (IR35), and deducting any tax and NIC due, moves from the individual to the organisation paying the individual’s personal service company. Small companies would be exempt.
- Most employers currently claim an employment allowance of £3,000 offsetting their Class 1 NIC liability. The Government will restrict this allowance where employers’ NIC liability < £100k in the preceding tax year. Where employers are connected, this threshold will apply to their aggregated liability.