Employment benefits: reporting window is just around the corner

This post is part of our Entrepreneurial team’s regular series of blogs.

With the end of the tax year just over one month away, it’s time for employers to consider how they’ll be reporting employment benefits.

There are three options when it comes to reporting and paying the income tax and National Insurance (“NI”) due to HM Revenue & Customs (“HMRC”).

What are employment benefits?

Employers can provide their employees and office holders with a variety of benefits to incentivise new talent and give them that extra sweetener on top of basic salary. Common examples are medical insurance, gym memberships, company cars and interest-free loans. A checklist summarising common benefits provided to employees, which may need to be reported to HMRC, is available on our website – if you are unsure if you have taxable benefits to report, you can use the checklist which is available here.

P11D Forms

P11D forms are the most common way to report non-cash benefits provided to employees. Separate P11D forms for each employee receiving benefits and a P11D(B) form to declare the total Class 1A NI due by the employer must be submitted to HMRC. There is only a short window for the preparation and submission of these forms, as P11D forms for the tax year ended 5 April 2021 need to be submitted by 6 July.

The employees will be subject to income tax at their marginal tax rate on the “cash equivalent” value of the taxable benefit. The income tax due will either be collected via the employee’s PAYE tax code or their tax return if they submit one. The employer will be due to pay Class 1A NI at 13.8% by 19 July (or 22 July if paid electronically).

PAYE Settlement Agreement (PSA)

Alternatively, an employer can enter into a PAYE Settlement Agreement (PSA) with HMRC to report certain types of benefits. These allow the employer to settle the tax liability on ‘minor or irregular’ benefits on behalf of the employee. Under the PSA, the income tax liability is payable by the employer on behalf of the employee and it is calculated on a ‘grossed up’ basis. This can prove to be expensive as the total of the income tax and NI due (Class 1B NI at 13.8%) can be as much as the cost of the benefit itself (in the case of higher rate and additional rate tax payers). However, this is the best method for reporting minor benefits like staff entertaining, where an employer does not wish to burden their employees with any tax due.

HMRC must be notified before the 6 July after the tax year end for which you first wish the PSA to be in place. The PSA calculations detailing the income tax and NI due should be submitted by this date. The income tax and Class 1B NI liability is then payable by 19 October (or 22 October if paid electronically).

Payrolling benefits

It is possible to opt for ‘payrolling benefits in kind’, with the income tax due collected via the payroll in monthly instalments. A P11D(B) submission is still required with regard to the payment of the Class 1A NI but individual P11Ds are not required. As above, the P11D(B) will be due to be submitted to HMRC by 6 July with the Class 1A NI due for payment by 19 July (or 22 July if paid electronically).

The payrolling of benefits does require a registration to be in place before the start of the tax year you wish to start using the scheme. If you wish to payroll benefits for the tax year ending 5 April 2022 you should act to put this in place before 5 April 2021.

If you require any assistance with regard to the reporting of taxable employment benefits, bearing in mind the 6 July deadline, please contact us at Chiene + Tait as soon as possible.

Do drivers dream of electric cars?

(This article on electric cars first appeared in the Winter 2017/18 edition of our Connect newsletter.)

It will now cost you £21.50 to drive into central London if your car is more than 10 years old. If it’s a diesel, by next April it could cost you £24. Edinburgh and Glasgow councils are considering their own congestion charges with additional charges for diesels – £20 a day is proposed in Edinburgh – which could be in effect by 2020. And certain councils have already introduced additional parking charges for cars with diesel engines.

The UK Budget also sought to discourage diesels: new diesel cars face being put in a higher VED band, and drivers of diesel company cars will face a 1% increase in company car tax.

Benefits for company electric cars

Meanwhile, electric vehicles are being encouraged through benefits in kind taxation on company cars. A taxable benefit in kind is due for employees who are provided with a company car, with a corresponding National Insurance charge for the employer. The taxable benefit is the list price of the vehicle multiplied by a percentage tax rate HMRC created based on the car’s carbon dioxide (CO2) emissions.

This means that electric cars and Ultra Low Emission Vehicles (ULEVs) incur reduced benefit in kind percentages, with vehicles omitting 0-50 CO2 g/km benefitting from rates as low as 9% (13% from 6 April 2018). Typical petrol vehicles will be subject to rates of 17% – 37% this tax year, with the lower rate increasing to 19% from 6 April 2018. Diesels incur an extra 3% surcharge.

A subtle but advantageous provision from this Autumn’s budget is that no benefit in kind will arise where an employer allows an employee to charge a company car at work. For petrol vehicles, the provision of company fuel can often lead to increased income tax and National Insurance charges which can, at times, be higher than the actual cost of the fuel provided due to a fixed rate fuel amount being multiplied by the car tax percentage. Electric cars and ULEVs can also benefit from salary sacrifice, following changes in April 2017 that restrict new schemes to cars with emissions of 75 CO2 g/km or less.

The head-to-head: electric vs petrol

The i3, BMW’s flagship electric vehicle, retails at around £30,000. The i3 would give rise to a taxable benefit in kind of £2,700 for this tax year, while a corresponding petrol 3 Series saloon, with the same list price and CO2 emissions of 102 g/km, would incur £5,700. Choosing the i3 would save the employee £3,000 per year at their marginal rate of income tax and mean a reduced National Insurance charge to the employer.

The future

This year, Volvo announced that it will make no new cars with petrol or diesel engines from 2019: everything it manufactures from then will have a hybrid or solely electric engine. The UK Government said that all new petrol and diesel engines will be banned from 2040, mirroring France (but 10 years later than Paris, which will ban these engines by 2030). Tesla announced an electric lorry that, they say, will be 20% cheaper to run than a diesel equivalent. Elon Musk predicted that running a diesel truck would soon be “economic suicide”.

There remain issues with widespread electric car take-up – not least the need to charge millions of cars in millions of locations – but problems with the technology and infrastructure are being solved at a rapid pace. The current direction of travel seems to be firmly set: it may be wise to consider an electric future.