Report expenses and benefits for the year end 5 April 2019, Form P11D
The P11D traditional method of reporting benefits in kind is still available and allows businesses to report their employees’ benefits on an annual basis.
The main employee queries come as a result of employers not verifying the benefits provided to their employees before completing the P11D. examples:
- Company car – incorrect car details recorded (usually when an employee changes car in year), use of benchmark car for grade, not actual car details
- Medical benefit value incorrect – use of entitled cover value not actual cover value
- Loan benefit – incorrect calculated loan benefit charge
Not only does this frustrate the employees, it also leads to incorrect Class 1A NIC charge being remitted to HM Revenue & Customs (HMRC).
- Start early – obtaining the data is generally quite an arduous process
- Verification – compare the benefit in kind information and charge to the raw data from the providers. Does it match? Where are the anomalies?
- Confirm with your employees that the benefits included on their P11D is correct. Allow a timeline of at least two weeks before submission to HMRC
- Submit the P11Ds and the P11D(b) – it sounds logical, but once all the hard work has been done more than one employer will forget to submit the actual returns!
- Pay the Class 1A NIC due on or before the deadline
- P11D / P11D(b) submission to HMRC – 6 July 2019
- Payment of Class 1A NIC – 22 July
PAYE Settlement Agreements (PSA)
A PSA is a fantastic arrangement which allows the employer to meet the tax and National Insurance Contributions (“NIC”) liability on certain employee incentives. In doing so, it keeps the employee incentives as true incentives, but also allows for the employer to budget correctly for the additional cost.
They are not the cheapest approach, as the tax/NIC liability can be as much as 100% of the incentive value depending on employee marginal rates, but using them to their fullest will:
- Demonstrate to HMRC the employer’s commitment to compliance
- Remove the burden of a tax exposure for your employees
- Provide a cash flow advantage to the company (deadline for tax and NIC remittance is not until 22 October after the end of the tax year)
- Full cost of PSA (incentive cost and PAYE/NIC exposure should be allowable for a corporation tax deduction)
Always do what you’ve always done
Many employers continue to follow the process of the year before and with that make the age-old mistake of always getting what they always got – a large tax and NIC exposure. Some of the examples where reviewing the process saved money and blushes:
- Use of budgets for events rather than actual spend – more common than you may think, easier to take the budget and pay tax on that than look at the detail. In many cases, the actual cost is less than the budget meaning overpayment of tax and NIC for many years.
- Calculating tax at the highest marginal rate – usually down to the fact that the most senior person claims the expense, so tax is charged at 40%/45%. However, the team member present may include basic rate tax payers, so potential excessive payment of liability.
- Including items that could be exempt from tax – types of items commonly included, gifts to employees, working lunches on the premises, annual functions. With the right level of technical knowledge and experience applying them to specific scenarios, savings can be achieved from previous years’ submissions.
- Scrutinise the data to ensure that the correct values are being identified
- Utilise all tax exemptions to help minimise unnecessary costs
- Consider a review of previous years’ PSAs – there may be some tax and NIC refunds due
- PSA agreement to be approved and signed – before 6 July 2019
- Tax and Class 1B NIC submission to HMRC – usually before 31 August 2019
- Payment of tax and Class 1B NIC – 22 October 2019
Short term business visitors (STBV)
Hidden employees can be an issue for many employers and despite all the challenges, disbelief and shakes of the head. Your overseas employees visiting the UK on business need to be tracked, processed and filed – but this is only for tax compliance purposes.
Understanding which category of employee, and from which countries around the world, are eligible for inclusion in a STBV report can be difficult – examples of mistakes made by clients include:
- Non-resident UK director visiting the UK to fulfil director duties – specifically excluded from the report and at significant risk of PAYE exposures.
- Including employees visiting from overseas countries who do not have a double tax agreement with the UK – this population are not eligible for inclusion within the report and there could be a PAYE withholding obligation.
- Employees’ presence in the UK exceeds 150 days – approval from HMRC needs to be obtained otherwise many frustrating questions are likely to be asked to satisfy the employees inclusion on the report.
Notwithstanding the above, our experience suggests most employers only need a light touch when it comes to business visitors reporting, due to many overseas employees visiting the UK for less than 60 days in a rolling 12 month period and rarely returning to the UK in consecutive years.
As a result, obtaining a short term business visitor agreement (“STBVA”) and providing the relevant notifications to HMRC, increases the employer credibility with the authorities and, if efficiently monitored, should not be too onerous a task. However, it is worth noting that employers with multiple overseas employees visiting for more than 60 days is more arduous and can cause significant disruption if a process for identifying the employees is not addressed.
Since 2013 HMRC has focused significant efforts in monitoring and policing this regime, so employer obligations will not simply just go away. The opportunity therefore, is for employers to own the process on their terms and not wait to be dictated to by HMRC.
- Find a tracking solution that works for your business – examples can include:
– travel provider data
– expense claim assessment
– security log in/sign in at the office
– apps to provide instant data
- Make an application for a STBVA – providing information on your tracking process and procedure
- Review the track data regularly (monthly or quarterly) – this data can provide patterns and avert risks occurring, but also allows for the process to be more efficient
- Prepare the assessment report for each business visitor and complete a report template relating to the day count thresholds they have been present in the UK during the 12 month period – including all relevant information
- STBVA to be approved and signed – before 31 May 2019
- STBV report to be submitted to HMRC with all additional information and evidence – before 31 May 2019 (HMRC have agreed that reports submitted after 31 May 2019 will be accepted)
Reporting of employee share and share options plans
Operation of a share plan/scheme can provide valuable benefits for the business and your employees. Sharing in the successful growth means all parties feel they’ve bought into the aspirations of the business. What’s the catch? The two areas which employers come back to is:
- Employees do not understand the benefit of the arrangement – either it is too complex, or communications have been few and far between
- The complex tax rules and timings make it difficult to administer and be compliant
Any arrangement, be it cash incentive or equity can appear complex if the details are not explained, being transparent on both the positives and, if any, possible negatives. Our experience shows that open communication provides a solid foundation for employees to trust and buy into future prosperity. Communications do not have to be long winded, more bite size and concise pieces of information that the employees can digest and work with, so the right decisions can be made.
Compliance too need not be complex, it starts with understanding the scheme rules and how they apply to each territory – not just thinking all countries’ rules are the same. There will be tax implications, but that can be withholding/deductions and reliefs available to the business, understanding the ‘whole’ can help each department in your business HR, payroll, tax, legal see how the puzzle fits together and why each piece is important.
Finally, there is reporting – annual reporting of all your share schemes to HMRC. Data gathering is the potential sticking point here, but if the education has been applied and each department has fulfilled their obligations, the data should be readily available to input into the reports.
- Understand how UK compliance applies to your scheme rules – this is particularly relevant given all the changes that have happened over the past few years
- Ensure each department understands their responsibilities, this is both from a practical perspective as well as deadlines and timings
- Educate employees so:
– they are fully aware of the scheme rule
– they understand the benefits, and
– they know their responsibilities when it comes to their own statutory (tax etc.) reporting obligations
- All reporting is through the HMRC Employment Related Securities online service – 6 July 2019
For more information, please contact Andy Timpson.