Helpful summary of expenses and benefits OTS recommendations and Government responses
11 December 2014
Busy payroll professionals may be forgiven for reeling from the volume of Government documents just issued setting out the detail of the expenses and benefits changes announced in the Autumn Statement. We hope therefore that our summary of the key points will be a welcome time-saver.
The P9D is to be abolished from April 2016, but with two exceptions:
· Ministers of Religion who earn with benefits less than £8,500 will be exempt but will be reportable on a P11D but no Class 1A;
· Carers who are required to board and lodge with the person being cared for will be except from tax and Class 1A employer NI.
· A volunteer is someone who is not an employee nor on an employment contract and therefore not subject to BiKs so there should be no unfairness or effect.
· Taxi (60 permitted for late night from office) issue raised if under £8,500. Government has rejected this request, and therefore more than 60 taxi journeys are reportable and taxable.
Exemption introduced from April 2015, with a limit of £50 per trivial benefit, with no annual cap on number or amount. The legislation will allow future increases in this amount.
The Government will establish the trivial benefit exemption on a principles basis as it is clear that stakeholders agreed that this provides the appropriate framework. The principles are that the benefit:
· must not be cash or a voucher that is exchangeable for cash.
· cannot be used in conjunction with any salary sacrifice arrangement or any other contractual obligation.
· must not be provided to the employee in recognition of particular services performed in the course of the employment or in anticipation of such services.
Detailed clarification issued:
2.13 In response to concerns raised by stakeholders, the Government has made some changes to the principles, to ensure that they provide the clarity required for the exemption to represent a real simplification. This includes allowing non-cash vouchers within the definition of a trivial benefit for the purposes of the exemption, to accommodate an individual’s beliefs or preference and to ensure equality of treatment.
2.14 The Government has also decided that the concept of whether a benefit is provided “irregularly” or not would not provide a clear definition that would give employers certainty of treatment. It would not be possible to ascertain in ‘real-time’ whether a benefit was provided irregularly without reference to other benefits an employee had received, undermining the simplification intended.
2.15 However, the policy intention is still to provide an exemption that allows employers to provide a small number of low cost benefits to employees, and so a suitable alternative principle was considered. In particular, consideration was given to the kinds of circumstances in which employers currently provide trivial benefits – these are intended to be related to personal events or to the welfare of the individual, outside of the performance of their duties as an employee. The Government has therefore decided to define a trivial benefit as one which is provided by an employer to support their employees’ welfare, and not in recognition of particular services performed by the employee in the course of the employment, or in anticipation of such services.
2.16 Finally, the Government has recognised the issue raised by respondents regarding how “pre-arranged entitlements” would apply within the exemption. The Government has decided that for there to be no pre-arranged entitlement, there must not be any contractual obligation to the benefit, including through salary sacrifice. An employer having a corporate policy of providing a benefit at certain points in the year, but without a contractual obligation to do so, would not be caught by this definition.
Further consultation will be held on models and the writing of guidance with stakeholders, and the CIPP will look to be involved in this.
HMRC will remove the current practice (very small and minority) of those who allow employees to salary sacrifice expenses.
HMRC will continue to allow employers to have custom scale rates but employers will need to seek approval from HMRC based on random sampling and complete a prescribed form.
Legislation will be laid to allow employers to use this new process from April 2016.
The Government recognises the importance of flexibility for employers, but is also mindful that one of the purposes of putting payrolling on a statutory basis is to provide consistency for both employers and employees. Lack of consistency and transparency for employees creates uncertainty and drives-up queries for employers and HMRC.
2.34 To support flexibility for employers and that “locking-in” to a scheme of payrolling might deter some employers from opting-in, the Government will develop a scheme that is entirely voluntary, so that an employer that has started payrolling can choose to opt-out with effect from the start of a tax year. There are some practical issues should an employer decide to opt-out, such as reinstating benefits in employees’ PAYE tax codes. HMRC will work on these to support employers who may decide to opt-out.
2.35 The Government has considered the responses to the consultation carefully and has decided that as a first step car, car fuel, medical insurance and subscriptions such as gym membership will be included in the scheme. These benefits have a high degree of certainty about their cost at the start of a tax year, so naturally lend themselves to payrolling. They are also the most popular benefits provided to employees by employers. Once payrolling is established, the Government will consider how other benefits can be payrolled.
2.36 As noted, a voluntary scheme does involve practical issues – for example, adjusting employees’ PAYE tax codes in advance of opting out – that HMRC will continue to work on in advance of payrolling going live.
2.37 There are a number of detailed questions that HMRC will discuss further with stakeholders on the detail of how a scheme will be designed and operate effectively for employers and employees. These include:
· The extent to which in practice some employers would decide to payroll some, but not all, of the benefits proposed for payrolling;
· The extent to which in practice an employer would need to exclude certain employees from payrolling;
· How to avoid confusion for employees where an employer has discretion over the benefits it can choose to payroll and/ or might choose to exclude some employees;
· The payment of Class 1A NICs in real time.