The latest UK and international payroll, benefit reporting, pension and employee reward topics for employers

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1 Employer Review The latest UK and international payroll, benefit reporting, pension and employee reward topics for employers Spring April 2017 was the start of a new UK tax year, and in this newsletter we outline the various employer reporting obligations in the year ahead: P01 Payroll update P02 Benefit and expenses update P04 Pension update P04 Reward and employee share update P05 International update P06 Blick Rothenberg Payroll update We would like to remind you of your year-end reporting and filing deadlines for the tax year ending 5 April 2017: When to send an Employer Payment Summary ( EPS ) You should send your final report in an EPS instead of an FPS if any of the following apply: You forgot to put Yes in the Final submission for year in your last FPS. You did not pay anyone in the final pay period of the tax year. You need to make a correction this should be done on an FPS using late reporting reason H for each payment being corrected. When to send an Earlier Year Update: If you need to make a correction after 19 April then you should use an Earlier Year Update. You should report the difference between the last report and the final figures for the tax year. Don t report the year to date figures. Form P60 The employees annual statement of pay, tax and National Insurance Contributions (NICs) deductions is called form P60. You should give this to your employees by 31 May The Apprenticeship Levy As mentioned in our Autumn 2016 newsletter, from April 2017 the way the government funds apprenticeships in England has changed. Some employers will be required to contribute to a new apprenticeship levy, and there will be changes to the funding for apprenticeship training for all employers. 1

2 How will this affect me? The apprenticeship levy applies to all employers in England, in any sector, with a salary bill of more than 3m each year. For the purposes of the levy, an employer is someone who is a secondary contributor with liability to pay Class 1 secondary NICs for their employees. The scheme applies to all companies. Small companies with qualifying apprentices can claim 90% of their training costs from the government. How much do I pay? The levy will be charged at a rate of 0.5% of your annual salary bill. You will have a levy allowance of 15,000 per year to offset against the levy you must pay. This means you will only pay the levy if your pay bill exceeds 3m in a given year. For group companies and connected companies, there are connected party rules which apply to the allowance. How do I pay it? Employers will pay the levy to HMRC through the PAYE payroll process. If you have calculated that you will pay the apprenticeship levy, you will need to declare this and include it in your usual PAYE payment to HMRC by the 19 (or 22 if you report electronically) of the following month. The first submission in which you will declare that you will pay the levy will therefore be in May Benefit and expenses update In addition to payroll obligations, UK companies have to file reports in respect of expenses and benefits they pay or reimburse employees. Employee benefits and taxable expenses If you provide employees or directors with taxable benefits and expenses there is an annual reporting requirement for the employer. The reports, known as Form P11D and Form P11D(b), need to be prepared and submitted annually for each employee. Additionally employers have a liability to calculate and pay employer s social security tax (Class 1A National Insurance) on most taxable benefits. Interest and penalties may be charged for late or incorrect reporting. The deadlines for 2016/17 Forms P11Ds and P11D(b) is 6 July 2017 and Class1A NICs has to be paid by 19 July Tax free expenses from tax and there are no P11D reporting requirements from 6 April However for the exemption to apply, employers will need to have a robust checking system in place to ensure that employees are correctly incurring these expenses and a tax deduction is allowed in respect of those amounts. Note that HMRC is currently reviewing these type of expense claims very carefully as there has been a significant increase in the number of bad claims. This is a complex area and we recommend you review your current procedures to confirm that you are compliant with the new rules. Expense and benefits policy If you do not have a UK specific expense policy we recommend you create one. If do have one, are you sure it is up to date and adequate to cover the recent technical changes to reporting benefits and expenses? If not, this could leave you exposed to penalties and interest as you could end up responsible for underpaid tax and NICs of employees. Now is the time, therefore, to review your expense policy, and procedures and design expense claim forms that focus on compliance and planning opportunities. PAYE Settlement Agreements Please remember that a 2016/17 PSA needs to be agreed with HMRC by 6 July 2017 and the tax/nics paid by 19 October If you currently have a PSA, you also need to be aware of the recent changes announced by HMRC around P11D reporting and trivial benefits, as this may impact what items you include in your PSA this year so that you do not under or over pay tax. We therefore recommend you review your current PSA for these changes. If you do not already have a PSA, you may wish to consider obtaining one. Broadly this agreement with HMRC allows an employer to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for employees on a grossed up basis. It typically includes items such as staff entertaining, certain gifts to employees, home to work travel and excess relocation costs. If you agree a PSA with HMRC, then you would not need to include these specific benefits and expenses on the employee payroll or Form P11D so they become invisible to the employee. If you only reimburse tax free expenses, for example expenses incurred by employees that are incurred wholly, necessarily and exclusively for business purposes, then these are exempt 2

3 Reporting business trips - Overseas visitors If the overseas employer does not have a UK presence and the overseas employee is under their control or working at a UK business, the UK business may be regarded as a host employer, even for short periods of time. A UK company therefore has an obligation to operate UK payroll deductions where an overseas employee does some work in the UK. This obligation is imposed even if the trip is just one day and HMRC (and other tax authorities) are getting tougher and tougher on this. As an alternative to the payroll, the company can apply for a Short Term Business Visitor Agreement ( STBVA ) with HMRC. The company has no choice though - it is either payroll or a STBVA. Ignorance is not an excuse and strictly there is no de minimus. To comply therefore, we recommend you obtain an STBVA please note the filing deadline is 31 May 2017 so you should make the application asap. HMRC Employer Compliance Checks All businesses may at some point be subject to an HMRC Employer Compliance Check regardless of their size or how few employees they have. What are they? Employer Compliance Checks are undertaken by HMRC. The aim is to ensure that PAYE is being operated properly and that NICs are being correctly calculated and paid over.there is usually a detailed inspection of salaries, benefits-in-kind, expenses payments and all other emoluments. The inspection may also cover national minimum wage records, collection of student loans and payment of tax credits. It will also cover the operation of the Construction Industry Scheme. What powers do the officers have? The officers have extensive powers to inspect relevant records and to take copies or remove them, as well as the right of entry at reasonable times. Where there are irregularities, HMRC has the power to recover the arrears from the employer or, in certain circumstances, from the employee. Do they give advance notice of a visit? In the majority of cases the officer will notify a proposed visit. Where there is reason to suspect fraud, the officers may arrive unannounced and could have a search warrant. How will the visit be conducted? The officers will review a sample of records relating to pay, benefits-in-kind and expenses including the operation of PAYE and NICs. Where irregularities are discovered these will be investigated in detail and explanations sought. The officers may seek explanations at the time of the visit or set out the queries in a subsequent letter. The inspections will almost always be carried out on the employer s premises. The officers will take notice of other evidence than merely the records, for example conversations with staff, items on notice boards, internal magazines etc. Are there common areas for error? Errors commonly discovered include: Failure to operate PAYE on casual employees or part-timers. Failure to account for Class 1A NICs in respect of benefits-inkind. Failure to deal correctly with termination payments and payments in lieu of notice. Treating individuals as self-employed when they should be treated as employees. Reimbursing home to office travel. Failing to identify and report benefits-in-kind. Not accounting for PAYE and NICs in respect of round sum allowances. Failing to report employees debts settled by the employer. Incorrect application of NICs to benefits and expenses. Operating outside the scope and terms of a P11D dispensation/exemptions. Are there any knock-on effects? A report is sent to the Officer of Revenue and Customs dealing with the business accounts. Irregularities may be an indicator of weaknesses in the records that warrant the business accounts being taken up for an investigation. Also, there may be matters that need to be adjusted in the business tax computation or VAT returns, for example disallowable entertaining. 3

4 What should employers do at the time of the inspection? When notification of a compliance visit is received, employers should contact their professional advisers who can then offer advice as to how the inspection should be handled. The following action can be taken: An independent review, often called a health check, can be undertaken by a specialist prior to the inspection (although this is an advisable routine in any case). Generally, the inspectors should be given a room of their own with the documents and records taken to them. A key contact should be appointed within the company to deal with all additional enquires by the officer during the site visit. The officer should be asked to put unresolved issues and any proposals in writing to give an opportunity to consider them properly. Treat the officers courteously. Do not allow the officers to have access to all the staff or to records and documents unrelated to the inspection. Where the officers make notes, a copy of the discussions should be requested by the employer to ensure that they reflect precisely what was said. Pension update Are bicycles more important than life insurance? The government seems to think so. New rules that came in on 6 April 2016/17 seek to put paid to most forms of salary sacrifice where employer and employee previously enjoyed tax and NI savings as a result of an employee opting for an employer-provided benefit and a reduction in salary. Company cars, free or low cost accommodation and school fees are understandably in the Government s sights What is more surprising is that in targeting any form of optional remuneration arrangement (with only a short-list of exemptions pensions, childcare, cycle-to-work and ultra-low emission cars), traditionally bona fide life insurance and income protection schemes have become potentially taxable benefits. This will arise where employees can choose to join or increase their own level of cover via an optional flexible remuneration package and applies to a relevant life insurance policy, excepted group life insurance or an income protection scheme (those that provide an income should an accident or ill-health prevent an employee from doing their job for a long period). Excepted group life insurance is increasingly popular as a means of dealing with the lifetime allowance which caps at 1m the tax free lump sum death benefit from a traditional death in service scheme, when aggregated with the individual s pension funds; 55% tax being charged on the excess over the allowance. The lump sum death benefit paid from an excepted scheme does not count towards the lifetime allowance. Those who have secured a higher lifetime allowance via certain forms of fixed or enhanced protection will lose this on joining a traditional death in service scheme and, so, turn to an excepted scheme to provide protection for their dependants. Relevant life insurance is effectively the individual policy equivalent of an excepted group scheme. The core employer sponsored level of cover is not a taxable benefit; only where the employee is able to opt for more cover will tax and NI charges arise. Auto-enrolment spot checks The pensions regulator recently announced it will undertake spot checks on employers to ensure that they are complying properly with their auto-enrolment duties. The Regulator acknowledges that overall compliance is in the high 90s, that workplace pensions have become the norm and has rarely resorted to the financial sanctions at its disposal for persistent offenders. The spirit of the spot checks appears to be information gathering and a genuine desire to help employers do the job properly. Even so, this announcement makes clear that auto-enrolment cannot be ignored. Reward and employee share update Annual share scheme returns for the year ended 5 April 2017 must be filed online by 6 July Any returns not filed yet in respect of the year ended 5 April 2016 must be filed as soon as possible as automatic late filing penalties are now charged and will be accruing. This is a significant departure from HMRC s previous position where penalties, or the threat of penalties, was seen by HMRC as a last resort. HMRC no longer issue prior approvals for Company Share Option Plans ( CSOP ), Save As You Earn ( SAYE ) and Share Incentive Plan ( SIP ) schemes. This has been replaced by the online registration of such schemes. The deadline for such registration is 6 July following the year to 5 April in which the scheme was first implemented. If the scheme is not registered online by this deadline, all or some of its tax advantages will be lost. As part of the online registration of such schemes, there is 4

5 a requirement to self-certify that tax advantaged schemes meet the requirements of the appropriate legislation. It is necessary for the reporting of share scheme transactions to be made to HMRC using their Employment Related Securities ( ERS ) service. In order to use the ERS online service, employers need to be registered with the Pay As You Earn ( PAYE ) online service in their own name, ie not via a payroll agent. It should be noted that registration for the online service, whilst an administrative process, can take several weeks as the process is not as straightforward as it could be. Consequently, the notification of grants of Enterprise Management Incentives ( EMI ) options must be made online within 92 days of grant in order for the options to fall within the EMI scheme. It is no longer possible to file written notifications of grant with HMRC. Before registering the grant of options online, it will, however, be necessary for the EMI scheme to have also been registered with HMRC via the ERS service. Gender pay gap reporting From April 2018 employers will be compelled to publish data highlighting the gender pay gap within their organisation. This first report will cover the period to April 2017, and so data collection processes should be put in place now if they don t already exist. The gender pay gap is the difference between men and women s aggregate hourly pay and makes no allowance for the nature of the roles undertaken. Therefore, it is likely that an organisation with junior roles predominantly staffed by one gender and/or senior roles by the other gender will show a significant gender pay gap. The following changes will be introduced: International update Stock options and international employees UK tax legislation changed from 6 April 2015 and impacted UKoverseas employees who have stock options, restricted shares/ stock units and who worked in the UK during some or all of the period between award and vest. The UK rules are now aligned with international practice and subject to certain conditions it is possible to exclude from tax the portion of share income that relates to the period an employee spends working overseas. New NIC rules were also introduced from 6 April 2015 to bring them in line with this tax position, but employers should review these rules carefully, as there is potentiall for double social security tax, especially where there is a social security agreement between the UK and the other location. Directors of UK companies that live overseas A UK director is a UK employee for payroll and expense reporting, even if they live overseas. If the company pays for travel and hotels when the director attends a board meeting in the UK or fulfils similar UK director duties then the UK company should report those expenses on a P11D (or PSA) and the tax should be paid by the director. All directors should be filing a UK return regardless of where they live. As the director is a UK employee, if the company pay for their travel or accommodation costs then it is treated as regular commuting, as it would be for any other employee who comes to work. It is not a business expense. It is possible in some circumstances to claim relief against travel expenses under a special expat regime (via a personal tax return). The accommodation or hotel expenses however are nearly always taxable. The UK company has an obligation therefore to report the expenses of all UK directors to HMRC. The regulations will apply to employers who employ 250 or more employees. Employers are required to publish the figures on the organisation s website and submit evidence of compliance annually to the government. The published figures must show both the mean and median gender pay gap. Employers will also need to calculate and publish three other figures alongside the gender pay gap. These are: The gender bonus gap. The proportion of men and women receiving a bonus; and The proportion of men and women working at each quartile of the organisation s pay distribution. 5

6 Blick Rothenberg Payroll Benefits & Expenses Expat Reward Pensions DirectorsUK International In an increasingly globalised world, businesses and individuals face a wide range of tax challenges and opportunities. Blick Rothenberg is a leading accounting, tax and advisory practice that supports over 800 international businesses. Our specialist Employer Solutions team can help you and your employees manage tax, payroll, pension and policy issues and will work with you to find practical solutions to these complex areas. Blick Rothenberg was awarded the best International and Expatriate Tax Team at the 2015 Taxation Awards. Recognised as a mark of excellence within the sector, the awards were judged by a panel of leading professionals and officers of major tax institutions. We have also been highly commended by the Chartered Institute of Payroll Professionals ( CIPP ) as being a leading firm in the provision of international payroll services. For more information, please contact: Mark Abbs Partner +44 (0) mark.abbs@blickrothenberg.com 16 Great Queen Street Covent Garden London WC2B 5AH Tel: +44 (0) May Blick Rothenberg Limited. All rights reserved. While we have taken every care to ensure that the information in this publication is correct, it has been prepared for general information purposes only for clients and contacts of Blick Rothenberg and is not intended to amount to advice on which you should rely. Blick Rothenberg Audit LLP is authorised and regulated by the Financial Conduct Authority to carry on investment business and consumer credit related activity.