PAYE, NI and Benefits update May 2016
Update on current issues
Budget Childcare Termination payments Company vans and cars Illegal workers Testimonials Share schemes Intermediaries IR35 Pension advice PSA
Simplification of expenses and benefits Consultation on simplification of expenses and benefits Now have provisions in place Voluntary payrolling of benefits Statutory definition of trivial benefits Abolition of lower paid employment definition Replacement of dispensation regime
Payrolling of benefits Allowing employers to deal with BIK via payroll First looked at in 2007 Proposal then was to make mandatory which was not well received So this is a voluntary process
What is payrolling? Adding the value of BIK to salary so PAYE is applied to that Rather than BIK collected (typically) through tax code after P11d submitted Little noticeable difference other than tax collected in real time
Details Cannot use for vouchers/ accommodation/loans (vouchers OK from 2017) Otherwise can pick and choose Can also exclude employees Must register before start of year so too late for 2016 Then can opt back out if necessary Class 1A still reported on P11d(b)
Trivial benefits Specific legislative provision that trivial benefits will be exempt from income tax Number of conditions to be met for benefit to be treated as trivial Will also apply to benefits provided to member of employee s family
Conditions A: not cash or a cash voucher B: cost of providing benefit or average cost does not exceed 50 C: benefit not provided pursuant to relevant salary sacrifice arrangements D: benefit not provided in recognition of particular services provided by employee
Further details Exemption works on all or nothing basis If breaches limit benefit will be taxable and NICable in full No limit unless director of close company when maximum of 300 per year
Abolition of 8,500 threshold Lower paid employments no longer applicable All employees taxed on their BIKs and expenses NIC provisions also aligned with this
Exemption Exemptions provided to Ministers of Religion in LPE will be retained Reimbursement of accommodation costs such as heat & light etc for low paid will remain
Carers New exemption will be retained for employees working as carers In respect of board and lodging in home of person caring for So no tax and NIC on this BIK
Exemption for expenses Replacement of current regime With exemption for allowable expenses that are paid or reimbursed Applies from 6 April 2016 No longer any reporting requirements for qualifying expenses No need to apply for dispensation
Expenses included? Any amounts which would be treated as earnings But where a deduction would otherwise be due under s336 and s337
Conditions? Employer or third party must have system in place to check expenses And that person could not reasonably have known or suspected that employee was not incurring deductible expenses
To note No intention to change rules which determine whether tax relief is available Apply to all employers without option to opt in or out Still have to maintain records and checks
Flat rate expenses New legislation for applying for flat rate in respect of deductible expenses Requirement to provide reasonable estimate Covers things like flat rate subsistence costs
Salary sacrifice arrangements Cannot apply where expenses under salary sacrifice The employee gives up the right to receive an amount of general earnings or specific employment income in return for the payment or reimbursement or The amount of other general earnings or specific employment income received by the employee depends on the amount of the payment or reimbursement
Employment allowances From 5 April 2014 many employers have been able to claim 2,000 reduction in NI Exclusions for certain organisations From 6 April 2015 to be change in relation to domestic care and support employees From 6 April 2016 will go up to 3,000 but further exclusion for one man band companies
New restriction Some confusion over operation of new restriction Does company have to pay another person over threshold Or just pay them? HMRC guidance states former But not necessarily what people thought
Travelling expenses Long consultation on potential change to travelling expenses for contractors General provisions allow for ordinary commuting where temporary workplace Broadly where travelling for less than 24 months Anomaly where over-arching employment contract
1 12 months 12 months 12 months 3 FTC 2 Overarching employment contract 12 month 12 month 12 months 3 12 month placements but continuing employment
Proposal Remove ordinary commuting relief where Supplying personal services Engaged through employment intermediary Subject to right of supervision, direction or control Will apply to anyone who operates through intermediary Will only apply to PSC if caught by IR35
Confusion? Actually confusion in consultation document Not sure if all home to workplace travel or just to engager s workplace Which has a big impact on those who are travelling rather than site based
Abolition of NIC From 6 April 2015 no employers NI for employees under 21 Extended to apprentices under 25 from 2016 Apprentice = government approved scheme
Starter checklist Replaced P46 Tax code worked out from online tool Do not need to submit to HMRC NB Student loans need to use this to identify correct as not on P45
Automatic enrolment
Introduction Most people will be familiar with basic provisions But just to recap
Issues arising: small companies Obviously a key issue Need to understand how smaller companies will be affected No absolute exemption Table on next slide outlines different scenarios Would be useful to notify PR
Directors Type of company Single director no employees More than one director no employees Director and workers AE obligations Director is not a worker so no AE obligations to that individual As above unless more than one with employment contracts Employer duties in relation to those workers but not to directors unless there is a contract of employment
Issues arising: variable earnings Have to assess at assessment date If fluctuating may want to wait until know what actual earnings are Must act within six weeks if meet conditions So may be some problem with waiting Otherwise would have to estimate Only not AE if know earnings trigger will never be reached
Issues arising: pension funds Do not have to have a pension fund up and running just in case But only have six weeks to get employee into pension scheme from date at which assessed as eligible Or where get request from non-eligible jobholder to join So have to be certain that can react if circumstances change
Status
Basic provisions Looking at contractual relationship between parties If written contract then that is starting point Autoclenz has changed the emphasis of contracts
Factors Number of factors to be considered Not a tick list Each has different relevant weight Depending on circumstances
Control Very important Some control in all relationships But right of control is vital in determining employment Falls into different categories where, when, how, what
Substitution Again, very important Although not necessary considered so determinative HMRC will want to make sure untrammelled And substitute must be paid by worker or PSC Cannot be employee if really can send substitute
Business operation Increasingly considered, particularly in IR35 case Does this person feel like a person in business on their own account? Many different facets to this Includes ability to benefit from sound financial management
Mutuality of obligation Employment law criteria Commitment by one party to continue to provide work And by other party to continue to be available for work HMRC often not confident in arguing this point
Other factors Part of organisation Employment type benefits Training Provision of equipment
Employment Status Indicator Accessible from HMRC website Designed to enable someone to determine status Easy to be cynical! Will be binding on HMRC if can show answers were correct So is a useful starting point
Questions asked Who is asking the question (worker/engager/representative)? Is the enquiry for a current or future contract? What is the individual s current status? What is engager s business? What is the worker s trade? If the worker is unable or unwilling to carry out the work personal ae they obliged to send someone else to do it? If yes, does the obligation reflect what happens or would happen in practice if the worker is unable or unwilling to work? If yes, doe the worker pay the other person? Could the worker bring in a helper to assist with the work?
Questions asked Can the worker be told what work to do? Can the worker be moved from task to task? Can the worker decide how work is done? Is the worker a skilled person? Which statement best describes when the work is done The worker works regular hours as agreed with the engager The worker has freedom to work when he wishes subject to the demands of the work The worker is not required to work set hours but has agreed deadlines Does the worker have to provide not only minor items but also major items of equipment needed to do the job? Doe the worker have to pay the cost of all material and supplies needed to do the job?
Collecting tax Status is an inaccuracy like any other and recovery action should be taken for all years where there has been a failure to operate PAYE and/or NICs.
Specific guidance establish the facts for all in date years during which there is a potential failure consider whether in respect of each year HMRC has a strong case concede any or all years where HMRC has a weak position and document the reason(s) for the decision which has been taken. The decision whether or not to settle a case and for what years must be made on the basis of an honest and realistic assessment of the strength of the case for each year. A strong case should be viewed as one in which you believe that for the year in question there is at least a 60% chance of success at the First-tier Tribunal.
Process Tax can be collected from employer using Regulation 80 determination But have to consider if Regulation 72F might apply Then if Regulation 72 might apply Both of these cannot apply once Reg 80 issued Can subsequently consider Reg 81 issues
Regulation 72F Often called Demibourne principle This addresses situation where individual paid tax as self employed But where HMRC then wants to collect from employer Demibourne confirmed that HMRC do not have to do offset But HMRC decided to bring in Reg 72F as appreciated inequity
Process Direction issued which relieves employer of PAYE liability Must meet specific conditions HMRC do have discretion as to whether apply
Conditions Relevant payments made on which PAYE should have applied the employer has deducted or accounted for less tax under PAYE than is required HMRC are satisfied tax paid on this under self assessment Trigger event has occurred
Trigger Four possible triggers the employer has been issued with a notice of determination which includes tax on the relevant payment; the employee's self-assessment return has been received and includes an adjustment for a PAYE credit in relation to the relevant payments; the employee's amended self-assessment return, or an overpayment relief claim (previously error or mistake claim), has been received and includes an adjustment for a PAYE credit in relation to the relevant payments; or HMRC have received a letter of offer to agree an amount in settlement of the employer s liability to pay an amount of tax, including tax on the relevant payment in question.
Discretion? HMRC indicated that where condition for direction apply will always issue Unless evidence of collusion No right of appeal by employer But failure to issue should be challenged Employee can appeal against it NB Employer still remains liable to penalties on liability if HMRC want to levy
Regulation 72 Transfers liability from employer to employee Must meet condition A or condition B
Condition A HMRC satisfied that employer took reasonable care to comply with PAYE regulations Failure to deduction was error in good faith Only applicable in status cases in rare cases Only if status was truly marginal Employees can appeal against determination
Condition B The employee or director received payments knowing that the employer had wilfully failed to deduct the correct amount of PAYE from their earnings and The prospects of recovery from the employee or director are reasonably good Tend to be in cases where directors have defaulted So again rare to apply in status cases as rare to find employee that involved
Regulation 81 Where Reg 80 issued to employer But not paid within 3 days Again must show employee received payment knowing employer wilfully failed to deduct Similar to Condition B Again rare in status situations
NI recovery Falls within the general provisions outlined above The employer will always have to bear their own NI liability No wider ability to reclaim NI over tax
Tax cost of recategorisation Class 1 employers NIC Marginal Class 4 benefit for self employed But this may not continue Likely to be the employment law impact which is more important
Employer compliance
Starting point HMRC have authority to examine all records held by employer Will also be looking at following aspects NMW Student loan repayments Tax credits RTI Pensions going forward
PAYE Have PAYE and NICs been deducted from all relevant payments? At the right rate? Are all relevant persons on the payroll?
Toolkit 1 Have all reportable expenses and benefits payments been identified and reported? 2 Have all vouchers or electronic cards given to directors or employees been reported appropriately, and are credit and debit cards used correctly? 3 If any directors or employees have employment related loans, has beneficial loan interest been reported appropriately? 4 Have any loans waived or written off during the period been taxed or reported as necessary?
Toolkit Vehicles 5 Have all company vehicles available for private use been identified? 6 Has the correct list price been used to calculate the car benefit charge? 7 Have all van benefit charges been reported? 8 Have any company vehicles made available to a member of the directors' or employees' family or household been reported appropriately? 9 If a car or van is regarded as pooled have all the necessary conditions been met? 10 If fuel is provided for company vehicles has the correct fuel benefit charge been reported? 11 Where a director or employee uses their own vehicle for business journeys, have all mileage payments which exceed the approved amount been reported? 12 If an Employee Car Ownership Scheme arrangement has been used, have all of the necessary conditions been met?
Toolkit Travel, subsistence and entertainment 13 Have payments for travel and subsistence been reviewed and reported appropriately? 14 If travel and subsistence payments have been made for travel to a temporary workplace, have all the conditions been met? 15 Has the cost of entertaining been reported appropriately? 16 Have all staff functions been reviewed to ensure that they qualify as exempt from tax?
Toolkit Personal bills 17 Have all directors' or employees' personal bills been identified and treated appropriately? 18 Have all payments made for household expenses been reported?
Toolkit Use or transfer of assets 19 If the employer provides living accommodation has the benefit been reported appropriately? 20 Has the annual value of the use of land and buildings (other than living accommodation) placed at the directors' or employees' disposal been reported? 21 Has the annual value of the use of any asset (other than land and buildings) placed at the directors' or employees' disposal been reported? 22 If an asset has been transferred to a director or employee has the correct value been used? 23 Has the residual cost of any in-house benefits, for example goods or services provided by the employer been reported?