As employers face their first year of filing under RTI we look at what needs to be done and highlight some of the other actions that employers need to consider to finalise the 2014 tax year.
Real Time Information (“RTI”)
Employers will no longer have to send a form P35 and forms P14 for each employee. Instead this will be done on an electronic submission to Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage..... There are three stages:
- Identify – An employer needs to identify when it proposes to file its end of year submission. This could be on or before the last salary payment in the tax year using the Full Payment Submission (“FPS”), anytime up to 19 April 2014 using the Employer Payment Submission (“EPS”) or the End of Year Update (“EYU”) if the submission is made after 19 April 2014.
- Indicate – The employer must indicate on the relevant submission that this is the year end submission and answer the various questions that need to be completed.
- Submit – Once the employer has completed the questions it must be submitted by the appropriate date.
The year-end process is actually quite straight forward but the key is identifying which submission best suits your business. Many employers do not actually file an EPS on a monthly basis so may need to make a special effort to ensure that this happens, if you decide not to file using the FPS submission.
View HMRC video at http://www.youtube.com/watch?v=E6SAom6GrMo&feature=youtu.be
The employees are still entitled to a form P60 which must be given to them by 31 May 2014.
A P11d dispensation saves the employer a significant amount of time when completing forms P11d showing non-salary payments and benefits in kind provided to its employees. A dispensation allows the employer to exclude from the P11d any items of expenditure that are covered by it, such as business travel, entertaining etc. An application for a P11d dispensation must be with HMRC before 5 April 2014 if it is going to apply for 2013-14 tax year.
Many employers will have had a dispensation in place for a number of years and these continue until either they are revoked by HMRC or the circumstances under which it was granted have changed. However if you do not have a valid P11d dispensation we recommend that immediate action is taken.
Private Fuel benefits
The private fuel benefit that applies when an employee is provided with a company car can be very costly to both the employer and the employee. Many employers have removed these benefits by asking the employee to reimburse the full cost of private fuel and HMRC has assisted by providing employers with the rates that they should charge to recover the fuel costs. These are known as the “advisory fuel rates” and are published on the HMRC website. From an employer perspective it is necessary to ensure that the employee is correctly recording all business mileage and to physically recover all the private mileage costs from employees.
Some employers consider the position prior to the end of the tax year to determine if the employee is better off with the private fuel benefit or paying the company back the full cost of private fuel. These computations must be done before the tax year end and funds recovered from the employee.
Employees who are provided with vans are able to avoid the benefit if it is provided on the basis that private use is prohibited and that no such private use occurs. In the case of vans, private use excludes what would constitute home to work (ordinary commuting) and occasional use such as a visit to a tip. Employers should ensure that their policies prohibit private use and that arrangements are in place to verify that the van has not been used for private purposes. Many employers fail these conditions because they do not prohibit private use and it is recommended that policies are amended before the tax year end if this applies to you.
It is common for employers to pay a cash allowance as an alternative to providing a company car. Employees are then usually paid a lower mileage rate than the 45p/mile permitted by HMRC. This means that employees can then claim a tax refund on the difference between what the employer could pay and what they actually paid. Unfortunately no such claim can be made in relation to NIC on this difference.
In our experience many employees are not aware that they can claim this tax refund or don’t know how to go about claiming it. You may want to make your employees aware of this position and perhaps provide them with details of the mileage allowance paid by you.
Alternatively, it may be worthwhile restructuring the cash allowance to enable the company and the employee to gain the full tax and NIC advantage.
Trivial Benefit rulings
Where a benefit in kind is provided to an employee it is chargeable to tax irrespective of the value. For example a gift of a bottle of whisky costing say £15 provided to an employee at Christmas is a taxable benefit and should be included on the employees form P11d. However HMRC accept that where the benefit is trivial they are prepared to give an employer a ruling that they should not include the benefit on the P11d and it will not attract tax in the hands of the employee.
Unfortunately an employer cannot assume that HMRC will grant this and can only treat the benefit in this way if HMRC has given a formal ruling. If you have provided any such benefits we recommend that you obtain a trivial benefits ruling from HMRC.
If you have a PAYE settlement agreement with HMRC it may be worth reviewing the items you are including to see if any could be exempt under a trivial benefits ruling.
Non-resident employees – Appendix 4 agreements
Where an employer has entered into a formal agreement with HMRC to operate a relaxation of the PAYE rules on those working in the UK for less than 183 days, it is necessary to provide information concerning those employees to HMRC before 31 May. It is recommended that systems are reviewed to ensure that the company can meet this deadline.
Termination reports, P11d’s, PAYE settlement agreements and share scheme returns
By 6 July after the end of the tax year the employer must submit reports on certain termination payments, P11d’s/share scheme returns for appropriate employees and enter into a PAYE settlement if it wants to avoid disclosing certain benefits on forms P11d. In our experience it is important to plan appropriately to allow time to meet these deadlines. All too often deadlines become urgent because of holidays, illness, failure of others to provide information or just too busy focusing on other urgent deadlines. We would therefore recommend a project plan is put in place to track these processes.
Employers operating within the Construction Industry Scheme may have suffered deductions as a subcontractor. These deductions are primarily set off against PAYE that the subcontractor has withheld from its employees but if these are insufficient the overpayment must be reclaimed from HMRC after the end of the tax year. If this applies you should be aware that RTI has meant that you should be able to get the refund earlier – HMRC systems usually meant that refunds could not be processed before July/August time but with RTI these can now be processed from 20 April 2014. The key message is to get your claim in as soon as possible.
At TAP we have considerable experience in advising employers and assisting with all of the matters discussed above. There is little doubt that HMRC has significantly improved its processes in recent years and as the name suggests, RTI provides them with immediate information in a format that enables them to quickly identify areas where discrepancies might arise. And with the Government focusing so closely on the collection of all taxes, we expect to see a marked increase in PAYE enquiries and scrutiny of employer taxes and returns.
We would strongly recommend that all employers should regard the run up to the year end as a chance not only to ensure their RTI processes are properly in place but also to review all of these responsibilities and opportunities for simplification. If you would like further details or assistance with any matter mentioned above please do not hesitate to contact us.