Employment Taxes

Year End Compliance and Planning Opportunities – 2014/15

Listed below are some of the key compliance areas and opportunities that employers should focus on prior to the end of the tax year on 5 April 2015. Some actions may fall shortly after this date but we would recommend that due consideration is given to all matters. For further information please contact Paul Spenceley on 07825 292546 or at paul.spenceley@taxadvisorypartnership.com.

Payroll

  • Have you paid any Non-Executive director’s fees without PAYE/NIC deduction? If so are you satisfied that this is correct as PAYE/NIC should usually be applied to such fees?
  • Are you satisfied that anyone you are paying on a self employed basis is genuinely self employed? If not then we would recommend a review of their status as HMRC will pursue the payer for failure to withhold any PAYE/NIC due.
  • Have you identified all payments of earnings and included them on the payroll including such things as termination payments and equity related events (exercise of options, lifting of restrictions etc). These are two of the most common areas where employers fail to account for PAYE correctly.
  • From April 2015 there will be no employer NIC payable for employee’s under age 21, up to the Upper Secondary Threshold. Have you identified any employees in this category – if so we would recommend that you verify that their date of birth is correctly entered in the payroll system to ensure that you are getting this advantage and not claiming it for someone who is actually over age 21?
  • Late filing and late payment penalties apply to payroll – There are a number of due dates over the next twelve months that fall on a weekend or very early in the week. You should ensure that arrangements are in place to make these payments on the last working day prior to the due date to ensure that you avoid any penalties.
  • Do you have overseas workers working for you in the UK, even if they remain on an overseas payroll? Employers can be responsible for accounting for PAYE even when the employee is only present in the UK for one day. It is possible to relax the PAYE requirements in certain cases provided that the employer has entered into a short term business visitor agreement with HMRC. Does this apply to you and if so have you agreed a short term business visitor agreement with HMRC?
  • Where you are not withholding UK national insurance contributions in respect of overseas workers do you hold a valid exemption certificate (A1 document for European workers or a certificate of coverage for other reciprocal agreement countries)? If not you should be accounting for UK NIC or requesting such a documents to ensure that you are applying the rules correctly.
  • From April 2015 new rules have been introduced that affect the taxation of share related payments where the employee has been resident in the UK during a part of the vesting period. It will be necessary to apportion any taxable gain over the period that the employee was working in the UK even if the award was granted or vested whilst the employee was non-resident. You will need to track these awards to ensure that the UK PAYE/NIC obligation has been dealt with correctly.
  • Do you have any salary sacrifice arrangements in place for the provision of benefits? If so are these still operating correctly – it is often the case that although such arrangements are implemented correctly, over the passage of time people forget the importance of ensuring that the salary sacrifice is valid and take short cuts to improve efficiency that are a step too far. If you are using salary sacrifice it is worth reviewing your processes to ensure that they are still valid.

End of year reporting

  • HMRC has removed the requirement on employers to complete the checklist questions on the final FPS submission for the year. However some payroll software may still require you to complete them as HMRC only made this change recently and may not have allowed sufficient time for software to be revised – you should check with the software provider to ensure that your FPS is filed on time. Note that you must file the FPS and the EPS on the normal due dates – the end of year filing date of 19 May no longer applies.
  • You should provide any employee who was in your employment at the end of the tax year with a form P60. This should be provided by 31 May 2015 at the latest.
  • You are required to report details of certain termination payments to HMRC by 6 July 2015. This applies where the total termination package exceeds £30,000 and includes an element that is not paid in cash.
  • Forms P11d (b), P11d and P9d (benefit in kind returns) must be submitted to HMRC by 6 July 2015. We would recommend that a timetable is made to ensure that sufficient time is allowed to collate all the data, complete the forms and verify the entries with employees prior to the submission by 6 July 2015. The class 1A NIC is payable on 19 July 2015 or 22 July if paying electronically.
  • You will need to file any share scheme returns (both approved and un-approved arrangements) by 6 July 2015. These must be filed on-line for the year ended 5 April 2015 and if you have not already registered for on-line filing we recommend that you start the process as soon as possible to avoid missing the filing deadline.
  • If you have entered into a Short Term Business Visitor Agreement with HMRC you are required to report certain details to HMRC by 31 May.

PAYE Settlement Agreements

  • Do you have a PAYE Settlement agreement in place for 2014/15 tax year? If so you will need to collate the information required and prepare the gross up calculations to allow you to submit your computations before the filing date. The date for submission is shown on the agreement but is usually somewhere between 6 July and 31 August. Employers often settle on small amounts that could be excluded under a trivial benefits ruling (see below) which may result in them overpaying tax/NIC.
  • If you do not have a PAYE settlement agreement in place and wish to introduce one for 2014/15 you will need to have the signed agreement in place with HMRC by 6 July 2015. If the agreement is not put in place before the benefit is provided this can lead to class 1 NIC (both employee and employer contributions) being payable on certain benefits rather than class 1B NIC (Employer only).
  • If you are to provide benefits in the next tax year and wish to ensure that class 1B NIC (Employer only) is payable on the benefits we recommend that the PAYE settlement agreement for 2015/16 is entered into as soon as possible and certainly before the first benefit is provided.

Trivial Benefits

  • Where an employer provides a taxable benefit which is trivial in nature, such as a small gift at Christmas or flowers on an employee’s birthday etc the employer should declare the cost of the benefit on the form P11d. However it is possible for the employer to apply to HMRC for a trivial benefit ruling which if granted by HMRC avoids any tax liability. An employer cannot simply decide that the benefit is trivial they must obtain HMRC agreement. It is therefore necessary to apply for a trivial benefit ruling in respect of any such benefits in 2014/15 and we would recommend that such applications are done as soon as possible.
  • From April 2015 HMRC has included a statutory exemption for certain trivial benefits where the cost is less than £50. This only applies from the 2015/16 tax year.

P11d dispensation

  • Where an employer reimburses business related expenses they are required to report these on each employee’s form P11d, unless they hold an appropriate P11d dispensation. If the employer does not hold a P11d dispensation for the 2014/15 tax year but wishes to have one the application must be made before 5 April 2015. HMRC cannot back date a dispensation into a prior tax year.
  • If you have a P11d dispensation is it still valid and up to date? It is often the case with changes in staff and the passage of time that P11d dispensations get misplaced and although someone recalls having one the details of it are not known. This can lead to items omitted from the P11d which should be included. We would recommend that employers retain P11d dispensations in a safe place where they can be examined or produced as evidence if required – If you cannot find a copy HMRC should be able to provide you with one.

Benefits in kind

  • One of the most common benefits in kind is the provision of a company car for private use. Some employers require employees to make a contribution towards the car and these can vary from a capital contribution to a personal use contribution. We have often seen these mixed up or treated incorrectly. In some cases no reduction in the benefit is due because the payment does not meet the relevant conditions required by HMRC. We would recommend that you review any documentation that relates to an employee contribution to ensure that it is correctly treated for P11d purposes.
  • Where employees are provided with a company car it may also be the case that the employer meets the cost of some or all of the private fuel. With the increases in car fuel benefits and the reduction of fuel costs we would recommend that employers review the provision of private fuel benefits as the employee may be paying more in tax than they are receiving in private fuel. Even where a benefit still exists it is likely that the cost to the employer is substantially greater than giving the employee a cash allowance to meet the difference. It is still possible to implement changes before 5 April 2015 that are effective for 2014/15.
  • Many employers pay for all the fuel used by company car drivers but do not report a car fuel benefit on the grounds that the employee fully reimburses the company with the cost of private fuel. The fuel scale charge is an all or nothing charge and we would recommend that you ensure that your systems fully recover the cost of private fuel – including the basis of arriving at the fuel cost used and the accuracy of the employee’s business/private mileage recording.
  • Some employers have opted to provide employees with a cash allowance rather than a car. This usually includes a lower mileage allowance that covers just the cost of business mileage. The cash allowance is usually subject to both PAYE/NIC and only the business mileage rate is paid free from PAYE/NIC. Whilst the employee can claim a tax refund on the difference between what HMRC allow and what the employer pays many do not claim this. In addition to this the employee and the employer suffer NIC on the difference between the HMRC rates and the lower mileage rate paid by the employer. If this is the case it is worth considering if the car allowance can be regarded as a “relevant motoring expense” for NIC purposes and if not what needs to change to allow the NIC savings to be obtained.
  • For expatriate employees it is often the case that they are provided with a company car and a private fuel benefit for ease of administration. The company will often settle the employee’s tax on a grossed up basis making the benefit very costly. Whilst it may be difficult to remove the car benefit we would recommend that the fuel benefit is reviewed as these employees are often required to live near the workplace and have low private mileage.
  • Most employees who are required to use a van for work do not have a benefit in kind because any private use is restricted to “ordinary commuting”, which HMRC accept is not a benefit, provided that other significant private use is prohibited. You should review your policy or other documents to ensure that they prohibit the private use of the van other than ordinary commuting. It is also common for employers to ask employee’s annually to confirm that the van has not been used privately other than for ordinary commuting. If you use this method you should ensure that responses are provided in sufficient time to prepare any P11d forms that may be required.

Auto Enrolment

  • Many large employers have already dealt with Auto-enrolment but this is now starting to apply to smaller employers. If you have not gone through auto enrolment then we recommend that you find out your staging date and plan well in advance of this date for implementation. You can find out your date at www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx.
  • A number of employers have taken the opportunity, when introducing auto enrolment, to also introduce salary sacrifice arrangements for pension contributions. This reduces both employer and employee NIC contributions and can result in savings of up to 25.8% of the employee pension contributions.

Transfer of Married Couples allowance

  • From April 2015 a married couple can share a proportion of any personal allowance that the other spouse is not using. Unfortunately this is only available where both spouses are not paying any higher rate tax. If it applies to your employees they will need to apply on line for the transfer of up to £1060 of personal allowance. This is a simple action that can result in savings to your employees and we would recommend that you highlight this opportunity to them.