21 March 2017

Employee expenses: what do you need to consider?

With the end of the tax year looming, we provide an overview of some of the main things employers need to consider with regards to employee expenses.

The end of a tax year, from a PAYE reporting perspective, is a time of reflection. Employers will need to capture and remember all of the matters that need to be included and reported to HMRC for the year ended 5 April 2017 prior to the reporting deadline of 6 July 2017.

PAYE

From a P11D perspective, this will involve reminding yourself of the employees who have received benefits in the past and what changes have occurred. It will also require a fresh look, possibly at senior recruits to the business, to see if anything new has been promised within their contract of employment. Finally, you should link up all human resource, payroll and financial records to make sure you have a complete picture of the year.

Don’t forget the PSA

The PAYE settlement agreement (PSA) is an often forgotten tool in managing P11D returns and is encouraged by HMRC. The PSA allows an employer to deal with certain benefits provided to employees in a pragmatic manner, without the benefit being attributed to an individual. Qualifying matters are as follows:

  • Irregular payments with regard to employees, such as where a statutory limit is exceeded and there is no intention for the employee to suffer tax. For example, if an employee is relocated or, similarly, if a long service award is provided and the payment is greater than the statutory limit of £8,000, any surplus over and above this limit can be included.
  • Where it is difficult to split the benefit across employees. A common example is staff entertaining, when it may be inappropriate to allocate who had what during a gathering.

The PSA should not be underestimated as a practical way of dealing with matters. Further, if an employer does not have a PSA, they are conveying a message to HMRC that they conduct no staff entertaining and have no matters to deal with. This could be considered confrontational and arguably act as a catalyst, or increase the frequency, for PAYE visits.

Trivial benefits

In completing the above returns you need to remember that HMRC now provides a definition as to what’s classed as a trivial benefit. For years, we have seen various amounts and formulae put forward by professional advisers, however, we now know that HMRC’s definition of ‘trivial’ is £50. Although, as you would expect, there is still a list of qualifying conditions (for example, the benefit cannot be cash or a cash voucher and it cannot be part of a contractual obligation) – so sadly the £50 is not a universal relief!

Personal service companies

Whilst reviewing the PAYE reporting requirements your company has for the 2016/17 tax year, you may also want to review whether you are engaging with any personal service companies.

As you may be aware, a new turn of phrase ‘off-payroll workers’ has heralded the end of personal service company tax advantages for those working in the public sector from April 2017.

This is the latest in a series of measures implemented by HMRC to tackle the perceived tax advantages for those workers being hired through intermediaries rather than directly.

We suspect that it is only a matter of time before these rules, if successful in mitigating tax avoidance in the public sector, are extended to the private sector. Such a charge will dramatically increase the compliance burden and PAYE liabilities on companies who regularly engage with third parties through their own personal service companies. As a result, we recommend companies prepare for what is likely to be an inevitable clampdown on the use and engagement of personal service companies.

If you need any help in relation to your company’s PAYE reporting requirements, or if you have questions on any of the above points, please get in touch with Shaun Young, Clare Lancaster or your usual Scott-Moncrieff contact.

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