What is the background?
Many employers provide their employees with goods or services that are exempt from tax and National Insurance Contributions (“NICS”). However, some tax and NIC exemptions are affected by the method in which the goods or services are paid for. As we are now into the annual P11D season, it is an appropriate time for employers to familiarise themselves with the tax and NIC rules.
A number of tax concessions specifically apply only where the prescribed benefit is provided by the employer. This is often taken to mean that the employer contracts with, and pays, a third party to provide those benefits. HMRC is increasingly taking the view that if an employee purchases the item and the costs are reimbursed to the employee by the employer, the concessionary treatment doesn’t always apply.
What is the issue?
Due to the wording of tax legislation and the subsequent interpretation of that legislation by HM Revenue and Customs, employers could end up having to report taxable benefits for unsuspecting employees. There are a number of specific items paid for by employers on behalf of, or to, employees which attract a different tax and NIC treatment depending on who pays for the items.
Are there any examples of the issues which can catch employers out?
There are a number of examples which could be impacted with some of the most popular outlined below.
- Trivial benefits
- Eye Tests
- Mobile phone costs
- Training costs
As an example, where employers pay for and provide employees with gifts which are non-contractual and which are under £50 (inclusive of VAT) in value then the gift can be made to the employee without any tax or NIC applying as a “trivial benefit”. Examples would include providing a bunch of flowers to someone about to get married or on the birth/adoption of a child.
If an employee instead purchases the gift privately, provides it to the employee and then has the employer reimburse them, then the trivial benefits rules will not apply, and the full cost would need to be added to payroll. So the bunch of flowers given to the same employee and deriving from the same employer would attract both tax and NIC if the employee was reimbursed.
Similarly with eye tests, HMRC has recently updated their guidance manuals (the Employment Income Manual) to state their opinion that eye tests, when paid for by the employee and reimbursed by their employer, are taxable benefits in kind. However, as the NIC legislation is different, in some cases the reimbursements may be excluded from NICs.
What should employers do now?
As we are now into the P11D filing season, employers should review all benefits provided to employees and consider whether they have been provided directly (i.e. paid for by the employer) or whether they have been reimbursed and check whether the rules around reimbursement mean they are taxable.
Where any items are taxable, they should be added to the P11D or potentially agreed to be paid as part of a PAYE Settlement Agreement.
Employers should also consider their historic compliance position for previous tax years to ensure that they have not inadvertently provided taxable benefits without reporting them.
In addition, employers should review their current processes to ensure that any future payments made to employees in some areas are paid for by the employer rather than reimbursed to the employee.
How can UNW’s employment tax team help?
UNW’s award winning Employment Taxes team has considerable experience in reviewing payments made by employers to employees and helping to change processes to be more compliant.
In addition, our specialists can ensure that any benefits are reported correctly and in line with HMRC processes and guidance.
If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
