Benefits and expenses
Tim Bridgett, Manager (Employment Tax) at Baker Tilly LLP, looks at the pros and cons of payrolling benefits and the suggested alternatives
ith its second report, the Office of tax Simplification (OTS) continued its journey of exploration and discovery in the world of employee benefits and, whilst not as exciting as a Journey to the centre of the Earth, it does provide some innovative options. The OTS points out that in 2011/12 there were over four million individual benefits reported with 500,000 of those being under £100, and 4.4 million P11D forms were filed. The consequence of submitting P11D forms is that HMRC has to amend tax codes to reflect any changes in benefits with employers having to change those codes on payroll systems, making a lot of work for everybody.
W Description
(1a) Value of items provided to basic-rate employees (80 x £50) (1b) Value of items provided to higher-rate employees (20 x £50) (1c) Total value of items provided
(2a) Tax due on (1a) at basic rate of 20% (2b) Tax due on (1b) at higher rate of 40%
(3a) Grossed-up tax from (2a) = £800 x 100/(100-20) (3b) Grossed-up tax from (2b) = £400 x 100/(100-40) (3c) Total tax payable = (3a) + (3b)
(4a) Total value plus total tax payable = (1c) + (3c) (4b) Class 1B NICs payable = 13.8% of (4a)
Total due to HMRC = (3c) + (4b) Employers want to payroll benefits and
the OTS has asked three questions: l Should payrolling be compulsory for all employers? The OTS suggests no as payrolling will not work for all employers. l Should it be compulsory for all benefits? The OTS suggests a free choice. l If a benefit is payrolled should it be compulsory for all relevant employees? The OTS says it should. There are some benefits that lend themselves to payrolling as they accrue on an annual basis, such as cars and medical insurance. so that they will normally only need one adjustment to payroll. However, with the payrolling of benefits a double computation would be needed for car benefits. Because the CO2
Amount
£4,000.00 £1,000.00 £5,000.00 £800.00 £400.00
£1,000.00 £666.67
£1,666.67 £6,666.67 £920.00
£2,586.67
percentage changes each year the benefit in kind figure can vary. Therefore, when the change came into force employers would need to calculate the benefit in March for the next year and then make another calculation for the previous year for the last P11D. There is one expense where the introduction of payrolling cannot come soon enough. That is the payment of business mileage expenses in excess of the authorised mileage allowance payments (AMAP) rates. At present, any excess has to go through the payroll for national insurance contributions (NICs) in the period in which it is paid. For tax, the excess payment has to be shown on the P11D. There are many employers who payroll the amount for tax and NICs and HMRC has accepted this. However, HMRC has said that even though the amount has suffered tax it still needs to be shown on the P11D. As there is no space to show that the amount has already been taxed it leaves employees to the possibility of an adjustment to their coding and all the time and trouble of explaining to HMRC that the payments have already been taxed. This is
...A DOUBLE COMPUTATION WOULD BE NEEDED FOR CAR BENEFITS
22 PayrollProfessional
technical
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56