Are you prepared for the employment tax changes in April 2016?
The employment tax rules are being significantly changed from April 2016 with the already announced following changes:
- The abolition of the £8,500 threshold for taxing certain benefits in kind.
- The voluntary pay rolling of benefits in kind.
- The replacement of dispensations with an exemption for paid or reimbursed expenses.
It is important that employers are aware of these changes and have revised their processes and procedures accordingly. In regard to the scraping of the requirement to obtain a dispensation this is potentially adding a level of risk to the employer and this needs to be considered.
At the moment, if you pay or reimburse deductible expenses (or provide benefits in kind that are covered by a matching deductible expense) to any of your employees, you have to report these on the return of expenses and benefits (Form P11d) and those employees must then contact HMRC to claim back any tax relief they are entitled to – unless you have previously agreed a ‘dispensation’ with HMRC. A dispensation is an agreement that specified expenses and benefits can be provided to employees without deducting tax and National Insurance and without reporting them to HMRC.
From 6 April 2016, a new exemption means you will no longer have to agree a dispensation with HMRC or report expenses or benefits in kind on form P11d where the employee is entitled to tax relief for those expenses or benefits in kind. Those expenses or benefits in kind will now be exempt from income tax. This means however, that you will need to determine the correct tax treatment of the expenses you pay to your employees and whether a matching deduction is due. You will still be required to keep records of what has been paid or reimbursed to your employees as you do now. It should be noted this exemption will not apply in conjunction with a salary sacrifice arrangement
Whilst this change of arrangement was introduced following consultation by the Office of Tax Simplification and was introduced with the aim of reducing administration it does create significant risk to employers. Employers who do not have an existing dispensation in place need from April 2016 to be careful of what items they decide not to report seeing if at some later point it transpires these expenses or benefits in kind are taxable then there will be a liability with the employer.
In light of this change we are aware that a significant number of employers are taking the step of obtaining a dispensation which they can use after 6 April 2016 to decide which items can be specifically excluded from reporting. Clearly this can only be relied upon going forward if there are no significant changes in the expenses policy of the employer.
Whilst the withdrawal of the need for a dispensation does save some time it will be interesting to discover in practice if the extra work required at the year end gaining comfort is creating an additional burden which is more of a headache than the position at present
For further information on these tax changes please contact Alastair Kendrick, or your nearest MHA MacIntyre Hudson tax advisor.