Employee benefits: don’t get caught out when submitting HMRC forms

Employers who paid employee expenses or benefits during the 2017/18 tax year have until 6 July to submit their paperwork to HM Revenue & Customs, or they could face significant fines. Nick Bustin from haysmacintyre explains what employers need to know.

While some employers will have opted to pay tax on any employee benefits through their payroll, many will still be required to submit P11D forms to HMRC next month.

The majority of taxable benefits are reported based upon the costs to the employer in providing the benefit, less any contributions paid by the employee. However, employers need to be aware of the specific rules concerning the calculation of benefits such as company vehicles, fuel and living accommodation.

It is not uncommon for an employee to make a contribution towards the cost of their benefits. A common example is when employees extend their own medical cover to include their spouse or other family members, with the employer paying the initial premiums for the extended cover.

However, more often than not, the employee will be required to pay or “make good” the cost of the additional cover. These deductions can be made from the employee’s net pay; however, the employee will be liable to tax on the medical insurance premiums after taking into account their contribution.

The “making good” rules were modified, partly to address a number of anomalies within the legislation. The latest date for making good any benefits, with the exclusion of beneficial loans, is 6 July following the end of the tax year in which the benefit was provided.

The phantom of the OpRA

The optional remuneration arrangement (OpRA) legislation was introduced last year to curtail the preferential treatment of salary sacrifice and flexible benefit arrangements, including cash alternatives.

Under the OpRA legislation, an employee who gives up part of their salary in exchange for a benefit will have to pay tax based on the higher of either the salary they have given up or the cost to the employer in providing the benefit.

There are exceptions to the OpRA legislation. If the employer is providing certain “favourable” benefits, including employer pension contributions, pension advice, childcare assistance or cycle to work schemes, employees don’t have to foot the bill.

Additionally, if the salary sacrifice arrangement was entered into before 6 April 2017, then the employee will be protected by a series of transitional rules. This means that an effective salary sacrifice will cease when it comes to renewing or modifying the arrangement, or on 5 April 2018 (the case for the majority of benefits) – whichever arises sooner.

Employers should do their utmost to ensure their forms are submitted by 6 July to avoid any penalties. For any P11D(b) or online submission made after this date, a penalty of £100 (per 50 employees) for each month the form remains outstanding will be incurred.”

The transitional period is extended to 5 April 2021 for benefits including cars, living accommodation or school fees.

HR departments must keep track of these changes, particularly those that took effect before the end of the tax year, to ensure PAYE is being correctly calculated.

National Insurance liabilities

Employers will also be liable to Class 1A National Insurance, charged at 13.8% of the value of the taxable benefits reported on the P11D forms. The sums are due for payment by 19 July (22 July where payment is made via BACS).

However, if the benefit is subject to Class 1 National Insurance – where the employer has met the personal liability on behalf of an employee on things like private telephone bills, or when the employee is not liable to pay Class 1 National Insurance on their earnings – then the employer will not be liable to Class 1A National Insurance payments.

Employers should do their utmost to ensure their P11D forms are submitted by 6 July to avoid any penalties. For any P11D(b) or online submission made after this date, a penalty of £100 per 50 employees for each month the form remains outstanding will be incurred. HMRC can also seek to charge up to £300 plus a further penalty of £60 per day for as long as the failure to submit each P11D continues.

Employers need to ensure they have fully reviewed any salary sacrifice arrangements and have considered the impact of the OpRA legislation. Failure to do this could lead to hefty fines.

Nick Bustin

About Nick Bustin

Nick Bustin is director of employment tax at Haysmacintyre
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