The expenses and benefits regime was fundamentally reformed from 6 April 2016, with the abolition of the £8,500 threshold and the concept of a `lower paid employee’. Since that date, the benefits code in its entirety has applied to all employees regardless of their earnings rate (subject to a limited exception for certain lower paid ministers of religion). Also from 6 April 2016 employers have been able to deal with the tax on most benefits in kind through the payroll in a process known as payrolling, as long as they registered to do so with HMRC before the start of the tax year in question. Further, the statutory exemption qualifying for paid and reimbursed expenses replaced the dispensation regime for 2016/17 onwards. These changes will impact on the reporting of benefits for the 2016/17 year end.
So what do clients need to know?
Firstly, some benefits that were previously provided to employees classed as `lower paid’ prior to 6 April 2016, will need to be reported to HMRC for the first time, and the cash equivalent worked out in the normal way. This will include popular benefits, such as private medical insurance, company cars and fuel, which previously were not taxable on employees earning at a rate of less than £8,500 a year. Secondly, benefits covered by the new exemption (essentially those that would be deductible if the employee met the expense him or herself) can be ignored. Thirdly, form P9D is no more – all taxable benefits are provided, unless payrolled, must be notified to HMRC on form P11D.
If the client opted to payroll benefits in 2016/17, these do not need to be reported on the P11D (although any non-payrolled benefits must be reported on form P11D in the usual way). However, form P11D(b) (Class 1A return) is still required and payrolled benefits must be taken into account in working out the Class 1 National Insurance liability. As a result of the extension of the benefits code, Class 1A contributions are due on all taxable benefits and expenses, unless exempt or within the charge to Class 1 or 1B. Prior to 6 April 2016, no Class 1A NICs were payable on benefits provided to what were then classed as lower paid employees, regardless of whether the benefit was taxable.
Forms can be submitted online or on paper.