Employers will be aware that various changes have been made to the reporting requirements for employee benefits and expenses from April 2016, which mean that some employers will no longer have to complete annual return forms P11D. The three main changes are:
- The dispensations regime has been replaced with an expenses exemption – broadly, where an employee would have been entitled to tax relief in full for a benefit or expense, the employer does not need to deduct tax or NICs, and they do not need to report it to HMRC;
- Employers can now account for tax on certain benefits provided to employees through PAYE (known as ‘voluntary payrolling’), which dispenses with the need to report such benefits on forms P11D. Benefits relating to accommodation, beneficial loans, credit tokens and vouchers cannot be processed through voluntary payrolling. Note also that employers wishing to use the scheme for 2016-17 had to register with HMRC prior to 6 April 2016; and
- The introduction of a statutory exemption for trivial benefits.
Until 5 April 2016, employers were required to agree with HMRC whether benefits could be treated as ‘trivial’ but legislation included in Finance Bill 2016 (inserting new ITEPA 2003, s 323A to 323C) will provide for an exemption for trivial benefits and, if enacted, this will apply from 6 April 2016.
The proposals provide for an income tax and national insurance contributions (NICs) exemption from 2016-17 for trivial benefits where the following conditions are met:
- The cost of providing the benefit does not exceed £50 (see below for definition of ‘benefit cost’);
- The benefit is not cash or a cash voucher;
- The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements); and
- The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services). The cost of the benefit is defined in the legislation as:
- The cost of providing the benefit; or
- If the benefit is provided to more than one person and the nature of the benefit or the scale of its provision means it is impracticable to calculate the cost of providing it to each person to whom it is provided, the average cost per person of providing the benefit.
Trivial benefits provided to directors or other office holders of close companies (broadly, those with five or fewer participators), or to members of their families or households, will be capped at £300 per tax year.
Where an employee receives a benefit exceeding £50, the whole amount becomes taxable, not just the excess, and it must be accounted for accordingly.
The exemption applies equally to benefits provided to an employee, or to a member of his or her family or household, subject to the £50 limit.
The government will be monitoring the use of the exemption, and if it believes it is being abused, adjustments to the qualifying conditions and/or the annual cap are likely.