Are you ready for the 2017/18 expenses and benefits reporting season?

Wed 04 Apr 2018

Our clients tell us it is becoming increasingly challenging to manage employment tax risks and reporting obligations. This year promises to test even the best prepared employers given the unprecedented scale and rate of change to consider. Combined with a more active and aggressive HM Revenue & Customs (HMRC) approach to employment tax compliance and tax avoidance, it is more important than ever for in-house employment tax specialists to ensure that their systems and processes are robust. We work in collaboration with our clients and this helps us to achieve a better understanding of the payment and reporting obligations as well as implementing positive change.

Employment tax compliance obligations are evolving and to help you to consider the best tailored solution, below we have listed the top three key issues for employers to consider this year’s reporting season.

1) Optional Remuneration Arrangements (OpRA)

New rules came into effect from 6 April 2017 introducing an income tax and National Insurance Contributions (NICs) charge for benefits provided via salary sacrifice. Our blog outlines the key points and sets out an approach to tackling the issues. Benefits impacted by this change include those which are currently taxable, such as a company car, and also some benefits which are currently tax exempt, i.e. car parking at or near the workplace or mobile phones provided to an employee. The taxable value of the benefit will need to be calculated as the higher of the cash forgone or the cash equivalent. Therefore, this needs to be considered when preparing forms P11Ds for 2017/18 tax year and places yet another reporting burden on employers.

2) Payrolling benefits

Many employers have registered to payroll benefits and some are still deciding whether this option provides administrative ‘simplification’. Our blog explores the options. Please note that not all benefits provided to employees can be ‘payrolled’, and a form P11D (b) still needs to be prepared each year to report employer’s Class 1A NICs – payment needs to be made to HMRC by 22 July.  There is also an interaction with P11D reporting for employers that payroll benefits because the value of the benefit for the tax year must be compared with the amount included in payroll. The consequence is that if any amounts have not been included in payroll (e.g. reflecting a premium increase) then the remainder should be reported on form P11D. Early reports are suggesting that this is an issue for a number of our clients that switched to payrolling benefits.

3) Employment tax governance framework

As HMRC continues to close the ‘tax gap’ for employment taxes with the introduction of new legislation and increasing its compliance activity, there is greater onus on employers to ensure that appropriate policies, processes and controls are in place to evidence the tax and NICs treatment applied. In our experience, it’s about what should go through the payroll and doesn’t. If we take expenses as an example, there are certain expenses reimbursed to employees which attract Class 1 NICs via the payroll.  What about the difference between client entertaining, staff entertaining and subsistence – inaccurate classification may result in non-compliance? Similarly, in today’s ‘agile’ working environment, what is considered as a ‘temporary’ or ‘permanent’ workplace?  The responsibility for employment taxes often sits across several departments; HR, Payroll, Accounts Payable, Finance, Tax and Operations. Through discussions, HMRC can quickly identify whether there is a robust governance framework in place and whether there is a high risk of non-compliance.

How can we assist?

Form P11D reporting

Any firm can offer a form filling service: our approach adds value by seeking a deeper understanding of the expenses and benefits provided. The risk is often not in the items reported but those that are overlooked. Our employment tax specialists offer a service tailored to your specific requirements.

PAYE Settlement Agreement (PSA) assistance

It is common to report certain employee expenses and benefits on a PSA to ensure that no tax liability arises for the employee, for example a lunch to celebrate good performance or ‘trivial’ benefits.  We assist our clients with everything from obtaining HMRC agreements, reviewing tax sensitive ledger codes to ensure accurate tax accounting, to preparing / submitting computations.

Expense and benefit strategic review

As discussed above, the UK expenses and benefits rules are inherently complex and there are many benefits to undertaking a review following significant recent changes in legislation. Often we are asked to assist when HMRC compliance activity is underway but a key issue in this situation is that subsequent disclosures are not considered unprompted which impacts adversely on the penalty position. Where irregularities exist, better outcomes can be achieved through a self-initiated review and voluntary disclosure to HMRC demonstrates a prudent approach to tax risk management.

Our approach

Our approach is to provide an efficient, cost-effective service to help minimise the risk of irregularities that can be costly and time-consuming to rectify, not to mention damaging to your relationship with HMRC. We add value by understanding your internal systems and analysing your data so as to provide suggestions for process improvements that can further mitigate the risk of non-compliance.

Please contact the employment tax team if you wish to discuss further.