Employment tax changes from 6 April 2016 – Are you ready?

Wed 06 Apr 2016

6 April, the start of the tax year and there are a number of significant changes to the employment tax rules which are effective from today.  It’s crucial that all employers are aware of these and consider the impact they may have on their internal processes and controls environment.

Here are some of the changes:

The end of the P11D reporting dispensation – Until now, an employer who reimburses its employees’ business related expenses needed to apply to HMRC for a dispensation from having to report these reimbursements on an employee’s form P11D. This requirement is now removed, so P11D dispensations will no longer be necessary as certain expenses have been legislated. However, there is greater onus placed on employers to ensure that they have appropriate processes, controls and policies in place to confirm that the expenses are genuine business related expenses, particularly where round sum subsistence allowances are paid.

Changes to Salary Sacrifice arrangements – Tax and NIC relief is restricted for travel and subsistence payments for workers engaged through an employment intermediary where these are provided by way of a salary sacrifice arrangement.  This is in line with the Government’s intentions to remove tax and NIC relief on benefits provided by way of salary sacrifice arrangements going forward.  

Payrolling of Benefits in Kind – HMRC has given employers the option to process certain Benefits in Kind through the payroll. As long as the relevant tax and NIC is then collected through the payroll, there will be no need to complete P11Ds for these benefits although a P11D(b) is still required to report any Class 1A NIC liability.  Certain benefits are excluded from payrolling and these will still need to be reported on forms P11Ds.  However it’s important to evaluate if this does “simplify” administration for your business before registering with HMRC.

Trivial Benefits – The long awaited trivial benefits exemption will come into force. If you provide modest benefits, such as small non-cash gifts, drinks and meals to your employees, you should no longer need to include the majority of these items within your PAYE Settlement Agreement (PSA). The cost of providing the benefit should not exceed £50 (or the average cost per employee where it is not practical to work out the exact cost per person) however, there will be an annual cap of £300 for close-company directors and members of their families/ household.   

The exemption will also apply to benefits that attract a NIC liability, with the exception of non-cash vouchers.  However, trivial benefits, even if tax exempt, will continue to be liable to Class 1 NIC for a while after 6 April 2016 via the payroll. This is because the legislation that will give statutory effect to the Class 1 NIC exemption for trivial benefits will not come into force until Finance Act 2016 receives Royal Assent, which will most likely be in July 2016.

Abolition of £8,500 earnings threshold for benefit reporting – The £8,500 threshold for reporting purposes will be removed.

National Living Wage – From 1 April 2016, the National Minimum Wage (NMW) will be increased to the level of the National Living Wage (NLW) for those aged 25 and over.  The NLW will be a total of £7.20 per hour (50p more than the current NMW).

Employer Allowance – You’re probably aware of the Employer Allowance which can be used against Employer’s National Insurance Contributions.  This has been set at £2,000 a year since April 2014, but from 6 April will be increased to £3,000 per year – your payroll software should increase the allowance automatically.  However, companies where the Director is the sole employee will not be eligible for the allowance.

Please contact me or your local employment tax contact if you’d like to discuss how these impact your business.

Author: Vaneeta Khurana