Remuneration by way of benefits can be an attractive option for many employees. However, 6 April 2016 saw the introduction of a number of changes to the tax treatment of employee benefits in kind and expenses, as we explore below.
Removal of the income threshold
Benefits in kind are currently assessed on all directors and employees whose combined salary and benefits are £8,500 or more. From 6 April 2016, this threshold for the taxation of benefits in kind will be removed, meaning that all benefits will be taxable regardless of an individual’s total earnings.
Statutory exemption for reimbursed expenses
From 6 April 2016, a new statutory exemption will apply for certain expenses reimbursed to an employee. All employees will automatically receive tax relief on qualifying expenses payments, meaning that employers will no longer need to apply for a dispensation in order to avoid reporting non-taxable expenses using forms P11D. Existing dispensations will cease to have effect. Should an employer wish to pay a set rate to employees for certain expenses, rather than reimbursing the actual costs incurred, they will need to apply to HMRC for approval.
From 6 April, a statutory exemption will remove trivial benefits in kind from taxation and national insurance contributions (NICs). New legislation introduced by HMRC has set out a number of conditions that must be met in order for a benefit to be exempt, including imposing an upper limit of £50 on each individual benefit.
Qualifying trivial benefits provided to directors and other office holders of close companies will be subject to an annual cap of £300. Where the director’s or other office holder’s family or household member is also an employee of the company, they will be subject to a £300 cap in their own right.
Employer-provided cars are amongst the most popular benefits in kind and are subject to their own rules. The taxable benefit for an employee who has use of a company car is calculated by multiplying the car’s list price by an emissions-based percentage, based on bands of CO2 emissions, and with a 3% surcharge applying to diesel cars.
From 6 April 2016 there will be a 2% increase in the percentage applied by each band, with similar increases to come into effect in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%. The 3% diesel supplement was expected to be removed from 6 April, but will now be retained until April 2021.
Some key benefits in kind
Other popular benefits include:
- contributions to registered pension schemes
- certain childcare provisions and workplace nursery places provided for the children of employees
- meals provided in a staff canteen, and drinks and light refreshments at work
- parking provided at or near an employee’s place of work
- in-house sports facilities
- payments for additional household costs incurred by an employee who works at home
- removal and relocation expenses up to a maximum of £8,000 per move
- the provision of a mobile phone.
Payrolling benefits and expenses – the new online system
‘Payrolling’ benefits and expenses allows employers to collect PAYE tax on employee benefits in kind through their payroll.
The Finance Act 2015 included legislation to formalise the practice of payrolling, allowing employers to voluntarily report and deduct tax on employee benefits in kind in real time from the start of the 2016/17 tax year. Employers who wish to do so from the 2016/17 tax year onwards must register with HMRC’s new online Payrolling Benefits in Kind (PBIK) service by 5 April 2016.
National insurance contributions
There is no change to the process for reporting and collecting employer-only Class 1A NICs which are paid at 13.8% on the value of most benefits. Employers would still need to complete a P11D(b) after the end of the tax year, but must ensure that they include the values for both payrolled and non-payrolled benefits in kind.
Please contact us if you would like further advice on employee benefits in kind and remuneration packages.