Year-end tax planning for employers

1 Apr 2020

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In this briefing we outline the key reporting deadlines for employers for 2019-20 and some common errors that arise.

Payroll

Where amendments to the year’s payroll are required after the final Full Payment Submission (FPS) has been submitted for the year, then HM Revenue & Customs (HMRC) now allows an additional FPS to be filed rather than using an Earlier Year Update (EYU). The ability to amend after the end of the tax year does give employers a lot of flexibility, with HMRC typically rolling both under and overpayments into the next submission due.

Where employees have been subject to PAYE on share based transactions in the year (eg exercise of share options) and there was insufficient net pay to recover all the PAYE in that pay period, then the employee needs to have repaid this PAYE by 6 July if a further benefit is not to arise (a Section 222 charge).

P11D Returns

The annual return of expenses and benefits provided to employees needs to be made by 6 July. This return can be in paper or electronic format – there are a number of commercial software solutions in the marketplace and for small numbers/simple forms HMRC has its own P11D tool that will allow electronic submission. Where forms are submitted online, our experience is that tax codes are updated up to three months sooner than for employees where papers forms are used.

While the use of electronic submissions will avoid many formatting and missing entry errors, other common errors we see on P11D returns are:

  • Class 1 National Insurance (via payroll) rather than Class 1A National Insurance is due on reimbursed costs.
  • The VAT inclusive amount not being reported as the cash equivalent.
  • Insufficient record keeping where fuel is provided for company car users.
  • Pool cars/vans falling outside the strict HMRC concessions.
  • Overdrawn directors’ loan accounts not being reported as a beneficial loan.

If an incorrect P11D is submitted then the amended form needs to be submitted in paper form, even if the original return was submitted electronically.

Voluntary payrolling of benefits

If you’re intending to payroll benefits and expenses, you must register them with HMRC using the payrolling employees taxable benefits and expenses service. You must do this before the start of the tax year. You can payroll all benefits except employer provided living accommodation or interest free and low interest (beneficial) loans.

This means that you will not have to submit a form P11D. You must tell HMRC which benefits you want to payroll during the registration process. You will still need to pay class 1A National Insurance as usual.

The tax codes for all employees receiving these benefits will be amended, unless you exclude any employees that you do not want to payroll benefits for in the online service.

PAYE Settlement Agreements

PAYE Settlement Agreement’s (PSAs) are administrative arrangements that can be agreed with HMRC. They allow employers to pay the tax and National Insurance contributions, on behalf of their employees, on certain taxable expenses or benefits (staff entertaining and staff incentive awards for example), rather than return them as benefits in kind on forms P11D or include them in the payroll.

For employers who already had a PSA in place, there is no longer a requirement to renew the agreement on an annual basis, unless there are changes to the items to be included.

For employers requiring a PSA for the first time, the agreement needs to be in place by 6 July.

Care should be taken around the annual functions exemption and the wide definition of trivial benefits that otherwise allowable costs are not included in error. HMRC will, as matter of routine, check the basis of your calculation but not the underlying costs being included.

Termination payments

Employers need to report packages which are taxable only on amounts over £30,000 that consist of a mix of cash and non-cash benefits. This report needs to be made by 6 July following the tax year in which the termination takes place.

There is no prescribed form or format for this report and it typically takes the form of a letter. A copy should always be given to the employee.

Reporting requirements for transactions in ‘employment-related securities’

If, during the year, there have been any transactions in shares (or other ‘securities’) involving employees or directors, or any events relating to tax advantaged schemes (ie EMI, CSOP, SAYE or SIP), these may need to be reported online to HMRC by 6 July following the end of the tax year. There is no option to file paper returns, as they have to be filed through the Government Gateway.

Where the scheme has not previously been registered with HMRC, it is recommended that the registration process is commenced as soon as possible to ensure online filing is possible before the deadline. Note that HMRC will charge penalties for late returns even where this is a NIL return.

A common misconception made by employers is that market value acquisitions, rights issues, share-for-share exchanges etc do not need to be reported. These are still reportable events in the main, with only limited exclusions.

Short-term business visitors

Many employers use the short-term business visitors (STBVs) easements to manage PAYE for overseas employees who visit the UK. There is, though, a requirement to make a NIL return to HMRC by 31 May, even where all the overseas workers were covered by the ‘60-day rule’.

Where the conditions of the agreement are not met, such as where the employee spends 60 days in the UK in the tax year but this is part of a more substantial or recurring period, then PAYE will be due. Failure to account for PAYE could result in the easement being lost generally and PAYE being due for all such workers in future irrespective of their time in the UK.

This factsheet is based on law and HMRC practice at 1 April 2020. At the time of writing, no deadlines have been altered by the government due to the Coronavirus pandemic.

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