Tax and Accounting New rules on expenses and benefits came into force on 6 April 2016. There are fundamental changes which place more reliance on the employer. If you do not get it right then HMRC can make you suffer the cost of any PAYE and NI that you should have deducted when the payment was made. The main changes are: – P11D dispensations have been abolished. – It is now down to the employer to decide whether an expense is a benefit. If it is a benefit then it must treated as earnings with PAYE and NI deducted. – The £8,500 earnings threshold for taxing benefits has been abolished along with Form P9D which reported these benefits. – Certain benefits can be payrolled rather than being put on P11D’s, but this can only be done if you register with HMRC before the start of the relevant tax year. – There is a £50 trivial benefits exemption. P11D dispensations have been abolished P11D dispensations have been abolished. Under a P11D dispensation the employer agreed with HMRC a list of qualifying business expenses that did not need to be reported as benefits on P11D as they were tax deductible by the employee. Under the new regime, all employers must deal with expense payments as if they had been granted a dispensation. Almost all expenses that would previously have been covered by a dispensation fall within a new exemption for paid or reimbursed expenses and will not need to be reported on P11D. Expenses qualify for this treatment if the employee would have been entitled to claim a tax deduction had they incurred the cost personally. This exemption does not apply to expenses or benefits provided under a salary sacrifice agreement. It is now down to the employer to decide whether an expense is a benefit Under the old rules, all the employer had to do was to report an expense to HMRC on P11D. You did not have to decide whether or not it was an allowable expense. The employee would make that decision by claiming a deduction on their tax return if they believed that the expense was allowable. With effect from 6 April 2016, it is now the responsibility of the employer to decide whether the expense qualifies for a tax deduction. If you believe that an expense is tax deductible then you no longer need to report it on Form P11D. All that you need to do is reimburse the employee and record the transaction in your business records. However, if it is not a qualifying expense then you must treat it as earnings and deduct PAYE and NI. You therefore need a system in place that will ensure that only qualifying business expenses are paid without deducting PAYE and NI. An expense is only tax deductible if it has been incurred “wholly, exclusively and necessarily” in the performance of the employee’s duties. With some expenses it can be difficult to decide if they are tax deductible. Business travel, subsistence and accommodation are prime examples. Now that the onus is on the employer to make this decision it is important to get it right otherwise you may have to bear the cost of the PAYE and NI that should have been deducted when the payment was made. The £8,500 earnings threshold for taxing benefits has been abolished There was previously an £8,500 earnings threshold for lower paid employees below which special rules for taxation of benefits applied. If earnings were below this amount then certain benefits were not taxable. Those that were taxable had to be reported to HMRC on Form P9D. Now Form P9D has been abolished and all employees will be subject to the same rules and will be taxed on benefits in the same way, irrespective of earnings. Certain benefits can be payrolled rather than being put on P11D’s Previously, employers could choose to payroll benefits in kind but had to report the cost and the amount payrolled on P11D. Under the new regime this voluntary arrangement no longer applies. If an employer wants to payroll benefits they must first register with HMRC before the start of the relevant tax year. Once you notify HMRC that you will be payrolling benefits they will remove the benefits from the employee’s tax code. It is therefore important to notify as early as possible so that the tax code can be adjusted before the start of the tax year. Note that if you have not already registered for the current tax year then you cannot payroll benefits for 2016/17. Payrolling does not apply to all benefits so P11D’s remain in place for benefits that are not payrolled. £50 trivial benefits exemption To avoid the reporting of lots of trivial benefits there is no charge to tax or NI and no need to report a trivial benefit on P11D where the cost does not exceed £50. To qualify for the exemption the benefit must not be cash or a credit token and there must not be salary sacrifice involved. How can S4B help? S4B has extensive knowledge and experience in expenses and benefits and can help you to apply the new rules. It is important to have a system in place that will ensure that only qualifying business expenses are paid without deducting PAYE and NI. We can review your systems to identify areas of weakness so as to minimise the risk of getting it wrong. Please contact one of the S4B team at [email protected] or call us on 01628 6234333 to see how we can help you.