Payrolling of benefits in kind, Public sector contracts, Pension scheme surcharges and IR35

In our most recent tax tips note we examined two more issues which you may need to discuss with your clients before 6 April 2017: payrolling of benefits, and contracts for services provided to the public sector. We also looked at traps concerning pension savings and how to access them. Don’t let your clients get tripped up by the complex rules in this area.

Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every month.

Payrolling of benefits in kind

Some employers have been taxing certain benefits in kind through the payroll (known as “payrolling”) for some years. From 6 April 2016 payrolling became a statutory choice for all employers, as we explained in our newsletter on 11 February 2016.

When benefits are payrolled they don’t have to be reported on the form P11D after the end of the tax year, and the employee’s PAYE code doesn’t have to be altered during the year. Where a company car is payrolled the employer is not required to submit a P46(car) during the tax year.

As employees are likely to be in receipt of benefits in kind before payrolling of the benefit starts, HMRC need to know which employees and which benefits are to be payrolled before the start of the tax year. HMRC will then amend the PAYE codes of those employees to take out the benefit in kind, otherwise the employee would be taxed twice on the same benefit.

To inform HMRC of the detail of which employees and which benefits are to be payrolled, this data needs to be submitted to HMRC using an online service set up for this purpose. The employer has to do this, as facilities for agents have not been built into this service. Ideally this information needs to reach HMRC well in advance of the beginning of the tax year, to allow sufficient time for the 2017/18 PAYE codes to be altered.

HMRC are hosting three short interactive webinars to explain payrolling on 16, 17 and 21 February. Please note that the article on payrolling in the latest Employer Bulletin (issue 64) contains some inaccuracies. Our employment tax experts are happy to answer any of your questions regarding payrolling.

PAYE coding notices, The right structure for entrepreneurs’ relief, Changing domicile rules

The PAYE coding notice for 2016/17 contains a nasty shock for taxpayers who receive interest or dividends, as we explain below. A recent tax case illustrates that capital gains arising from business deals may not qualify for entrepreneurs’ relief. Finally we have advanced warning of a change in the domicile rules, which could affect your clients earlier than you think. 

This is an
extract from our topical tax tips newsletter dated 18 February 2016
(5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

PAYE coding notices 
When your owner/director clients receive the form P2 that sets out their PAYE code for 2016/17, they are likely to be confused by the following new deductions: 
Untaxed interest 
All bank interest will be “untaxed” in 2016/17 as tax won’t be deducted by the bank. However, basic and higher rate taxpayers will have a savings allowance of £1,000 or £500 which should be set against the interest received. Only interest exceeding the savings allowance should be set against the personal allowance in the PAYE code. 
Dividend tax 
The notes on the back of the P2 say this deduction: “is to collect the basic rate of tax due on your dividend income.” However, dividends won’t be taxed at the basic rate of tax: 20%, the tax rate will be 7.5% for a basic rate taxpayer. For higher rate taxpayers the P2 notes may refer to higher rate tax. 
To check the dividend tax deduction multiple it by the taxpayer’s highest marginal tax rate. This how much dividend tax HMRC believes the taxpayer will be due to pay in 2016/17. Perform your own calculation of the taxpayer’s dividend tax for 2016/17 based their expected dividend income for 2016/17. If the two figures are approximately the same, the PAYE code is roughly correct. 
The taxpayer can object to having dividend income or interest included in their PAYE code. To get the PAYE code changed you can ring HMRC, or complete the online form on behalf of your client. 

This is an
extract from our topical tax tips newsletter dated
18 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.
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Payroll tasks, Cars and vans, Working with HMRC

We are now one month away from the end of the tax year, so we are looking at payroll tasks that need to be completed around the year end, and benefit changes that need to be reported before 6 April 2015. We also have an update on HMRC’s relationship with tax agents, and how you can influence the new online systems they are building.

Payroll tasks
The end of year reporting under RTI should be easier this year, as most employers have gone through the procedure once already for 2013/14. The Employer Bulletin number 52 has some detailed guidance, but unfortunately it is not totally accurate.
The end of year checklist (questions previously on the P35) is not required for 2014/15 as the PAYE regulations have been changed, but most payroll software has not. Thus although employers don’t have to answer those questions, thier payroll software will not permit a ‘final’ report to be filed for 2014/15 without answers being given.
It is crucial that the last FPS for 2014/15 is marked as “final”, and it is submitted to HMRC within three days of the last payment day in the tax year. Any delay beyond this three day grace period will trigger a penalty for the employer. Although large employers (50 or more employees) are allowed one late filing in 2014/15, other employers are not. So if the last FPS for the year is more than 3 days late, the unfortunate small employer will get a penalty notice.   
If you forget to mark the last FPS as “final”, you can submit a nil EPS as the final submission of the year. If you need to correct information on the final submission this should be done on an amended FPS before 20 April 2015. Any corrections after that date need to be submitted on an Earlier Year Update (EYU).
Finally, watch out for letters from HMRC closing PAYE schemes. They plan to close around 15,000 PAYE schemes which have made no RTI reports since April 2013. These could include schemes which are kept open solely to report P11D benefits.
This is an extract from our tax tips newsletter dated 5 March 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It’s clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>