Our newsletter this month includes: a reminder for employers to make appropriate returns of benefits to HMRC, details of the changes to the driving test, the tax and NIC implications of making loans to employees, and expenses paid to employees for the business use of their own transport.
Expenses and benefits for employees
Until 2015-16, it was possible to apply for a dispensation to exclude certain expenses and benefits provided to employees from the year end returns to HMRC: primarily the submission of forms P11D. These dispensations ceased to be effective from 6 April 2016. From this date many of the expenses covered by dispensations were exempted from the benefits legislation. The sorts of expenses covered include:
To qualify for an exemption, employers must either be:
Employers do not have to formally apply for exemption if they reimburse using HMRC’s benchmark rates for allowable expenses. You only need apply if you want to use your own rates as these rates will need to be agreed with HMRC. There must be systems in place to check the payments are as agreed with HMRC.
The filing deadlines for P11D forms and associated returns are:
There is a fixed penalty of £100 per 50 employees for each month or part of a month the P11D(b) return is late. There are also penalties and interest if your payments of Class 1A NICs are paid late.
Don’t forget that the earnings rate of £8,500 pa for a P11D to be required was abandoned from 6 April 2016 so that employees who previously needed a form PD9 will now need a P11D.
All change for driving instructors and learner drivers
Driving instructors will have a tough time this year. Many are sole traders and will need to start changing their record keeping to accommodate the challenges of Making Tax Digital, either April 2018 if their turnover is above the VAT registration limit (presently £85,000), or April 2019 if their turnover is below this limit.
On 4 December 2017, they will also face changes to the driving test. According to a recent press release issued by the Driver & Vehicles Standard Agency there will be four basic changes:
The independent driving part of the test will increase to 20 minutes – it currently lasts 10 minutes – so this will be about half of the test.
Following directions from a sat nav – during the independent driving part of the test, most candidates will be asked to follow directions from a sat nav. One in five driving tests won’t use a sat nav. You’ll need to follow traffic signs instead.
Reversing manoeuvres will be changed – the ‘reverse around a corner’ and ‘turn-in-the-road’ manoeuvres will no longer be tested, but you should still be taught them by your instructor. You’ll be asked to do one of 3 possible reversing manoeuvres:
Answering a vehicle safety question while you’re driving – the examiner will ask you 2 vehicle safety questions during your driving test – these are known as the ‘show me, tell me’ questions.
Ironically, this may produce a rash of activity as learner drivers attempt to pass before the December change. It may also be a window of opportunity for employers to consider supporting employees who would benefit from being able to drive as part of their work. As long as the employer directly engages the driving school, and pays for the lessons, and it can be demonstrated that passing a test is a requirement of their employment, then the cost would be a tax-free benefit to the employee.
Beneficial loans to employees
In many cases, making loans to your employees or their relatives can create an obligation to report a beneficial loan to HMRC. The deemed benefit would be a taxable benefit in kind for the relevant employee, and would increase the employer’s Class 1A NIC bill at the end of the tax year.
However, certain loans are exempt from this reporting obligation. These may include loans employers provide:
Loans written off also create a National Insurance Class 1 charge. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC on the deemed value of the benefit.
Calculating the taxable benefits for chargeable loans can be somewhat complex and readers are advised to take advice if they are unsure of their tax and NIC responsibilities.
What are approved mileage payments?
Mileage Allowance Payments (MAPs) are the rates used by employers to reimburse employees when they use their own transport for business purposes. The current rates are well-known. They are:
As long as employers pay at these rates, and no more, any expenses paid are tax free in the hands of the employee.
If the employer is registered for VAT, they can also claim back as input tax the deemed VAT included in the mileage rate. To do this, employers should use the advisory fuel rates. These are published on the gov.uk website at https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016
If employers pay at rates higher than MAPs, any excess will be treated as remuneration, added to employees’ salary, and taxed accordingly.
If employers pay their employees at less than the MAP rates, employees can make a claim to HMRC to compensate them for any shortfall. In effect, the difference in the MAP rate paid times the business mileage for the tax year can be claimed as an allowable expense.
Tax Diary May/June 2017
1 May 2017 – Due date for Corporation Tax due for the year ended 31 July 2016.
19 May 2017 – PAYE and NIC deductions due for month ended 5 May 2017. (If you pay your tax electronically the due date is 22 May 2017)
19 May 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2017.
19 May 2017 – CIS tax deducted for the month ended 5 May 2017 is payable by today.
31 May 2017 – Ensure all employees have been given their P60s for the 2016-17 tax year.
1 June 2017 – Due date for Corporation Tax due for the year ended 31 August 2016.
19 June 2017 – PAYE and NIC deductions due for month ended 5 June 2017. (If you pay your tax electronically the due date is 22 June 2017)
19 June 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2017.
19 June 2017 – CIS tax deducted for the month ended 5 June 2017 is payable by today.
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