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Category: Benefits In Kind

Virtual Christmas parties and tax-free gifts

Virtual Christmas parties and tax-free gifts

The COVID-19 pandemic has meant that the traditional Christmas party could not happen in 2020. If, instead, you held a virtual event, you will be pleased to know that this too can benefit from the tax exemption for annual parties and functions. There is also good news if you opted to give your staff a seasonal gift, as this may fall within the scope of the trivial benefits exemption.

Virtual Christmas parties

The tax exemption for annual parties and functions means that your staff can enjoy a Christmas party without having to worry about an associated benefit-in-kind tax charge as long as the cost per head (including VAT) is £150 or less and the event is open to all staff (or all staff at a particular location).

The COVID-19 pandemic has meant that large in-person events are off the menu this year. If, like many other organisations, you chose not to forgo the Christmas party entirely and held an online event instead, your virtual event will fall within the scope of the exemption for annual parties and functions, as long as the associated conditions have been met. HMRC have confirmed that where the event is provided using IT, the exemption will cover the costs of the event, including the provision of equipment, entertainment and refreshments, as long as they are provided principally for the enjoyment or consumption by employees during the event.

If a virtual event is not for you, the exemption will also apply if you delay the Christmas party and hold a later event instead, as long as it is held before the end of the current tax year.

Where the conditions for exemption have been met, you do not need to report the virtual event to HMRC on your employees’ P11Ds, or include it within a PAYE Settlement Agreement.

Seasonal gifts

If, as a gesture of goodwill, you gave your employees a Christmas gift, as long as the cost of providing that gift is not more than £50, it will fall within the scope of the trivial benefits exemption. This is good news; there is no tax to pay and you do not need to report the gift to HMRC.

The choice of gift is up to you, and traditional seasonal gifts, such as a turkey or a hamper, can be given within the scope of the exemption, as long as they do not cost you more than £50 to provide. If you provide gifts to a number of employees and it is impracticable to work out the individual cost, the average cost can be used instead.

There are, however, some points to watch. The exemption does not apply to gifts of cash or cash vouchers, or to those given as a reward for the provision of services or where the employee is contractually entitled to the gift. Care must also be taken when giving gift cards if these can be topped up; in this case, HMRC regard the cost to be the total cost in the tax year, rather than the cost of each individual top-up. Similar considerations apply to the use of apps to buy goods and services and to season tickets.

Get in touch

Talk to us to find out whether your Christmas events and gifts for employees are exempt from tax.

December 9, 2020

Benefit-in-kind charge on electric vans

Benefit-in-kind charge on electric vans

A tax charge arises under the benefit-in-kind rules where an employee enjoys unrestricted private use of a company van. The taxable amount is a set amount, with a reduced charge applying to electric vans. However, the charge for zero-emission vans is to be reduced to zero from 6 April 2021.

Taxation of company vans

Employees who enjoy the private use of a company van are taxed for the privilege. For 2020/21, the standard charge is set at £3,490. The charge does not apply where the ‘restricted private use’ condition is met. This is the case where private use, other than home to work travel, is insignificant.

A lower charge applies to electric vans.

The charge is reduced to reflect periods of unavailability and payments for private use.

Electric vans

Since 2015/16, the charge for a zero-emission van has been a percentage of the full charge. That percentage has been steadily increasing. For 2015/16, zero-emission vans were charged at 20% of the standard charge; by 2020/21 it had reached 80% of the standard charge and was due to increase to 90% for 2021/22 before being aligned with the standard charge from 2022/23.

For 2020/21, the benefit-in-kind charge for an electric van is £2,782 (80% of £3,490). By contrast, an employee can enjoy the benefit of an electric company car tax-free.

At the time of the 2020 Budget, it was announced that the tax charge for zero-emission vans would be reduced to zero from 6 April 2021 to encourage employers to move to using electric vans. This change has now been enacted.

A move to electric vans will benefit your employees, who from 2021/22 will not pay any tax if the van is available for private use. You will also benefit as there will be no employer’s Class 1A National Insurance to pay either.

Is it a car or is it a van?

For the purposes of the benefit-in-kind legislation, a vehicle is a ‘van’ if it is a mechanically propelled road vehicle which is a goods vehicle and which has a design weight not exceeding 3,500 kilograms, and which is not a motorcycle.

However, as the long-running Coca-Cola case has demonstrated, just because something looks like a van does not mean that it is, at least for tax purposes. The Court of Appeal have held that modified crew-cab vehicles are cars rather than vans for the purposes of the benefit-in-kind legislation, and as such the taxable benefit should be worked out using the company car rules rather than van benefit rules. In this case, the vans in question were panel vans with a second row of seats behind the driver’s seat.

Separate charge for fuel

If an employer meets the costs of fuel for private journeys in a company van, a separate fuel benefit charge arises. The benefit is valued at £666 for 2020/21.

However, HMRC do not regard the provision of electricity as a ‘fuel’ for these purposes. Consequently, no tax charge arises if the employer meets the cost of electricity for the private use of an electric van.

Help and advice

We can help you work out the benefit-in-kind charge on company vans and plan ahead for the changes to come.

September 14, 2020

Expenses and Benefits Returns for 2019/20

Expenses and Benefits Returns for 2019/20

Employers who provided taxable expenses and benefits to their employees during the 2019/20 tax year will, as usual, have to tell HMRC about these by 6 July 2020. This obligation is unchanged despite the COVID-19 pandemic.

Form P11D

Form P11D is used to tell HMRC about taxable benefits and expenses provided to employees where these have not been payrolled or included within a PAYE settlement. If the employer has payrolled some benefits but not others, only those benefits which have not been payrolled should be included on the P11D.

Exempt benefits

Benefits and expenses which are covered by a tax exemption do not need to be shown on the P11D. However, exemptions are only available if all the associated conditions are met. Remember, where provision is made via an optional remuneration arrangement, for most benefits the exemption is lost and thus the benefit should be notified on the P11D.

Taxable value

The taxable value of the benefit is its cash equivalent value, unless provision is made via an optional remuneration scheme. Where a benefit-specific rule exists, as is the case for company cars and employment-related loans, the cash equivalent value is calculated in accordance with the relevant rules; where there is no specific rule, the general rule applies. This is the cost to the employer less any amount made good by the employee (which must be by 6 July after the end of the tax year). HMRC produce worksheets which can be used to work out the cash equivalent value for some benefits. These can be found on the Gov.uk website.

If the benefit is made available under an optional remuneration scheme, such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. In this case, the taxable amount is the ‘relevant amount’. Broadly, this is the salary foregone where this is more than the cash equivalent value. The alternative valuation rules do not apply to pensions or pensions’ advice, childcare, employer-provided cycles and cyclists’ safety equipment under cycle to work schemes, and cars with CO2 emission of 75g/km or less, and transitional rules apply in certain cases.

P11D(b)

The P11D(b) is the employer’s declaration that all required P11Ds have been filed, and also the Class 1A National Insurance return. Remember to take account of payrolled benefits when working out the Class 1A National Insurance liability.

A P11D(b) is still required even if you have no P11Ds to file because all benefits have been payrolled.

If you provided benefit and expenses in 2018/19 but not in 2019/20, you may need to make a nil declaration. This will be required if HMRC sent you either a P11D(b) or a reminder letter. The notification can be made online.

How and when to file

Expenses and benefits returns (P11D and P11D(b)) can be filed online using HMRC’s Expenses and Benefits Online Service, PAYE for Employers or commercial software. Paper returns can also be submitted.

Returns for 2019/20 must reach HMRC by 6 July 2020. Employees must be given a copy of their P11D or details of the information that it contains by the same date.

The Class 1A National Insurance liability must reach HMRC by 22 July 2020 where payment is made electronically. Where payment is made by cheque, the deadline is 19 July; however, as this falls on a Sunday this year, the cheque must be with HMRC by Friday 17 July.

How we can help

Discuss with us what you need to do in order to meet your filing obligations during these challenging times.

August 25, 2020

Expenses and benefits provided to employees during the COVID-19 pandemic

Expenses and benefits provided to employees during the COVID-19 pandemic

HMRC have recently published guidance for employers on how to treat certain expenses and benefits which may be provided to employees during the COVID-19 pandemic. The guidance is available on the Gov.uk website.

They have also relaxed the rules for a limited period where an employer reimburses an employee for the cost of equipment purchased to enable them to work from home.

Mileage costs

Particular issues can arise where an employer supports employees who are undertaking volunteer work during the pandemic, such as delivering prescriptions or PPE.

Volunteers driving a company car

If the employee has a company car and you refund the fuel costs where the car is used for volunteer duties using the advisory fuel rates, this will be a taxable benefit as the reimbursed mileage is not business mileage. If you wish to meet the tax and National Insurance on behalf of your employees, you can include it within a PAYE Settlement Agreement. If not, the reimbursement is taxable and liable to National Insurance.

If, as an employee, you pay for the petrol when undertaking volunteer duties using you company car, you are not able to claim tax relief as the expense is not incurred wholly, exclusively and necessary in the performance of your job.

Volunteers driving their own car

Where an employee undertakes volunteer driving using their own car and, as measure of support, you reimburse the cost using the approved mileage allowance rate, again, this will be taxable and liable to National Insurance. However, you can instead settle the associated liability on behalf of your employees by including it within a PAYE Settlement Agreement.

If the employee pays the mileage costs associated with volunteer driving, they cannot claim mileage allowance relief as the journeys are not business journeys.

Company car availability

During the lockdown many employees have been furloughed or are working from home. As a result, if they have a company car, they may be using it only rarely or not at all.

A taxable benefit arises in respect of the provision of a company car when that car is ‘available’ for private use – it does not matter whether the car is actually used or not, it is the ‘availability’ that triggers the tax charge. HMRC have confirmed that during the lockdown, a company car should still be treated as being ‘available for private use’, even if the employee has been:

  • instructed not to use the car;
  • asked to keep a record of the mileage to prove the car has not been used (i.e. photographs of the mileage at the start and end of the period); and
  • unable to return the car or arrange for its collection.

However, where it was not possible for the car to be handed back or collected as a result of the restrictions on movement, where the contract has been terminated, HMRC will accept that the car ceased to be available from the date that the keys (including tabs or fobs) are returned to the employer or relevant third party. If the contract has not been terminated, the car will be treated as unavailable after a period of 30 consecutive date from the date on which the keys have been returned. HMRC accept that where the employee no longer has access to the keys, they cannot drive the car, even if the car remains at their home.

The company car tax rules are strict and it important to appreciate the difference between a car being available for use and a car actually being used by the employee when it comes to calculating the taxable benefit.

Homeworking relaxations

An employee may have purchased office equipment to enable them to work at home. HMRC have, temporarily, relaxed the rules where the employer reimburses the cost. Under the normal rules, where an employee purchases a capital item, such as computer, to enable them to work from home, any reimbursement by the employer is taxable. Likewise, the employee is unable to claim tax relief.

However, where an employee has purchased equipment to work at home because of Coronavirus, if the employer reimburses the costs on or after 16 March 2020 and before the end of the 2020/21 tax year, the reimbursement will be tax-free. If the employee purchases equipment in this period and the cost is not met by the employer, the employee can claim a tax deduction, either on form P87 or via their self-assessment return. They should retain evidence of the expenditure

HMRC have also confirmed that employees can claim tax relief for additional household expenses of up to £6 per week (£26 per month) without the need for supporting evidence.

Other benefits

HMRC’s guidance also covers other benefits that may be provided to employees during the pandemic. We can help you ensure that these are provided in a tax-efficient manner.

May 1, 2020