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Category: Benefits In Kind

Amending a PSA for COVID-19 benefits

Amending a PSA for COVID-19 benefits

You can use a PAYE Settlement Agreement (PSA) if you wish to settle the tax liability arising on the provision of a benefit-in-kind or an expense on an employee’s behalf. This can be useful if you wish to preserve the goodwill nature of a particular benefit.

Nature of a PSA

Where a PSA is in place, the employer pays tax and Class 1B National Insurance contributions on the items included within the PSA, while the employee enjoys the benefit free of tax and National Insurance.

A PSA is not suitable for all benefits-in-kind. To qualify for inclusion, the benefit must fall within one of the following categories:

  • it is minor;
  • it is provided irregularly; or
  • it is provided in circumstances where it is impractical to apply PAYE or to apportion the value of a shared benefit.

As payment of tax on an employee’s behalf is itself a taxable benefit, the amount of tax that you must pay on items included within your PSA is grossed up to reflect the marginal rates of tax of the employees to whom the benefits are provided. The relevant Scottish and Welsh rates are used for employees who are Scottish and Welsh taxpayers.

You must also pay Class 1B National Insurance contributions at 13.8% on items included within your PSA in place of the Class 1 or Class 1A liability that would otherwise arise, and also on the tax due under the PSA. The tax and Class 1B National Insurance must be paid by 22 October if you make the payment electronically, or by 19 October if you pay by cheque.

Setting up a new PSA

If you do not already have a PSA in place and want to set one up for 2020/21, you need to do this before 6 July 2021. Guidance available on the Gov.uk website explains what you need to do.

An enduring agreement

Once you have set up a PSA, it remains in place until it is cancelled or amended by you or by HMRC. Therefore, if you already have a PSA set up, you should review it to make sure that it is still valid. This should be done in sufficient time for any changes to be made before 6 July 2021.

Adding in COVID-19 benefits

The COVID-19 pandemic changed the way in which many employees worked, and you may have changed the benefits that you provided to your employees during the 2020/21 tax year as a result. If you have provided taxable benefits as a result of the pandemic, and you want to include them within your PSA, you will need to do this by 6 July 2021.

To amend your PSA, you will need to send details of the changes that you would like to make to the HMRC office that issued your PSA. Normally, HMRC will send you a revised P626 (the PSA). However, where the changes relate only to benefits provided as a result of the COVID-19 pandemic, they will instead add an appendix to your existing PSA.

Remember, you do not need to include exempt benefits within your PSA. There are a number of time-limited exemptions for Coronavirus-related benefits, such as those for employer-provided and reimbursed antigen tests.

Speak to us

Talk to us about whether a PSA is for you, and about what you need to do if you want to meet the tax liability on benefits provided to employees during the COVID-19 pandemic.

June 7, 2021

Reporting expenses and benefits for 2020/21

Reporting expenses and benefits for 2020/21

If you are an employer and you provided taxable expenses and benefits to your employees during the 2020/21 tax year, you will need to report these to HMRC on form P11D, unless all benefits were payrolled or included within a PAYE Settlement Agreement. You will also need to file a P11D(b). Both forms must reach HMRC by 6 July 2021.

Form P11D

A form P11D is needed for each employee to whom you provided taxable expenses and benefits in the 2020/21 tax year (which ended on 5 April 2021) and which you need to report to HMRC. You do not need to include any benefits or expenses which have been dealt with through the payroll, or those which you have been included within a PAYE Settlement Agreement. Likewise, you do not need to report any benefit or expense that is fully exempt. However, remember that an exemption only applies if all the associated conditions have been met.

The information that you will need to provide depends on the nature of the benefit. Some sections of the P11D are relatively brief, requiring only details of the cost of providing the benefit, any amount made good by the employee, and the taxable amount, while more information is required in respect of certain benefits, most notably company cars and employment-related loans.

Taxable amount: the cash equivalent value

Where the benefit is made available to an employee other than through a salary sacrifice or other optional remuneration arrangement (OpRA), the taxable amount is its cash equivalent value. The calculation of the cash equivalent value depends on the particular benefit. Some benefits have their own benefit-specific rules for calculating the cash equivalent value. Where the benefit or expense is of a type for which there is no specific rule, the cash equivalent value is calculated in accordance with the general rule. This is the cost to the employer, less any amount made good by the employee.

HMRC produce working sheets that can be used to calculate the cash equivalent value for some benefits in kind.

Taxable amount: alternative valuation rules

Where the benefit or expense is made available through an optional remuneration arrangement (OpRA), such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. Under the alternative valuation rules, the taxable amount of the benefit is determined by reference to the salary given up, less any amount made good by the employee, where this produces a value that is higher than the cash equivalent value. The alternative valuation rules have the effect of negating any associated exemption. They do not apply to childcare and childcare vouchers, pension contributions and advice, employer-provided cycles and cyclists’ safety equipment, and low emission cars with CO2 emissions of 75g/km or less. These benefits continue to be taxed according to their cash equivalent value and retain the associated exemptions where the qualifying conditions are met.

Under transitional arrangements, the alternative valuation rules do not apply for 2020/21 to living accommodation, school fees or cars with CO2 emissions of more than 75g/km which are provided under an arrangement that was in place on 5 April 2017 and was not renewed, varied or amended prior to 6 April 2021. Variations as a result of the COVID-19 pandemic are ignored for these purposes. The transitional arrangements came to an end on 5 April 2021, and the alternative valuation rules apply for 2021/22 and later years.

Making good

Any amount that the employee is required to contribute (‘make good’) to the cost of the benefit is taken into account in calculating the taxable amount, as long as the amount is ‘made good’ by 6 July 2021. This can be done by deducting the relevant amount from the employee’s salary, or by the employee making a payment direct to you.

Form P11D(b)

You must file a P11D(b) by 6 July 2021 if you provided taxable expenses to your employees in the 2021/22 tax year which have either been payrolled or reported to HMRC on your employees’ P11Ds. Form P11D(b) serves two functions – it is your declaration that all required P11Ds have been submitted to HMRC, and also your Class 1A National Insurance return. You will need to file a P11D(b) even if you have no P11Ds to file because you have payrolled all taxable benefits and expenses that you provided to your employees during the 2020/21 tax year. Payrolled benefits need to be taken into account in working out your Class 1A National Insurance liability.

If you did not provide any taxable benefits in 2020/21, but have been sent either a paper P11D(b) or a reminder letter to complete one, you will need to make a nil declaration online to avoid being charged a penalty. This may be required if you provided taxable benefits in 2019/20 as HMRC’s expectation is that they were also provided in 2020/21.

Filing options

There are various ways in which you can file forms P11D and P11D(b). They can be filed online using HMRC’s Online End of Year Expenses and Benefits Service, HMRC’s PAYE Online Service (up to 500 employees only), or via a suitable commercial software package. You can also complete paper forms and send them to HMRC by post.

Forms for the 2020/21 tax year must reach HMRC by 6 July 2021. You must also give your employees a copy of their P11D (or details of the taxable expenses and benefits provided to them in 2020/21) by the same date.

You must pay your Class 1A National Insurance by 22 July 2021 if you make your payment electronically. If you opt to pay by cheque, this must reach HMRC by 19 July 2021.

We can help

We can help you meet your filing obligations and help you minimise the risk of receiving a penalty for late or incorrect returns.

June 1, 2021

Taxation of company cars in 2021/22

Taxation of company cars in 2021/22

If you are an employee with a company car, you will be taxed on the benefit derived from the car being available for your private use. If you are an employer who makes company cars available to your employees, they will be taxed on the associated benefit. The amount that is charged to tax depends predominantly on the list price of the car and its appropriate percentage. There are some changes to the appropriate percentages for 2021/22.

You can find details of the appropriate percentages applying for 2021/22 here.

Electric company cars

For 2020/21, it was possible to enjoy the benefit of an electric company car tax-free as the appropriate percentage for zero-emissions cars was set at 0%. The appropriate percentage for zero-emission cars is increased to 1% for 2021/22. Although a tax-free company car is no longer an option for 2021/22, an electric company car remains a very attractive benefit. The cash equivalent value (the amount on which tax is charged) for an electric car with a list price of £30,000 is only £300 for 2021/22, costing a higher rate taxpayer £120 in tax and a basic rate taxpayer £60 in tax. If you are an employer, your Class 1A National Insurance hit will be £41.40.

Cars first registered on or after 6 April 2020

The way in which CO2 emissions are measured changed for cars first registered on or after 6 April 2020. From that date, the car’s CO2 emissions are determined using the Worldwide harmonised Light Vehicle Test Procedure (WLTP). For cars first registered prior to that date, the car’s CO2 emissions were determined in accordance with the New European Driving Cycle (NEDC).

For 2020/21, the appropriate percentage for cars first registered on or after 6 April 2020 (and whose CO2 emissions are determined using the WLTP), was two percentage points lower than that for cars first registered prior to 6 April 2020 (and whose CO2 emissions were determined using the NEDC).

The differential is reduced by one percentage point for 2021/22. This means that, subject to the maximum charge of 37%, the appropriate percentage for cars first registered on or after 6 April 2020 is one percentage point higher than its 2020/21 level. Thus, where the appropriate percentage was, say, 15% for 2020/21, it is 16% for 2021/22. The increase will mean that if you have a company car which was first registered on or after 6 April 2020, you will pay slightly more tax in 2021/22 than in 2020/21.

The diesel supplement remains at 4% for diesel cars not meeting the RDE2 emissions standard (subject to the maximum charge of 37%).

Cars first registered before 6 April 2020

There is no change to the appropriate percentages for cars first registered prior to 6 April 2020. This means that if you have a company car that was registered before this date, your tax bill for 2021/22 will be the same as for 2020/21.

Talk to us

If you are thinking of changing your company car or making changes to your company car fleet, we can help you understand the associated tax costs.

May 24, 2021

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