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Publish Date

Mar 31, 2022

Employer Compliance – Reporting Expenses and Benefits

A&M Tax Advisor Update

In this third article in our series for employers, we have highlighted the key aspects of the Chancellor’s Spring Statement from last week and summarised how this will affect employers.

We have also set out below some of the key employment tax deadlines coming up for employers, in relation to employee expenses and benefits.

Spring Statement 2022 – update for employers

As expected, the Chancellor has resisted calls to abolish or delay the introduction of the new Health and Social Care Levy which will see an additional 1.25 per cent added to both Employers’ and Employees’ National Insurance Contributions (NIC) costs from 6 April 2022.

However, he did increase the income level at which NIC becomes payable from £9,880 to £12,570, starting from July 2022. This will align the new levy with the income tax personal allowance so that anyone with earnings of less than that amount should not pay any tax at all.

Additionally, for eligible employers, the Employment Allowance will increase from April 2022, meaning a reduction in employer NIC bills of up to £5,000 per year. The Chancellor is also reviewing the Apprenticeship Levy.

Employer Compliance Reminder

Forms P11D and P11D (b)

Employers are required to report details of certain taxable benefits provided to employees, by 6 July 2022, using Form P11D (where the benefits are not already covered by a payrolling arrangement with HMRC or under a PSA).

A copy of the form P11D must be provided to each employee by 6 July 2022. Employer’s Class 1A NIC is payable at a rate of 13.8% on certain P11D benefits and must be paid by 22 July 2022. Remember this rate is set to increase when the Health and Social Care Levy is due to be enacted.

PAYE Settlement Agreement (PSA)

A PSA is a formal arrangement with HMRC whereby employers choose to settle the tax due (on a grossed-up basis) on certain employee benefits. Typical benefits we see included in PSAs are staff entertaining, gifts and taxable long service awards. Employer’s Class 1B NIC is also payable at a rate of 13.8% on the value of PSA benefits and must be paid by employers by 22 October 2022 (19 October if posting a cheque).

A PSA must be agreed with HMRC by 5 July following the end of the tax year to which it relates, however, it is best practice to agree to this before the benefits covered are provided to employees. Once a PSA is agreed with HMRC, it will remain in place for future tax years (or until amended by the employer/HMRC).

Common issues

Some of the most common errors/issues we see arising in relation to forms P11D and PSAs include:

  • Not reporting all taxable P11D /PSA benefits, including staff entertaining, gifts and non-cash awards.
  • Benefit values incorrectly calculated under the Optional Remuneration Arrangement rules.
  • Incorrectly recording/not reporting fuel provided for company cars.
  • Using the wrong tax rate on PSAs, particularly if there are Scottish and/or Welsh taxpayers included.
  • Using costs exclusive of VAT.

Penalties

Late P11D filings will incur a penalty of £100 for every 50 employees. HMRC will also charge statutory interest on late paid Class 1A NIC. Additional percentage-based penalties can also be applied for incorrect forms of P11D, based on whether HMRC considers that the employer has taken reasonable care and whether the mistake is deemed to be careless, deliberate and/or concealed.

Furthermore, where HMRC uncovers errors as part of a review they will often seek recovery on a grossed-up basis often covering several tax years.

This can all result in significant liabilities for an employer as a result of reporting benefits incorrectly.

Key dates to remember – summary

 Date Deadline:
 31 May 2022  Provide employees with details of payrolled benefits for 2021/22
 5 July 2022  Agree/amend a PAYE Settlement Agreement (PSA) for 2021/22
 6 July 2022  Submit form P11D and P11D(b) for 2021/22
 22 July 2022  Electronic payment of Class 1A NIC for 2021/22 (19 July if paid by post)
 31 July 2022/
31 August 2022
 Non-statutory deadline for notifying HMRC of PSA liability for 2021/22 (per individual employer agreements with HMRC)
 22 October 2022  Electronic payment of tax and Class 1B NIC PSA liability (19 July if paying by post)

 

 

 

Other deadlines and submissions may also apply. Please let us know if we can assist with these.

In our next article, we will cover the filing requirements in relation to Employment Related Shares and Securities.

How we can help?

At Alvarez & Marsal Taxand, our Reward and Employment Tax team has extensive experience in advising employers on their ongoing employment tax and NIC obligations.

We can offer a range of advice and services to assist employers in respect of P11D, PSA and ERS Annual Return compliance, as well as providing bespoke advice on all areas of employee reward and employment tax, including short term business visitor returns and special arrangements for tax equalised employees or overseas workers in the UK (App4-8 agreements). Please contact your usual A&M point of contact or Louise JenkinsTracey NortonClinton KnoxLinda Cameron or Monica Houston.

https://www.alvarezandmarsal.com/insights/employer-compliance-reporting-expenses-and-benefits