View the related Tax Guidance about P11D form
Loan charge
Loan chargeOverview of the loan chargeIn 2017, legislation was introduced to impose a ‘disguised remuneration’ charge upon loans from ‘employee benefit trusts’ (EBTs), ‘Employer-Financed Retirement Benefits Schemes’ (EFRBS) and similar arrangements. This is also known as the ‘loan charge’. It originally applied to any individual who received a loan (with a few limited exceptions) via a disguised remuneration scheme on or after 6 April 1999 that was still outstanding on 5 April 2019, but its scope has been limited following the independent review of the loan charge (see below and the Outcome of the independent loan charge review guidance note).For an introduction to disguised remuneration, see the Disguised remuneration ― overview guidance note.This guidance note looks at some of the practical implications of the loan charge for employees and employers and how tax liabilities are to be assessed and reported.For the practical considerations of ‘contractors’ who were in employment-based umbrella company loan arrangements, see the Low Incomes Tax Reform Group (LITRG)’s guidance.See also The Chartered Institute of Taxation (CIOT)’s article published on 16 September 2019, which covers the loan charge topic.In September 2019, the Government commissioned Sir Amyas Morse to lead the Independent Loan Charge Review. Sir Amyas was asked to consider whether the policy is an appropriate response to the tax avoidance behaviour in question and whether the changes the Government has announced to support individuals to meet their tax liabilities have addressed any legitimate concerns raised.On 20 December 2019, the Government released a copy of the Loan
What are employer compliance checks?
What are employer compliance checks?The purpose of employer compliance checksThe purpose of an employer compliance check is to satisfy HMRC that all earnings and benefits have been identified and reported correctly by an employer, and that associated payments of income tax and NIC have been made within the statutory time limits. The checks will also consider whether statutory payments and deductions are correct. In the case of large employers (those to which a Customer Compliance Manager has been assigned by HMRC), Know Your Customer visits may be made by HMRC. These are outside the scope of this guidance note.Selection of employers for checksHMRC’s Risk and Intelligence Service (RIS) identifies the cases for compliance checks. This is to remove any bias from the process. Whilst cases are usually selected because a risk has been identified, random selections are also made. Disgruntled former employees or former spouses / partners (of both the business and personal variety) of owners can be a source of HMRC information, although RIS officers are well aware that such information may be incorrect and motivated by non-tax considerations. Employers may wish to consider what could have prompted a check and ensure that they address the issue in their initial meeting with HMRC, since the officer conducting the check is told of any risk that has been identified. Although at one time it was generally thought that an employer could expect ‘a PAYE review’ every six or so years, this is no longer the case and some employers
Year-end benefit reporting
Year-end benefit reportingIn addition to paying employees their basic pay and other pay-related items such as overtime and bonuses, it is not uncommon for employers to provide benefits and reimburse business expenses. See Simon’s Taxes E4.601.Unless, there is an exemption in the legislation, the value of these benefits and expenses needs to be reported to HMRC at year-end so that tax and Class 1A NIC can be collected. Class 1A NIC is an employer only charge (there is no corresponding employee NIC charge) on benefits and expenses that have not been subject to Class 1 NIC through the payroll. See Simon’s Taxes E8.233.For a client factsheet which summarises the PAYE implications of benefits reporting, see the Factsheet - benefits reporting.P11D and P11D(b)Benefits and expenses are reported on a P11D or payrolled. See the Voluntary payrolling of benefits in kind guidance note for more on payrolling.An employer’s declaration is required including the value of both payrolled benefits and those reported on P11Ds and this is made on a P11D(b). See Simon’s Taxes E4.11124.From 6 April 2023, P11Ds and P11D(b) must be sent electronically either via the PAYE Online for employers service or the PAYE Online for Agents service. The guidance on Expenses and benefits for employers includes links to login to the PAYE Online service for to report. Up to 5 April 2023, HMRC accepted P11Ds and P11D(b)s either on paper or electronically.An exception is that, a small number of employers use the Mileage Allowance Relief Optional Reporting Scheme (MARORS)
Voluntary payrolling of benefits in kind
Voluntary payrolling of benefits in kindPayrolling of benefits is the collection of tax due on the benefit by the employee through payroll in real time. The legislative framework for voluntary payrolling of benefits in kind can be found in ITEPA 2003 and the PAYE Regulations. Payrolling benefits ― pros and consPayrolling of benefits is currently voluntary, so employers can choose whether they wish to payroll a benefit and which benefits to payroll with the exception of two particular benefits which are specifically excluded from the legislation (see below). The difference between payrolling a benefit and reporting it the standard way via a P11D is as follows (this assumes it is a benefit to which both tax and Class 1A NIC applies; treatment of the benefit will vary.In what may prove to be a significant development, in January 2024 the Government confirmed it was intending to make the payrolling of benefits mandatory from April 2026. The positioning of this new potential employer obligation as a Simplification update would seem to be ‘optimistic’; especially if the new measure were implemented without adequate consultation and with insufficient time permitted to allow all different types of employers to comply. Further details are therefore awaited with interest. Clearly however the measure has the potential to reduce the significant HMRC resources, which are required currently to process P11D forms.Value of the benefitTax on the benefitClass 1A NIC on the benefitReporting the benefitBenefit
Negotiating the outcome of an employer compliance check
Negotiating the outcome of an employer compliance checkDealing with the irregularities that may arise from an employer compliance check requires a good working knowledge of the applicable legislation and practice. Arguments based solely on concepts such as fairness and reasonableness are unlikely to carry much, if any, weight with HMRC and can unnecessarily prolong the period between the opening of the review and its conclusion. However, it should be borne in mind that although employer compliance officers see a wide range of businesses and are experienced in identifying areas where weaknesses commonly occur, they are not technical experts and can and do sometimes misinterpret legislation or be unaware that rules in earlier periods were different.In addition, regardless of the contents of guidance notes and other explanatory material produced by HMRC, it is the legislation and supporting regulations that prescribe the law. Whilst guidance may be helpful, the standard statement in HMRC booklets still applies: “This guide sets out HMRC approach in applying legislation…The guide itself has no binding force in law and does not affect any right of appeal by either party.â€Agreeing the liabilitiesWhen compliance officers are certain of their position, they will provide schedules of:•tax and NIC understated•interest from the due date to the actual or estimated payment date with credit for earlier payments on accountIn the most straightforward cases, these will be issued under cover of a single letter alongside the notes of the meeting. In other cases, the schedules will only be prepared once
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