23rd May 2018

New rules surrounding salary sacrifice, termination payments and benefits in kind are being felt by businesses across the country, with P11Ds for 2016/17 needing to be submitted by 6th July.

The changes, which took effect in April 2017, saw Income Tax and NIC increases on certain benefits to employees as part of a salary sacrifice scheme. Those that have entered new or amended salary sacrifice and cash allowance agreements on cars since this date must ensure such benefits in kind are reported on form P11D using the new rules.

Where the benefit is taken, an employee is taxed on the greater of both the ‘value foregone’ and the benefit in kind value, with the value foregone the amount of the salary sacrifice or a cash allowance offered instead of the benefit. There are special rules for cars, private school fees and arrangements in place before April 2017. Exceptions are in place for the following:

  • Childcare vouchers
  • Bikes to work
  • Cars (only those less than 75g/km)
  • Pensions and pensions advice

The changes could potentially have a massive impact to businesses and employers. Under OpRA, a car that is over 75g/km will need a comparison to be made on the salary sacrifice relating solely to the car and the normal car benefit charge for the car, to determine the higher value.

Employers must be aware of the policies and systems they currently have in place for the July 6th deadline, as their pre-existing P11Ds are probably not set up to do this effectively. As there was no formal mechanism for employers or employees to notify HMRC of the higher benefit values, employees run the risk of ending up with underpaid tax for the tax year just ended. Consequently, it is likely that HMRC will chase employers for any unpaid amounts owed once P11D forms are submitted.

Employment Taxes and Payroll Partner at UNW, Lee Muter comments, “Employers need to be careful when completing their annual P11D forms and must make sure that they have considered the new rules, otherwise we expect HMRC to issue significant financial penalties for employers who get it wrong. Employers should also make sure that all affected employees are aware of the potentially higher taxable benefits both on submission of the P11D and when choosing a benefit in kind where the alternative is a cash allowance. Employers may also want to reconsider their employees benefits package to ensure that they have taken account of the new rules.”

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