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THE TAXATION OF EMPLOYEE EXPENSES & BENEFITS WHERE ARE WE NOW?

Eile Gibson CTA Solicitor

INTRODUCTION

• • • Taxation of employees – Income tax and national insurance contributions (NIC) – On employment-related income – On benefits What benefits are exempt from tax How is the employer taxed

Basic tax issues involving UK employees

• • • The employer must operate PAYE The employer must understand what constitutes employment and differences with self-employment Taxes imposed on employment-related income; – income tax – employee’s NIC – employer’s NIC

Who is an employee

• • • • Officers of a company Case law determines the difference between self employed and employed but a shifting territory See HMRC’s Employment Status Manual and its website and its tool – Employment Status Indicator Beware – employment is not defined in statue – therefore HMRC’s view may not be the law

Employment-related taxes

• • • • Income tax payable by the employee and deducted from his or her wages under PAYE by the employer Employee’s NIC also deducted Employer’s NIC payable by the employer The above will also apply to many benefits in kind provided to employees

Benefits in kind

• • • All employment-related benefits are taxable – covering gratuities, incidental benefits of any kind in money or moneys worth – including third party providers – unless specifically exempted Special dispensations for lower paid workers (paid less than £8,500 pa) A BIK is valued on its face value or cost to employer

• • • • •

New measures from Finance Bill 2013

Employment NIC allowance for all businesses of £2,000 introduced from April 2014 New Employee shareholder status Taxable cheap loans up £5,000 to £10,000 Tax-free childcare scheme New close-company loan provisions

Benefits in kind

• many exempt BiKs including – Pension contributions – Cheap or free loans up to £10,000 (FB 2013) – Car parking; canteen facilities; mobile phones; long service awards; staff parties; subscriptions; sporting facilities; – Free living accommodation for specific jobs

Dispensations

• • • • Employers apply to HMRC for a dispensation Covers expenses or BiKs for which there is a full tax deductions Includes routine business expenses and benefits Cover travel, fuel for company cars, phones, fees and subscriptions, business entertainment hire car costs

Cars and vans

• • • • A car or van made available by an employer to an employee or family member and which is available for private use Private use means anything other than business travel – includes commuting to work Tax on car, van and fuel benefit usage Pool cars and vans are exempt

Company car benefit charges

• • • • • The charge comprises a % of the price of the car with the % determined by the CO2 emissions Zero emissions - no charge CO2 emission of 75 – 5% of car price this year CO2 emission of 215 – 35% of the car price this HMRC have published the percentage tables for 2015/16 & 2016/17 with increasing percentages pa

Fuel benefit charge

• • • Additional to car benefit charge Take £20,604 (current year) and multiply by same percentage as for car benefit charge Low emission cars benefit

Disguised Remuneration

• • • A recent anti-avoidance provision to circumvent tax avoidance through the use of third parties Arrangements involving an employee or linked party, a third party which takes a ‘relevant step’ connected with the arrangements If a company has an EBT then assume the rules apply subject to the exemptions

Disguised Remuneration

• • Relevant steps: – Earmarking a sum of money or asset – The payment of a sum of money or transfer of an asset – Making available an asset Income tax arises under PAYE on the value of the relevant step – its face value, the cost of providing or its market value

PAYE and NIC Issues

• • • • • The regime is rigorous The liabilities are with the employer Penalties are harsh PAYE audits are common The employer is ultimately liable for uncollected income tax and employees NIC

Conclusions

• • • • First principle is that anything paid or given to an employee relating to his or her employment is taxable as employment income Statute sets out the exemptions – there are many!

Employers should always consider tax exempt BIKs as an incentive or to match the market standards BIKs not tax exempt are expensive

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