By Helen Bradley
You may have read my previous blog which had lots of ideas for staff benefits that are exempt from tax.
Once you have taken advantage of these non-cash tax-free benefits, you may be considering rewarding your employees to a few more perks. But what to do about that tax bill it causes them? Here we talk through your options:
Report the benefits on a P11d
A P11d is the usual end of year calculation of non-cash benefits which employees will include in their self-assessment returns and will incur personal tax on. But sometimes it can feel like their benefit wasn’t quite so special when they are faced with a self-assessment bill at the January deadline. HMRC forgot about paying off the Christmas bills when they picked that date!
Payroll the benefits
For more regular benefits such as health insurance, company car or car fuel, being able to spread the tax cost out over the year helps, so that staff are not forking out quite so much in January. It makes the tax less noticeable and hopefully less painful.
You need to register the benefit with HMRC online before the beginning of the tax year to start using this method. Read our blog on payrolling benefits in kind to find out how you can do this through Xero.
How can a PAYE Settlement Agreement (PSA) help?
But what if you don't want your staff to incur the tax and NI at all? This is where the PAYE Settlement Agreement comes in.
A PSA allows employers to make one annual payment to cover the tax and National Insurance on benefits they have given their employees (it can also be used for certain expenses).
Sounds interesting. What can you include?
There are some boxes to tick as the benefits must be one of the following:
Some examples of what counts as minor are:
- Incentive awards such as a long service award
- Small gifts and vouchers Staff entertainment, for example, a ticket to an event
- Non-business expenses while traveling overnight on business which are over the daily limit
- Telephone bills
Remember that non-work, non-cash trivial benefits up to £50 are exempt from tax.
So not paid regularly and not a contractual right, including:
- Relocation expenses over £8000 (these are tax-free below £8000)
- The cost of attending overseas conferences
- Expenses of a spouse accompanying an employee abroad
- Use of a company holiday flat.
These are items difficult to place a value on or divide up between individual employees such as:
- Staff entertainment that is not exempt from tax or NI such as an extra annual party open to all or a subsidised skiing trip
- Shared cars
- Personal care expenses, for example, hairdressing
What do I need to do?
You need to complete a simple HMRC form called a P626 and send it back to HMRC before 6th July following the end of the tax year in question. They will also sign it and that is your PSA agreement. It is as simple as that. And it will last for subsequent tax years until you decide to cancel or amend it.
You can then calculate the tax due (or ask your friendly dJP accountant to help you) and pay it to HMRC by 22nd October following the tax year end.
Want some help in setting up a PSA?
If you are interested in finding out more or would like our help in setting up a PSA then please get in touch.
Here’s the small print: The only thing constant in tax is that the rules often change! At the time of publishing all the information is in current UK tax legislation but to be sure, get in touch and we will be happy to keep you up to date.