Currently where employees do not earn more than £8,500 in a tax year they do not pay tax if they are provided with benefits such as company cars, private health care etc. provided their total remuneration, including benefits, remain below £8,500. This has been a useful exemption which allowed employers to reward the lower paid in a cost effective way.
From 6th April 2016 any benefits provided to a lower paid worker will be taxed in line with other employees. Hence, company cars will be assessed at a cash equivalent based on their CO2 emissions and their market value and many other benefits will be assessed at a percentage of their cost value.
Employees who have other income will see a tax increase if their total income exceeds the personal allowance, employers are likely to be subject to employers national insurance at 13.8% on the value of benefits.
It may be possible to replace current benefits with tax free benefits:
• meals in a staff canteen
• hot drinks and water at work
• a mobile phone
• workplace parking
• Christmas parties up to £150 head which are open to all employees.
Benefits are quantified and reported on a P11D at the end of the tax year which will lead to an adjustment to the tax code so that extra tax is paid the following year. Alternatively, if you wish to tax benefits through your payroll system you will need to register by 21st December .
Where benefits are minor, irregular or difficult to assess you can make a PAYE Settlement Agreement so that the tax does not have to be specifically allocated to individual employees. You, the employer, pay the grossed up tax and your employees do not lose income. The items included in PSAs have to be agreed in advance and quantified by 19th July after the end of the tax year and tax paid by 19th October.
Benefits are an extremely effective way to motivate employees and provide them with rewards beyond their salary but the taxation of benefits is a complex area and employers should look to their tax advisors for advice specific to each employee and the taxable benefits they receive.
For bespoke and detailed advice on your company position please contact me in good time for the new tax year - Call me on 01273 882200.
All details above were correct at the time of publishing - for more up to date information please
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