The taxation of employee expenses & benefits where are we now?

1. The taxation of employee expenses & benefitswhere are we now? Eile Gibson CTA Solicitor

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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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