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Practical points - PAYE and employers

Guidance from ICAEW's Tax Faculty for practitioners on the latest developments in practice, policy and legislation related to UK PAYE and employers.

   Practical points
192 HMRC updates guidance on Class 1A NICs

HMRC has recently updated its 2017 guidance on class 1A national insurance contributions (NICs) on benefits-in-kind (BiK), formerly known as booklet CWG5. HMRC’s guide tells you what you need to know and do about class 1A NICs. It explains when class 1A NICs are due and how they are worked out, reported and paid.

In more detail, the guide:

  •  explains the general rules about class 1A NIC (paragraphs 4 to 26);
  • provides step-by-step guides to working out whether class 1A NIC is due and how it is worked out, reported and paid (paragraphs 8 and 26); and
  • explains special class 1A rules, including what happens when a benefit is provided to an employee by a third party (paragraphs 27 to 42).

Paragraphs 43 to 53 explain some of the main terms used in the guide, and Appendix 1 lists the most common taxable benefits and expenses and explains which are liable for class 1A NICs.

The update comprises additional guidance on optional remuneration arrangements (OpRA) (which includes salary sacrifice and where a cash allowance is exchanged for a BiK). This is in paragraph 9 in Part 3 and a new paragraph at the beginning of Part 5. This guidance cross-refers to further guidance about OpRA in Appendix 12 of booklet 480: Expenses and benefits – a tax guide.

The new rules for BiK provided via OpRA came into force on 6 April 2017. See Kate Upcraft’s article on page 12 for more information.

Contributed by Peter Bickley

154 P11Ds, payrolled benefits and optional remuneration

HMRC announced a concession on 12 July under which forms P11D will not be required for payrolled benefits-in-kind provided under optional remuneration arrangements (OpRA). Employers who are excused from filing forms P11D for 2017/18 in respect of that benefit-in-kind are:

  • have registered before the start of the tax year to payroll a benefit-in-kind;
  • are providing that benefit-in-kind under OpRA; and
  • are accounting through the payroll for PAYE income tax on the correct cash equivalent value.

From April 2016, employers can register before the start of the tax year to account through the payroll for tax on certain benefits-in-kind provided to employees, which means no P11D is required for those benefits, though class 1A national insurance contributions (NICs) still have to be accounted through form P11D(b).

The need for this recent concession arises because the PAYE regulations have not been updated following the introduction of the OpRA rules in s7 and Sch 2, Finance Act 2017. Examples of OpRA include flexible benefit plans and salary sacrifice schemes, including where a cash allowance can be exchanged for a benefit-in-kind (frequently a car).

From 6 April 2017 employee benefits-in-kind provided by employers under OpRA are valued for tax and Class 1A NIC on, broadly, the higher of the cash foregone and the value of the benefit calculated under normal rules, less amounts made good by the employee to the employer.

The concession does not excuse employers from accounting for the class 1A NIC on form P11D(b), as for non-OpRA benefits. The Tax Faculty wrote to HMRC in June 2017 recommending that the PAYE regulations should be amended and backdated to 6 April 2017 to accommodate the new OpRA provisions within the payrolling of benefit-in-kind rules. The full text of HMRC’s concession can be found in our 31 July news item.

Contributed by Peter Bickley

153 P45s and deemed workers: inconsistent guidance

Since the publication of the initial guidance on the IR35 ‘off payroll’ reforms in 2016 there has been inconsistent information about the tax code and national insurance (NI) table letter to be used for deemed workers. ICAEW Tax Faculty has now had confirmation from HMRC of a settled position. HMRC will update its guidance accordingly and remove any versions that are now out of date. Most deemed workers will not present the public sector body (PSB) (or the fee payer acting on behalf of the PSB) with a current P45.

Where, exceptionally, a current P45 is presented, the tax code and pay and tax shown can be used by the PSB. In all other cases the PSB should use a starter declaration of C and tax code BR on the deemed worker’s payroll record. This is the case even if the deemed worker has not provided any tax-related information, where the normal response for an employee would be to allocate starter declaration C and tax code 0T/1.

The examples in the original technical note from HMRC in relation to deemed workers all used table letter A for NI purposes. While this will be appropriate in many cases it was merely for illustration and the PSB/fee payer should make the normal assessment of the appropriate table letter as they would for anybody who is joining the payroll. For example, it may be appropriate to assign table letter M for a deemed worker aged under 21, or C for someone over state pension age.

One of the problems with deemed workers is that they cannot be distinguished from the ordinary employees in terms of student loan start notices being generated by HMRC. We are told that HMRC is planning to introduce a marker on the deemed worker’s record to resolve this issue, and we will keep members informed on timescales for this welcome development.

Contributed by Kate Upcraft, Kate Upcraft Consultancy and member of the Employment Taxes and NIC Committee

 134  HMRC wins Rangers case on EBTs

The Supreme Court has published its judgement in the Rangers Football Club (RFC) case (RFC 2012 Plc (in liquidation) formerly The Rangers Football Club Plc v AG for Scotland [2017] UKSC 45). Payments to employee benefit trusts (EBTs) were found to be earnings. The judgement explained that: “The appeal raises a fundamental question about the nature of the income tax charge on employment income.

That question is whether an employee’s remuneration is taxable as his or her emoluments or earnings when it is paid to a third party in circumstances in which the employee had no prior entitlement to receive it himself or herself.” The decision stated that: “The central issue in this appeal is whether it is necessary that the employee himself or herself should receive, or at least be entitled to receive, the remuneration for his or her work in order for that reward to amount to taxable emoluments.” And that: “The breadth of the wording of the tax charge and the absence of any restrictive wording in the primary legislation, do not give any support for inferring an intention to exclude from the tax charge such a payment to a third party which the employer and employee have agreed as part of the employee’s entitlement.”

The court decided that payments that the employees had agreed should be paid to trusts which then made loans to the employees were earnings when paid to the trusts and therefore liable to tax and national insurance contributions (NICs) at that time, rather than beneficial loans.

This decision upheld the decision of the Court of Session, which had overturned the decisions of both the Upper Tribunal (UT) and the FTT. This decision settles the law in respect of the facts surrounding RFC and similar fact patterns where remuneration is paid to third parties including EBTs. The judgement is clear that there has to be a payment of earnings albeit the payment of earnings does not have to be to the employee but can be to a third party for the tax charge to arise. In the words of the judgement: “As a general rule, therefore, the charge to tax on employment income extends to money that the employee is entitled to have paid as his or her remuneration whether it is paid to the employee or a third party.

The legislation does not require that the employee receive the money; a third party, including a trustee, may receive it. While that is a general rule, not every payment by an employer to a third party falls within the tax charge. It is necessary to consider other circumstances revealed in case law and in statutory provisions which fall outside the general rule.”

Contributed by Peter Bickley