These plans provide three core elements which can be combined by companies in a number of ways depending on what best suits their business (limits are per employee):
◦Free shares up to a limit of £3,000 in any tax year
◦Partnership shares (purchased out of pre-tax and NIC salary) up to £1,500 in any tax year (or 10% of overall salary, whichever is less). There may be a minimum limit of up to £10 on any occasion. Shares may be purchased annually rather than monthly.
◦Matching shares provided by the company to match employees' purchase of partnership shares, up to a limit of two for each partnership share purchased.
There is an overall limit of £3,000 of free/matching shares in any tax year.
The plan must be made available to all employees, but the company may set a qualifying period of up to 18 months. The only ways that an award of free shares can be varied from employee to employee are on the basis of remuneration, length of service, hours worked or performance.
Participants must not have a material interest in (ie owning or controlling more than 25% of the ordinary share capital of) the company.
There has to be a holding period of between three and five years for free and matching shares. During this period, employees are contractually bound to keep these shares in the plan.
Shares may be dividend shares and the company may choose to make dividend re-investment compulsory or optional. Total dividend reinvestment for any participant must not exceed £1,500 in a tax year. The holding period for dividend shares must be five years, and cannot be longer than this.
Shares have to come out of the plan when employees leave their job. Companies can decide that employees lose their free shares if they leave within three years.
Tax benefits
Employees who keep their shares in the plan for five years will pay no income tax or National Insurance in respect of those shares.
Employees who keep their shares in the plan for three years will pay income tax and National Insurance on the initial value of the shares; any increase in value of the shares will be tax free.
Employees who keep their shares in the plan until they sell will have no capital gains tax to pay. If they take them out and sell later, they will pay capital gains tax only on any increase in value after the shares come out of the plan.
Enterprise management incentives (EMI)
Under EMI, certain small higher-risk trading companies (quoted or unquoted, with gross assets of no more than £15 million) can grant options over a maximum of £3 million worth of shares at any one time. The options are normally free of income tax and National Insurance charges on grant and on exercise. When the shares are sold, capital gains tax taper relief normally starts from the date the options were granted.
Other HM Revenue & Customs approved share schemes
These will remain in place for the time being. The main features are as follows:
Savings-related share option schemes (SAYE schemes or sharesave)
Employees are granted options at a discount of up to 20% at the start of the savings contract. They can save a fixed monthly amount of between £5 and £250 for 3, 5 or 7 years. At the end of the savings contract a tax-free bonus is payable. Employees use the proceeds of the savings contract, including the bonus, if they want to exercise the option. If they do not, the proceeds are repaid in cash, tax free. There is no tax or National Insurance charged on the discount or on the gain made when the option is exercised.
Company share option plan (CSOP)
Employees are granted options to acquire shares at the market price at the time of grant. Employees may be granted options over shares worth up to £30,000 at any one time. There is no tax or National Insurance charged on the gain made when the option is exercised, provided that the options are held for at least 3 years unless participation ends through disability, redundancy or retirement.
Unapproved schemes
These are subject to the general rules that employees are chargeable to income tax under Schedule E and national insurance when, by reason of their employment:
◦they receive shares free or cheaply
◦they exercise a share option
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Tax-free gifts to staff
In an environment where most employee 'perks' are subject to tax it may be helpful for you as an employer to be aware of the few concessions that have been made by HM Revenue & Customs.
Long service awards
Long service awards are allowed within strict limits. There will be no tax charge so long as the employee has been with you for at least 20 years and the article given has a value not exceeding £50 for each year of service.
Suggestion scheme awards
Such awards must be made under a properly constituted suggestion scheme, based on a set percentage of the expected financial benefit to your business. The maximum award allowed is £5,000. There is also a concession for 'encouragement awards' of £25 or less to reflect meritorious effort on the part of the employee concerned.
Staff parties
Staff annual functions (e.g. a dinner dance or Christmas party) are tax-free where the total cost per person attending is not more than £150 per year (including VAT).
Promotional gifts
Such items are normally purchased for advertising purposes and must display a 'conspicuous advertisement'. Staff may receive promotional gifts tax-free provided that the overall cost of the articles involved does not exceed £50 per person per year.
Gifts of food, drink, tobacco or vouchers are specifically excluded.
Trivial benefits
Although all gifts are strictly subject to tax trivial benefits such as a turkey or bottle of wine at Christmas, or flowers on the birth of a child are not generally assessed as a benefit. A cash benefit, however, is always taxable irrespective of the value.
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Long service awards
Long service awards are allowed within strict limits. There will be no tax charge so long as the employee has been with you for at least 20 years and the article given has a value not exceeding £50 for each year of service.
Suggestion scheme awards
Such awards must be made under a properly constituted suggestion scheme, based on a set percentage of the expected financial benefit to your business. The maximum award allowed is £5,000. There is also a concession for 'encouragement awards' of £25 or less to reflect meritorious effort on the part of the employee concerned.
Staff parties
Staff annual functions (e.g. a dinner dance or Christmas party) are tax-free where the total cost per person attending is not more than £150 per year (including VAT).
Promotional gifts
Such items are normally purchased for advertising purposes and must display a 'conspicuous advertisement'. Staff may receive promotional gifts tax-free provided that the overall cost of the articles involved does not exceed £50 per person per year.
Gifts of food, drink, tobacco or vouchers are specifically excluded.
Trivial benefits
Although all gifts are strictly subject to tax trivial benefits such as a turkey or bottle of wine at Christmas, or flowers on the birth of a child are not generally assessed as a benefit. A cash benefit, however, is always taxable irrespective of the value.
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Employing your spouse
When considering the overall tax position of your family, it is worth considering if you can justify employing your spouse in your business.
This is a means of transferring income from you to your spouse. It is likely to show a tax saving if your spouse has unused personal allowances or pays tax at a lower rate than you do.
In order to justify a salary, the following points must be borne in mind:
◦The level of salary must be commercially justifiable
◦The salary must actually be paid to your spouse (and therefore affordable for you)
◦The national minimum wage regulations are likely to apply
As well as a salary, you may be able to pay premiums for a special pension arrangement for your spouse. These should not be taxable on your spouse and should save you tax as a business expense.
It may also be possible to provide your spouse with a 'company car', which should not give rise to any tax charge if the combined annual salary and notional benefit-in-kind is below £8,500, although again the need for commercial justification should be borne in mind.
All the above considerations apply equally to an unmarried partner or indeed to any other individual.
Administering a salary
If your spouse has no other employment, a form P46 should be signed with the Statement B ("This is my only or main job") ticked. You may then pay up to the primary threshold for employees national insurance (£110 per week for 2010/11) without any further formality.
If you already have a PAYE scheme for other employees, or don't mind setting up a scheme for your spouse, you should consider the following points:
◦A salary between £97 and £110 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual National Insurance liability
◦A salary between £110 and £844 per week is subject to employees' national insurance at 11% and employers' national insurance at 12.8%
◦The income tax position depends on your spouse's personal circumstances
◦The amount of salary exceeding £844 a week is subject to employees' national insurance at 1% and employers' national insurance at 12.8%, without upper limit
Please contact us if there are any points you would like to discuss.
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This is a means of transferring income from you to your spouse. It is likely to show a tax saving if your spouse has unused personal allowances or pays tax at a lower rate than you do.
In order to justify a salary, the following points must be borne in mind:
◦The level of salary must be commercially justifiable
◦The salary must actually be paid to your spouse (and therefore affordable for you)
◦The national minimum wage regulations are likely to apply
As well as a salary, you may be able to pay premiums for a special pension arrangement for your spouse. These should not be taxable on your spouse and should save you tax as a business expense.
It may also be possible to provide your spouse with a 'company car', which should not give rise to any tax charge if the combined annual salary and notional benefit-in-kind is below £8,500, although again the need for commercial justification should be borne in mind.
All the above considerations apply equally to an unmarried partner or indeed to any other individual.
Administering a salary
If your spouse has no other employment, a form P46 should be signed with the Statement B ("This is my only or main job") ticked. You may then pay up to the primary threshold for employees national insurance (£110 per week for 2010/11) without any further formality.
If you already have a PAYE scheme for other employees, or don't mind setting up a scheme for your spouse, you should consider the following points:
◦A salary between £97 and £110 per week will protect an entitlement to basic state pension and other contributory benefits without incurring any actual National Insurance liability
◦A salary between £110 and £844 per week is subject to employees' national insurance at 11% and employers' national insurance at 12.8%
◦The income tax position depends on your spouse's personal circumstances
◦The amount of salary exceeding £844 a week is subject to employees' national insurance at 1% and employers' national insurance at 12.8%, without upper limit
Please contact us if there are any points you would like to discuss.
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Tax and the company car
The system for taxing those who use company cars has remained fundamentally unchanged for some years, save for stepped changes in the emissions thresholds. The basis of the charge is to tax a figure calculated by multiplying the car's list price by an emission-based percentage, with a 3% surcharge on diesel powered cars.
The taxable value of the benefit continues to be up to a maximum of 35% of the list price of the car when first registered. The list price includes car tax (if applicable), Value Added Tax and delivery charges, and is subject to an upper limit of £80,000 until 2011. From April 2011 there will be no limit. The list price of accessories must be included whether fitted when new or subsequently.
Cars emitting CO2 at a specified level are taxed on 15% of the list price. This is the usual minimum charge and will apply to emission levels of between 121g/km and 134g/km. In 2010 Finance Bill there is no benefit where the car or van concerned cannot produce C02. Emissions from 1 to 75 g/km are taxed at 5% and from 76-120g/km, at 10% of list price.
Cars running solely on diesel fuel are subject to a 3% supplement. Special rules apply to cars running on electricity, electricity and petrol, gas or petrol and gas, which are generally seen as more environmentally friendly.
Cars with higher levels of CO2 emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 35% of the car's price.
By contrast it is "all or nothing" for the fuel scale charge, which remains at the full value unless the employee pays for all private fuel!
HM Revenue & Customs has published baseline rates which will be accepted either for employers re-imbursing employees for the cost of fuel for business mileage, or for employees re-imbursing employers for the cost of fuel for private mileage. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle, a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.
HM Revenue & Customs has announced that rates will now be reviewed bi-annually and any changes will take effect on 1 January and 1 June. If however there are significant fuel cost fluctuations, then rates may be changed accordingly.
Tax payable
These standard charges are subject to income tax at basic or higher rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code.
For the benefit to be attractive, the employee must pay less in extra tax than it would cost him to run his own car out of his taxed income. These are examples of the 2010/11 tax costs to an employee of a company car:
Please note: A pool car must not normally be kept overnight at or near an employee's home.
A statutory system of tax and national insurance free mileage rates applies for business journeys in employees' own vehicles, as follows:
It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.
Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D.
The tax payable on the use of a company van ranges from £600 up to £1,775 p.a., and the employer's Class1A NIC payable ranges from £384 to £454.40 p.a.
From April 2011, a number of changes will be introduced to the company car tax regime.
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The taxable value of the benefit continues to be up to a maximum of 35% of the list price of the car when first registered. The list price includes car tax (if applicable), Value Added Tax and delivery charges, and is subject to an upper limit of £80,000 until 2011. From April 2011 there will be no limit. The list price of accessories must be included whether fitted when new or subsequently.
Cars emitting CO2 at a specified level are taxed on 15% of the list price. This is the usual minimum charge and will apply to emission levels of between 121g/km and 134g/km. In 2010 Finance Bill there is no benefit where the car or van concerned cannot produce C02. Emissions from 1 to 75 g/km are taxed at 5% and from 76-120g/km, at 10% of list price.
Cars running solely on diesel fuel are subject to a 3% supplement. Special rules apply to cars running on electricity, electricity and petrol, gas or petrol and gas, which are generally seen as more environmentally friendly.
Cars with higher levels of CO2 emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 35% of the car's price.
Cleaner diesels
When the current system was introduced, it included a discount of 3% for diesel powered cars compliant with the Euro IV emissions standards to encourage earlier take-up of 'cleaner diesels' and effectively cancelling the 3% surcharge on all diesel company cars.CO2 emission information
For all cars first registered from at least November 2000, the definitive CO2 emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5). Under an agreement with HM Revenue & Customs, the Society of Motor Manufacturers and Traders (SMMT) is providing a CO2 emissions enquiry service on their website at http://www.smmt.co.uk/ for cars first registered from January 1998.Older cars
Cars first registered before January 1998, for which there are no reliable CO2 emissions data, are taxed according to their engine size, as follows:| Engine size (cc) | Percentage of car's price charged to tax |
| 0 - 1400 | 15% |
| 1401 - 2000 | 22% |
| 2001 and more | 32% |
Fuel scale charges
Where the employer pays for any fuel used privately by the employee, there is an additional scale charge based on the CO2-based car benefit percentage applied to a standard value of £18,000.Employee contributions
Where the employee is required, as a condition of the car being made available, to pay for the private use of a car, the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will continue to reduce its price for tax purposes.By contrast it is "all or nothing" for the fuel scale charge, which remains at the full value unless the employee pays for all private fuel!
HM Revenue & Customs has published baseline rates which will be accepted either for employers re-imbursing employees for the cost of fuel for business mileage, or for employees re-imbursing employers for the cost of fuel for private mileage. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle, a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.
Current mileage rates
1 June 2010
These mileage rates came into force officially on 1 June 2010.| Baseline fuel mileage rates | |||
| Rates per mile | |||
|---|---|---|---|
| Engine Capacity | Petrol | Diesel | LPG |
| Up to 1400cc | 12p | 11p | 8p |
| 1401 - 2000cc | 15p | 11p | 10p |
| Over 2000cc | 21p | 16p | 14p |
1 December 2009
The following mileage rates came into force officially on 1 December 2009.| Baseline fuel mileage rates | |||
| Rates per mile | |||
|---|---|---|---|
| Engine Capacity | Petrol | Diesel | LPG |
| Up to 1400cc | 11p | 11p | 7p |
| 1401 - 2000cc | 14p | 11p | 8p |
| Over 2000cc | 20p | 14p | 12p |
HM Revenue & Customs has announced that rates will now be reviewed bi-annually and any changes will take effect on 1 January and 1 June. If however there are significant fuel cost fluctuations, then rates may be changed accordingly.
Tax payable
These standard charges are subject to income tax at basic or higher rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code.
For the benefit to be attractive, the employee must pay less in extra tax than it would cost him to run his own car out of his taxed income. These are examples of the 2010/11 tax costs to an employee of a company car:
Basic rate liability example
| List Price | CO2 emission g/km | Tax Rate 20% | |||
|---|---|---|---|---|---|
| Petrol | Diesel | ||||
| Car £ | Fuel £ | Car £ | Fuel £ | ||
| £13,000 | 165 | 572 | 792 | 650 | 900 |
| £18,000 | 200 | 1044 | 1044 | 1152 | 1152 |
| £25,000 | 221 | 1650 | 1188 | 1750 | 1260 |
Higher rate liability example
| List Price | CO2 emission g/km | Tax Rate 40% | |||
|---|---|---|---|---|---|
| Petrol | Diesel | ||||
| Car £ | Fuel £ | Car £ | Fuel £ | ||
| £13,000 | 165 | 1144 | 1584 | 1300 | 1800 |
| £18,000 | 200 | 2088 | 2088 | 2304 | 2304 |
| £25,000 | 240 | 3500 | 2520 | 3500 | 2520 |
Additional rate liability example
| List Price | CO2 emission g/km | Tax Rate 50% | |||
|---|---|---|---|---|---|
| Petrol | Diesel | ||||
| Car £ | Fuel £ | Car £ | Fuel £ | ||
| £13,000 | 165 | 1430 | 1980 | 1625 | 2250 |
| £18,000 | 200 | 2610 | 2610 | 2880 | 2880 |
| £25,000 | 240 | 4375 | 3150 | 4375 | 3150 |
Tax free benefits
- Car Parking
- Pool Cars
Please note: A pool car must not normally be kept overnight at or near an employee's home.
- "Lower Paid" Employees
- Special Consideration for Sole Traders
Business use of an employee's own car
It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own cars.A statutory system of tax and national insurance free mileage rates applies for business journeys in employees' own vehicles, as follows:
| Cars and vans | |
| On the first 10,000 miles in the tax year | 40p per mile |
| On each additional mile above this | 25p per mile |
| Motor cycles | 24p per mile |
| Bicycles | 20p per mile |
It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.
Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D.
Passenger payments
When an employee travelling on business carries fellow employees as passengers he may be reimbursed a further 5p per passenger tax free provided the journey is a business journey in respect of the passengers. No claim can be made if the employer does not make passenger payments.Company vans
The taxable benefit for the unrestricted use of company vans is £3,000 (with no reduction for older vans) plus a further £550 of taxable benefit if fuel is provided by the employer for private travel.The tax payable on the use of a company van ranges from £600 up to £1,775 p.a., and the employer's Class1A NIC payable ranges from £384 to £454.40 p.a.
Tax saving check list
- Keep adequate records of business mileage.
- Always check your tax code to see that the correct benefit is being applied.
- Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.
- If you have low private mileage, you may be better off if you pay for all your own private fuel.
- If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
- Encourage your employer to apply for a P11D dispensation.
- If you are on the borderline of "lower paid", think about setting up a contribution for the use of the car, to keep on the right side of £8,500.
- Tax - free parking is a must!
Company cars - beyond 2011
2011/12From April 2011, a number of changes will be introduced to the company car tax regime.
- The maximum list price of £80,000 will be abolished, so that employees with cars costing in excess of this sum will be taxed on the full list price from 2011/12.
- The lowest emissions on the Table will once again be reduced by 5g/km to 125g.km providing a further increase for most drivers.
- The discounts for alternative fuels will be abolished, and a single alternative rate of 9% introduced for drivers of electrically propelled cars. Drivers of cars running on bi-fuel, gas, E85 or hybrid cars will no longer have a reduction in benefit and will be taxed based solely on the emissions of their car.
2010/11 taxable benefits table
| CO2 in g/km* | Taxable % | CO2 in g/km* | Taxable % | ||
|---|---|---|---|---|---|
| Petrol | Diesel | Petrol | Diesel | ||
| 1 to 75 | 5% | 8% | 180 to 184 | 25% | 28% |
| 76 to 120 | 10% | 13% | 185 to 189 | 26% | 29% |
| 121 to 134 | 15% | 18% | 190 to 194 | 27% | 30% |
| 135 to 139 | 16% | 19% | 195 to 199 | 28% | 31% |
| 140 to 144 | 17% | 20% | 200 to 204 | 29% | 32% |
| 145 to 149 | 18% | 21% | 205 to 209 | 30% | 33% |
| 150 to 154 | 19% | 22% | 210 to 214 | 31% | 34% |
| 155 to 159 | 20% | 23% | 215 to 219 | 32% | 35% |
| 160 to 164 | 21% | 24% | 220 to 224 | 33% | 35% |
| 165 to 169 | 22% | 25% | 225 to 229 | 34% | 35% |
| 170 to 174 | 23% | 26% | 230 and over | 35% | 35% |
| 175 to 179 | 24% | 27% | |||
| * The exact CO2 figure is rounded down to the nearest 5g/km | |||||
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Benefits In Kind and expense payments
Benefits in kind are assessed on all directors and employees whose salary and benefits combined are £8,500 or more.
Remuneration by way of benefits is often attractive to employees, especially if they are paying the higher rate of income tax, because the benefit may either be tax free or subject to less tax.
A benefit that is not taxable is not automatically exempt from national insurance contributions (NICs).
An employer is required to complete form P11D in respect of each employee earning £8,500 or more (including benefits) and all directors. Form P9D is required to record taxable benefits received by other employees. Benefits which are treated as pay for NIC purposes must be included on the deductions working sheet column 1A 'earnings on which employee's contributions payable'. (This should not include benefits liable to Class 1A NIC). Comprehensive records should be kept in relation to all benefits and expenses payments.
Non-taxable benefits
There are several benefits that are not normally taxable, even when an employee is within the P11D category. These can be substantial. The most significant are:
◦Contributions to registered pension schemes (within limits)
◦Car, motor cycle or bicycle parking facilities at or near the workplace
◦Child care facilities or vouchers worth up to £55 per week
◦Compensation/termination payments up to £30,000
◦Welfare counselling services (with restrictions)
◦Luncheon vouchers up to 15p per day
◦Staff canteen and dining facilities (provided they are available to all directors and employees)
◦Sports facilities (provided they are available to all directors and employees)
◦Removal expenses, subject to HM Revenue & Customs limits
◦Long-service awards (provided they are an established practice within the firm or are in the employees' contract) up to specified limits
◦Awards under suggestion schemes (but there are restrictions)
◦Use of a pool car
◦Use of a mobile telephone - one mobile phone only per employee where provided
◦The provision of representative accommodation (except for certain directors)
◦Approved share incentive plans
◦Use of cycles and cyclist's safety equipment used mainly for journeys between home and work
◦Certain bus services for journeys between home and work
◦Annual parties or similar functions costing up to £150 per head
◦Payments towards household expenses incurred by employees working at home (generally £3 per week)
◦Retraining expenses and courses
You could also consider establishing a company pension scheme, which allows your employees to make additional provision for their retirement by paying regular amounts and additional voluntary contributions.
Removal expenses
The tax-free limit is currently £8,000 and is available per move as opposed to per tax year. In order to qualify the expenses and/or benefits must normally be paid or provided in the tax year or subsequent year in which the job starts.
National insurance relief is available on all the tax qualifying expenditure, however where the £8,000 is exceeded the whole of the excess is chargeable to Class 1A and thus payable by the employer.
Small interest free loans
No tax is payable on 'cheap' or interest free loans to employees of up to £5,000.
Employee benefits
Tax efficient benefits can assist your company's profitability by ensuring that employees receive the maximum benefit from the money spent on their remuneration, thereby helping to retain key staff members.
Most, but not all, benefits are now caught by tax legislation. Most benefits are also caught for national insurance. Every employer operating PAYE schemes should obtain a copy of Employer's Further Guide to PAYE and NICs (CWG2) - and should read it carefully.
Cars
When company cars are used for private motoring, the taxable benefit is normally calculated as a percentage of the list price. If an employee is also provided with fuel for private use in the car he or she is taxed on the same percentage applied to a standard value regardless of the value of the fuel used. Class 1A NICs must also be paid by the employer on the car and fuel benefits. National insurance planning - and don't forget that VAT is payable based on a special scale charge for fuel provided for private use.
Vans
If a company van is made available for private use a standard taxable benefit of £3,000 applies. There is a further benefitof £550 where fuel is provided for private use.
There is no charge for employees who have to take their van home and are not allowed other private use or the extent of private use is not significant. There is also no charge for use of a commercial vehicle of more than 3.5 tonnes gross weight, so long as the employee's use is not wholly or mainly private.
Expenses payments
These also need to be disclosed on forms P11D. However, the employees then need to put in claims on their own tax returns or tax codes for expenses incurred in the performance of duties.
Where an employee is not required to complete a tax return, form P87 should be used instead.
How to save yourself work
Most employers can obtain a dispensation in respect of certain expenses payments, which could avoid the need to complete P11Ds in some cases. Application can be made at any time. Check with us for details.
Remuneration by way of benefits is often attractive to employees, especially if they are paying the higher rate of income tax, because the benefit may either be tax free or subject to less tax.
A benefit that is not taxable is not automatically exempt from national insurance contributions (NICs).
An employer is required to complete form P11D in respect of each employee earning £8,500 or more (including benefits) and all directors. Form P9D is required to record taxable benefits received by other employees. Benefits which are treated as pay for NIC purposes must be included on the deductions working sheet column 1A 'earnings on which employee's contributions payable'. (This should not include benefits liable to Class 1A NIC). Comprehensive records should be kept in relation to all benefits and expenses payments.
Non-taxable benefits
There are several benefits that are not normally taxable, even when an employee is within the P11D category. These can be substantial. The most significant are:
◦Contributions to registered pension schemes (within limits)
◦Car, motor cycle or bicycle parking facilities at or near the workplace
◦Child care facilities or vouchers worth up to £55 per week
◦Compensation/termination payments up to £30,000
◦Welfare counselling services (with restrictions)
◦Luncheon vouchers up to 15p per day
◦Staff canteen and dining facilities (provided they are available to all directors and employees)
◦Sports facilities (provided they are available to all directors and employees)
◦Removal expenses, subject to HM Revenue & Customs limits
◦Long-service awards (provided they are an established practice within the firm or are in the employees' contract) up to specified limits
◦Awards under suggestion schemes (but there are restrictions)
◦Use of a pool car
◦Use of a mobile telephone - one mobile phone only per employee where provided
◦The provision of representative accommodation (except for certain directors)
◦Approved share incentive plans
◦Use of cycles and cyclist's safety equipment used mainly for journeys between home and work
◦Certain bus services for journeys between home and work
◦Annual parties or similar functions costing up to £150 per head
◦Payments towards household expenses incurred by employees working at home (generally £3 per week)
◦Retraining expenses and courses
You could also consider establishing a company pension scheme, which allows your employees to make additional provision for their retirement by paying regular amounts and additional voluntary contributions.
Removal expenses
The tax-free limit is currently £8,000 and is available per move as opposed to per tax year. In order to qualify the expenses and/or benefits must normally be paid or provided in the tax year or subsequent year in which the job starts.
National insurance relief is available on all the tax qualifying expenditure, however where the £8,000 is exceeded the whole of the excess is chargeable to Class 1A and thus payable by the employer.
Small interest free loans
No tax is payable on 'cheap' or interest free loans to employees of up to £5,000.
Employee benefits
Tax efficient benefits can assist your company's profitability by ensuring that employees receive the maximum benefit from the money spent on their remuneration, thereby helping to retain key staff members.
Most, but not all, benefits are now caught by tax legislation. Most benefits are also caught for national insurance. Every employer operating PAYE schemes should obtain a copy of Employer's Further Guide to PAYE and NICs (CWG2) - and should read it carefully.
Cars
When company cars are used for private motoring, the taxable benefit is normally calculated as a percentage of the list price. If an employee is also provided with fuel for private use in the car he or she is taxed on the same percentage applied to a standard value regardless of the value of the fuel used. Class 1A NICs must also be paid by the employer on the car and fuel benefits. National insurance planning - and don't forget that VAT is payable based on a special scale charge for fuel provided for private use.
Vans
If a company van is made available for private use a standard taxable benefit of £3,000 applies. There is a further benefitof £550 where fuel is provided for private use.
There is no charge for employees who have to take their van home and are not allowed other private use or the extent of private use is not significant. There is also no charge for use of a commercial vehicle of more than 3.5 tonnes gross weight, so long as the employee's use is not wholly or mainly private.
Expenses payments
These also need to be disclosed on forms P11D. However, the employees then need to put in claims on their own tax returns or tax codes for expenses incurred in the performance of duties.
Where an employee is not required to complete a tax return, form P87 should be used instead.
How to save yourself work
Most employers can obtain a dispensation in respect of certain expenses payments, which could avoid the need to complete P11Ds in some cases. Application can be made at any time. Check with us for details.
Tuesday, 16 November 2010
Getting a P11D Dispensation
Completing and submitting forms P11D can be both costly and time consuming, especially for larger businesses. Did you know that the Revenue might on application grant a dispensation so that routine expense payments and benefits that would not give rise to a tax liability need not be reported on forms P11D?
To enable the Inspector to grant a dispensation you must be able to demonstrate that:
◦No tax would be payable by the employees on the expense payments or benefits
◦Expense claims are independently checked and authorised within your company
◦Each claim is submitted with appropriate receipts
HM Revenue & Customs will need to be certain exactly what expenses you reimburse and the method of control you use to identify expenses that might be taxable. This is to ensure, among other things, that if a dispensation were granted, and a taxable payment is made within a category of expense covered by the dispensation, it will be picked up and reported on the relevant employee's P11D. A dispensation does not mean that the accounting procedures for recording such expenses can be relaxed.
The application must be in writing, and may be by letter or, for smaller companies, by form P11DX, issued with HM Revenue & Customs leaflet IR69.
You should give as much detail as possible of the kind of expenses paid, the control procedures adopted for authorisation, approval and payment of expenses, and a copy of the expenses claim form.
If granted, the dispensation:
◦Will be effective from the date granted - so it is worthwhile applying at any point in the tax year
◦May cover all employees, a class of employee, or certain named individuals only
◦Will be reviewed from time to time, and may be withdrawn if the conditions are no longer satisfied
We can save you a lot of time and trouble by helping with the application. Please contact us if you would like us to help.
http://www.truemanbrown.co.uk/
To enable the Inspector to grant a dispensation you must be able to demonstrate that:
◦No tax would be payable by the employees on the expense payments or benefits
◦Expense claims are independently checked and authorised within your company
◦Each claim is submitted with appropriate receipts
HM Revenue & Customs will need to be certain exactly what expenses you reimburse and the method of control you use to identify expenses that might be taxable. This is to ensure, among other things, that if a dispensation were granted, and a taxable payment is made within a category of expense covered by the dispensation, it will be picked up and reported on the relevant employee's P11D. A dispensation does not mean that the accounting procedures for recording such expenses can be relaxed.
The application must be in writing, and may be by letter or, for smaller companies, by form P11DX, issued with HM Revenue & Customs leaflet IR69.
You should give as much detail as possible of the kind of expenses paid, the control procedures adopted for authorisation, approval and payment of expenses, and a copy of the expenses claim form.
If granted, the dispensation:
◦Will be effective from the date granted - so it is worthwhile applying at any point in the tax year
◦May cover all employees, a class of employee, or certain named individuals only
◦Will be reviewed from time to time, and may be withdrawn if the conditions are no longer satisfied
We can save you a lot of time and trouble by helping with the application. Please contact us if you would like us to help.
http://www.truemanbrown.co.uk/
Sunday, 14 November 2010
Christmas present to your employees or to the Inland Revenue?
Christmas is a time for celebration and for businesses that means rewarding one of their main assets, their employees.
Businesses that, despite the recession, are really entering the festive spirit should remember that gifts for their employees will be taxable. Christmas bonuses or store vouchers which can be redeemed for cash will be subject to PAYE and National Insurance paid through the PAYE system.
This total not only covers food and drink, but also accommodation and transport home if the employer pays for these.
The number of guests can also include non-employees such as partners. On top of this, the employer will also get Corporation Tax relief on what it all costs.
Due to the recession, many firms may be planning a frugal Christmas party this year, more staff parties could end up being tax-free.
The rules apply to any annual party or similar function, which must be open to staff generally or to workers at a particular location.
The tax-free limit applies for a tax year, so if the employer puts on a summer party and a Christmas dinner together costing less than £150 a head, both will be tax-free for employees. The gift from HMRC is available to businesses of all sizes.
But one penny over this limit and the full amount spent will become liable to income tax and National Insurance for both staff and employer alike.
Businesses that, despite the recession, are really entering the festive spirit should remember that gifts for their employees will be taxable. Christmas bonuses or store vouchers which can be redeemed for cash will be subject to PAYE and National Insurance paid through the PAYE system.
If the business prefer to give staff a high street gift voucher, the business can pick up the tax bill on behalf of their employees by setting up a PAYE Settlement Agreement (PSA) with their tax office.
However, there are a number of ways that employers can reward their staff without paying the taxman.
‘Trivial’ Items
Gifts deemed as trivial are exempt from tax. HMRC have extended the definition of what a ‘trivial’ gift is.
A trivial gift includes such items as a turkey, a bottle of wine or a box of chocolates. However, a case of wine or a hamper will not be deemed trivial and would be deemed as a taxable benefit. As will a turkey purchased in conjunction with a bottle of wine,
If in any doubt whether the gift should be deemed trivial or not, you should seek advise from your accountant or HMRC.
Promotional Gifts
Business normally purchase promotional gifts for their customers and their suppliers. Such items are normally purchased for advertising purposes and must display a 'conspicuous advertisement'. Staff may receive promotional gifts tax-free provided that the overall cost of the articles involved does not exceed £50 per person per year.
If the gift costs more than £50, HMRC will disallow the whole amount, not just the amount over £50!
Gifts of food, drink, tobacco or vouchers are specifically excluded.
Staff Parties
Staff parties are potentially tax-free. HMRC's festive gift is limited though, as companies are allowed an annual tax-free amount of up to £150 per member of staff.This total not only covers food and drink, but also accommodation and transport home if the employer pays for these.
The number of guests can also include non-employees such as partners. On top of this, the employer will also get Corporation Tax relief on what it all costs.
Due to the recession, many firms may be planning a frugal Christmas party this year, more staff parties could end up being tax-free.
The rules apply to any annual party or similar function, which must be open to staff generally or to workers at a particular location.
The tax-free limit applies for a tax year, so if the employer puts on a summer party and a Christmas dinner together costing less than £150 a head, both will be tax-free for employees. The gift from HMRC is available to businesses of all sizes.
But one penny over this limit and the full amount spent will become liable to income tax and National Insurance for both staff and employer alike.
The business can also make a claim for Input VAT. When making your claim for input VAT however, the business should bear in mind that Customs & Excise view the expenditure on persons who are not employees to be entertainment and as such, you cannot claim the VAT on that proportion of the expenditure. In such cases, you will need to split the bill according to how many people are employees and how many are guests.
If you require any further information then please contact Trueman Brown on 01708 854943 or at www.truemanbrown.co.uk.
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