Employment tax update - SRIT launch and trivial benefit limits

10 March 2016

Scottish rate of income tax

From 6 April the Scottish rate of income tax (SRIT) comes into effect. In this respect HMRC will be sending out coding notices with ‘S’ prefixes to identify those employees who are Scottish taxpayers. Employers who may be impacted should ensure that their payroll software is updated to accommodate this, even as a precautionary measure.

Although employers may not consider there to be much to do as the combined rates of tax will remain the same, it should be noted that the tax gleaned from Scottish taxpayers will ultimately go to the Scottish government and not to the UK Treasury. With this in mind, employers who have a mix of Scottish and other UK taxpayers should amend their pay as you earn (PAYE) settlement agreement (PSA) procedures as any tax due in a PSA should be divided between the two types of taxpayers.

Trivial benefits

The government has announced that previous informal arrangements regarding trivial benefits will be replaced and has already issued draft legislation that will exempt prescribed ‘trivial benefits’ from tax with effect from 6 April 2016. Items covered by this exemption will include any benefits where:

  • the benefit is not either in cash or a cash voucher;
  • the cost of providing each benefit does not exceed £50;
  • the benefit is not provided under any salary sacrifice arrangements or any contractual obligation; and
  • the benefit is not provided in recognition of services performed, or to be performed, by the employee as part of their employment.

In addition, an annual cap on such trivial benefits of £300 applies for directors and office holders (and their family members) of close companies.

What should you do next?

Employers should review their current employee benefit arrangements to ensure they are compliant with these new rules. Also it is possible that some employers will see savings as they capitalise on making these arrangements formal.

Please don’t forget….

Employers have until 6 April to:

  • apply for an approval notice for any scale rate payments they wish to make to cover meals and accommodation expenses not supported by receipts;
  • apply to payroll benefits for the 2016/17 tax year; and
  • apply for their PSA for 2016/17 to ensure that any NICs liabilities may be captured under Class 1B as part of the PSA process rather than Class 1 through the payroll.

Unlike PAYE dispensations scale rate benefits cannot be backdated and so any payments that are not agreed by 6 April will either need to be supported by receipts or subject to income tax and national insurance contributions (NICs) via the payroll. Also, employers will need to ensure they have a mechanism to check that the expenses qualify to be paid free of tax and NICs.

As mentioned in November’s tax voice employers who wish to register for formal payrolling of benefits must do so by 6 April. Any applications after this date will be refused and employers will need to make returns of the benefits on forms P11D.

If you would like to discuss any of these updates, please contact Graham Farquhar.