HMRC has recently released a number of consultation documents on employment taxes which are likely to have a significant impact on employers.
Simplifying the PAYE Settlement Agreement (PSA) process
HMRC is proposing to refine the current PSA rules, with the likelihood that employers may have to implement a more comprehensive checking process.
The main proposed changes are:
- the removal of the annual contract agreement;
- alignment of the PSA and P11D reporting deadlines; and
- the introduction of a digital return.
At the moment, items included in a PSA must be minor, irregular and impractical for the operation of PAYE or for inclusion on forms P11D. HMRC is proposing to remove the ‘minor’ test, but restrict the types of ‘irregular’ items that can be included. It is also intending to adopt a ‘going forward’ approach which means that if there is uncertainty on what should be included on a PSA, any employer that reports an item in a PSA in good faith that HMRC subsequently determines does not meet the criteria for inclusion will be advised on what to do in future with no retrospective action. However, those who continue to include items which HMRC has warned should not be on a PSA will be subject to further HMRC action.
Whilst the removal of the ‘minor’ test will be welcomed, the restriction on irregular items is likely to result in employers spending more time reviewing what should be included on their PSA.
The end of salary sacrifice?
HMRC has also announced proposed changes to salary sacrifice schemes. It is considering changing the tax treatment where an employee sacrifices salary in exchange for a benefit which is either exempt from income tax and national insurance (NICs) or is valued lower than the amount of salary sacrificed. In this respect HMRC is proposing that certain benefits provided through salary sacrifice and flexible benefit arrangements should be valued differently from 6 April 2017, so that income tax and class 1A NICs will be due on the greater of:
- the amount of salary sacrificed; and
- the cash equivalent determined by the benefits code.
This rule would apply even where the benefit is exempt from income tax and NICs.
The proposed changes will significantly impact company car drivers who are given a cash alternative with an estimated half a million employees being affected. The good news, however, is that HMRC has said it will not affect:
- employer pension contributions and employer provided pension advice;
- employer supported childcare; and
- cycle and safety equipment under the cycle to work scheme.
For more information please get in touch with Graham Farquhar or your usual RSM contact.