OTS proposals on payrolled benefits could eliminate 90% of P11Ds
The plans follow last year’s suggestions by the Liberal Democrats that Benefits-in-Kind, such as company cars, should no longer be subjected to Class 1A NIC but should instead be subject to Class1 NIC. Such a change would be significant to the fleet industry because it could, at a stroke, introduce employee NICs on benefits, increasing the cost to drivers by up to 12%.
Although the suggestion did not gain any traction at the time, the OTS has now suggested that one way in which the operation of NIC could be simplified would be to abolish Class 1A NIC and to apply Class 1 NIC instead via payrolled benefits.
The suggestion forms part of the newly published OTS second report on employee benefits and expenses, which proposes:
· Promoting the voluntary payrolling of benefits and extending the scope of PAYE Settlement Agreements;
· Introducing a tax exemption for qualifying business expenses and defining a trivial benefit;
· Redefining the definition of a permanent workplace and introducing a specific code for homeworkers;
· Simplifying NICS, which might include aligning rules for income tax and NIC and abolishing Class 1A NIC and subjecting all benefits to Class 1 NIC instead; and
· Abolishing the £8,500 earnings threshold that applies to Benefits-in-Kind.
Many of the recommendations, if implemented, could reduce the burden of form-filling for employers with one of the main objectives of the report being the substantial reduction in the numbers of Forms P11D completed each year. This could largely be achieved by allowing employers to payroll some or all of their benefits and expenses on a voluntary basis, but other measures should also reduce employers’ reporting obligations such as broadening the scope of PAYE Settlement Agreements and defining what constitutes a trivial benefit.
The OTS believes that its proposals could potentially eliminate more than 90% of today’s P11Ds, saving vast amounts of time and effort for employers, agents and HMRC but the report seeks to balance the need to simplify the tax system without it adversely affecting employees’/employers’ costs or reducing tax yield. For example one chapter in the report recognises that the replacement of Class 1A NIC on benefits by Class 1 NIC would adversely affect employees (as employees’ NIC would then be introduced on Benefits-in-Kind), even though it would significantly help employers to payroll benefits.
Commenting on the possibility that the proposals may be addressed in next month’s Budget, Jeff Whitcombe of BCF Wessex Consultants said: ‘Some of the recommendations may be taken forward as part of the Budget 2014 process, but it’s likely that the vast majority of the proposals may take several years to come to fruition, including the potential abolition of Class 1A NIC.
‘I envisage that this year’s Budget is much more likely to include some of the quick wins suggested by the OTS when it published its interim report last summer. For example, a measure that may be introduced next month is the alignment of the mileage rates for tax and NIC for those who use their own cars for business, with an amendment to AMAP rates to ensure that the maximum payment should not fall to 25p per mile once the 10,000 mile threshold is reached.’