Significant Changes to Tax on Benefits in Kind

Not for the first time, the government intends to overhaul the way in which benefits in kind are taxed.  Previous attempts to simplify the system have met with confusion, and raised more questions than solutions.  Although still only at the consultation stage, it is generally thought that the current suggestions will go ahead, and be effective from April 2015.

The first change applies to forms P9D and P11D.  Currently, reporting on benefits in kind for employees is different depending on whether the employee is paid above or below £8,500; a figure which has applied for decades.  Those paid below £8,500 currently pay less or no tax on certain benefits, due to the current £10,000 tax-free personal allowance. Employers must report benefits provided to “lower-paid” employees on forms P9D, and all employees paid above £8,500 on forms P11D.  Simplification will see all employees declared similarly on forms P11D, and the ease of administration will surely be welcomed by employers.

The second change affects ‘trivial benefits’ provided by employers.  Allowed by concession, small items such as a turkey at Christmas currently do not count as a taxable benefit in kind.  However, as this is currently only by concession, there are often inconsistencies in how this is allowed, and regarding the monetary value which might be deemed trivial.  The new rules will set clear limits which again can only assist with the administration for employers.

Currently employers can claim a dispensation, exempting them from reporting on the benefits provided for employees, if those benefits do not incur a tax or National Insurance charge. Dispensation has to be formally claimed under current rules, and the planned simplification will do away with the need to have to claim this dispensation.  Although this will benefit many employers, there will be the need to closely monitor expense claims made by staff.

There are also proposed simplifications regarding the collection of tax through payroll by means of the employer calculating the taxable amount of benefits and including within payroll as if additional salary.  The good news here is that this proposal is currently only being considered as optional.

We expect the above changes to be applied from April 2015 and should generally be welcomed by employers.