Employment Tax Update - Summer 2010

The historical trend for the summer period to represent a quieter period for employee taxes saw significant change in 2010 beginning with the Emergency Budget. Whilst employers will be aware of the main announcements arising from George Osbourne’s first budget statement, a number of other changes have been announced over the summer months:

Return of the P46(Car)

Following the removal of the P46(Car) form, many employers reported significant issues for employees not receiving updated tax codes where a new or replacement company car was provided during the tax year. As tax codes are now often only amended on review of Forms P11D at the end of each year, it can now be up to 18 months before HMRC recognise a change in benefits in kind with resulting high levels of unpaid tax arising for the individual.

From 6 April 2011, HMRC has announced that it will accept electronic transmission of P46(Car) changes to process in year and the online version of the form will be amended accordingly. Notifications submitted by employers on paper will not, however, be accepted.

Payrolling of Benefits

The potential removal of Forms P11D and need for employers to payroll benefits in kind on a monthly basis received a mixed reception during the last formal consultation. HMRC are still considering two options: one that delivers universal payrolling (with a very small exception process), and the other a variation on employer choice that will regularise voluntary payrolling on a more consistent basis. Either way, it is increasingly likely that considering the acceleration of tax remittances and the reduction of administration for HMRC arising from these changes, payrolling of benefits is becoming more and more attractive to the Treasury.

Changes to Cycle 2 Work Initiatives

Employers who have introduced “Cycle 2 Work” initiatives through salary sacrifice need to review two aspects of their existing arrangements. In the first instance, in order for schemes to continue to benefit from tax-free status, bicycles must be available for employees unable to sacrifice sufficient pay (for example because of National Minimum Wage).

Secondly, HMRC have now produced a valuation matrix for the subsequent sale of 2nd hand bicycles and associated equipment to employees under these types of arrangements. Where employees are able to purchase the equipment at less than HMRC’s valuation, the difference is potentially chargeable to tax and reportable on Forms P11D. With valuations of some 18 month old bicycles as high as 21%, employers should be considering either reviewing their 2nd hand valuations or extending the loan term of bicycles offered to employees.

Uniforms

Many organisations providing uniforms to employees have historically relied on a very small, “tagged” logo attached to the clothing (typically trousers) as qualifying the uniform for tax free status with HMRC. These tags, often referred to as “Tax Tabs” are potentially falling under HMRC’s focus again as not meeting the relatively strict criteria of readily identifying the individual as an employee of the organisation. At this stage, such labelling of trousers when combined with a more prominent logo on the accompanying jacket and/or shirt has not received much attention but employers should ensure that as a general guide, qualifying uniforms can be genuinely recognised as such.