Important considerations for P11D and PAYE

The deadlines for P11D and PAYE settlement agreements are getting closer. This year, there are a number of factors you will need to consider especially with regards to lockdown benefits.

You may have put various measures in place to support your employees during lockdown, but do make sure that you stay on the right side of HMRC. All the normal rules and deadlines still apply unless changed in law. In terms of benefits and expenses, there has been very little leeway.

Equipment for working at home

If you have supplied staff with equipment to work from home, this will not incur any tax as a benefit in kind as its primary use will be for business purposes. This would apply to laptops, PCs and related equipment.

Some employers however were unable to supply all the equipment needed. If you directed your employees to purchase equipment they needed themselves and to reclaim their expenses then you could run into hot water. Office or computer equipment that is reimbursed is not usually tax/NI exempt as it is regarded as cash in the hands of the employee and as such is taxable and subject to NI.

The good news is that there is a temporary relaxation from 1 March 2020 to 5 April 2021. This relaxation applies if the equipment was purchased solely so the employee could work from home as a result of lockdown, and it would have been tax-exempt had it been provided by the employer under s.316 Income Tax (Earnings and Pensions) Act (the normal employer-provided equipment exemption).

We would suggest that you make sure you have all the relevant documentation in terms of your policy instructing employees what they were entitled to purchase, and retain the expense receipts to prove when your reimbursed the employee.

Broadband

You are not able to reimburse employees for the cost of broadband for working from home unless they have had to upgrade their package or have it installed in order to work from home. This would then class as an additional cost they have incurred which could be reimbursed tax free.

Telephones

If you provide an employee with a company mobile phone, this is tax free, even if it is used for private purposes as long as the phone belongs to the company. With personal mobile phones and landlines, only business calls can be reimbursed, not rental costs as they are in the employees’ name.

Costs for working from home

The homeworking allowance was increased to £6 per week £26 per month for tax year 2020/21. This is to cover additional costs in terms of heating, lighting and electricity.

As an employer you can either reimburse tax and NI free through payroll or directly into the employee’s bank account. If you do not want to do this, then the employee can apply themselves for this tax relief directly with HMRC through submission of Form P87, through their personal tax account or their self-assessment return. Any of these will result in a tax code change to deliver the tax relief.

Travel and commuting costs

The rules around this have not changed, even if your employees feel uncomfortable using public transport. Any reimbursement for mileage or taxi costs will be taxable.

The only exception, is where all four of the following conditions are met:

• the employee has to work later than usual and until at least 9.00pm;
• this is an irregular occurrence;
• by the time the employee has finished work, public transport has stopped or it wouldn’t be safe for them to use it;
• they are provided with a taxi or other transport home.

Car sharing - where you provide transport between home and the workplace due to being unable to operate car sharing, this cost is tax free.

Be aware however, the total number of tax-exempt journeys that you can fund across both car sharing and late night working cannot exceed 60 per tax year.

Volunteering - if you have chosen to reimburse an employee who has incurred mileage volunteering during the crisis, this is taxable. Although for company car users the mileage is not included when assessing if full reimbursement of private mileage has occurred. Provided all other private fuel costs are repaid then no benefit in kind should arise for fuel costs.

Company cars

The only way to avoid the car benefit charge is for the keys to be returned to the employer for at least 30 days if the car contract has not been terminated, or from the date the keys were returned if the contract has been terminated. Read further guidance on this topic here.

Catering

To protect staff, some employers have introduced catering so that staff do not have to leave the safety of the workplace to get food.

If employees are offered a meal or vouchers to cover the cost of a meal, then these are tax free. The voucher must only be exchangeable for food for it to be tax free. If it can be exchanged for cash or if you provide a cash allowance, this will be taxable by adding the value to taxable and NI’able pay through the payroll.

Salary sacrifice

To be valid, a salary sacrifice must be in place for a minimum of 12 months. The only exception is a list of ‘lifestyle changes’. HMRC has recently added Coronavirus to the list of ‘lifestyle changes’ that could lead to a sacrifice being ended or varied prematurely.

Some employees may still be under transitional provisions that took effect in April 2017 and due to end on 5 April 2021. These relate to company cars, living accommodation and school fees salary sacrifices. Any amendment to a sacrifice as a result of coronavirus will not bring this transitional protection to an end.

Hardship loans

You may have provided financial support to an employee. If you have, it is important to remember that as long as the value of financial support or interest-free loans does not exceed £10,000 at any point in the tax year, then these are non-taxable.

You will need to take into account if the employee has any other loans such as a rail season ticket that could push this over the £10,000 value. Some employees may have cashed in their season tickets so should have repaid their loans for these once they received reimbursement from the transport authorities.

We have included some useful links to relevant guidance that may assist you further. Do remember, we are here to help. If you need support or advice in relation to information in this article or your business finances, then please do get in touch for a no-obligation initial discussion.

How to treat certain expenses and benefits provided to employees during coronavirus (COVID-19)

Check which expenses are taxable if your employee works from home due to coronavirus (COVID-19)

Exemption for coronavirus related reimbursed home office expenses: Written statement - HCWS237