Five Halloween Horror Stories
PAYE & Benefits in Kind
As today is Halloween, we cover five common but wicked mistakes which are often picked up during a Pay As You Earn (“PAYE”) review by HM Revenue & Customs, leading to a horrible tax bill.
1. Terrible Telephones
Where an employer company pays a home telephone bill on behalf of an employee which includes private calls and line rental, it is often incorrectly declared on a P11D as being subject to Class 1A NIC at 13.8%. In fact, this benefit is liable to Class 1 NIC which should be collected through the payroll, in addition to being reporting on the P11D.
2. Goulish Gifts
If an employer purchases a gift for a staff member, it generally counts as a form of remuneration unless the trivial benefit rules apply (broadly speaking a £50 limit to the value of the gift). It should then be declared on a P11D, Class 1A NIC is due and the employee will pay income tax on the value of the benefit.
3. Cursed Cars
A benefit in kind is due on a company car unless it qualifies as a pool car or if there are other restrictions on the use of the vehicle. The Revenue are usually very sceptical over pool cars claims and rigorous evidence is required to show that five tests are met in order for the claim to be valid. The tests include that the car was actually used by more than one employee, not used by one employee to the exclusion of the others and not normally kept overnight at an employee’s home. Claiming pool car status while keeping the car at the director’s home overnight is usually fatal to the claim and a benefit in kind will arise.
4. Poisonous Parties
An annual party for all staff members (or all staff at a particular location) and their families paid for by the employer, such as a Christmas party, is an exempt benefit if the cost is below £150 per head (including VAT, transport and accommodation costs). If this limit is exceeded then the whole cost is treated as a benefit in kind. This rule is often misapplied if, for example, not all employees are invited or the party is not annual in nature.
5. Terrifying Termination Payments
Different elements of a termination payment made to a departing employee can receive different tax treatment. It is often believed that the first £30,000 is simply income tax free, however if a payment is made in recognition of services rendered by the employee or on retirement then income tax and national insurance can be due. There are numerous further complications which can lead to a tax charge, for example where the employer has a history of making similar payments, if a payment is made to prevent an employee from working for a competitor, if an asset such as a company car is sold or given to the employee or for payments made in lieu of notice.
If any of these items make you wake up in the night or if you would like more information in connection with this please contact our Tax Director, Jenny Marks.
To see our other news items please visit our Muras Baker Jones – Blog.