With the tax year-end fast approaching, most employers are now facing the dreaded year-end payroll reporting process. This year a number of changes to payroll reporting will be introduced from April 2016 (see article here); some of which are intended to simplify employers’ reporting obligations while others may only add to the administration burden.
Employers with mobile employees with cross border tax issues should take the time to review their year-end obligations and streamline their processes for this year as they will reap the benefits in future years.
1. Section 690 authorisation for internationally mobile employees – consider applying for a longer period
Employers that have applied for a section 690 ITEPA 2003 authorisation from HM Revenue and Customs (HMRC) for the tax year 2015/2016, should review their processes and ensure that they have indeed received their authorisation from HMRC.
HMRC will now issue a section 690 agreement for up to three years. Provided employees are likely to continue to qualify, for example a non-resident individual, consider making an application for up to three years and reducing your administrative burden.
2. Short term business visitors’ agreement – obtain an EP Appendix 4 agreement to reduce your administration
Companies with employees from overseas entities working for them in the UK may have a Pay As You Earn (PAYE) withholding obligation from the first day the employee is in the UK, even where the employee is not paid or employed by the UK company.
However if the UK company has an Appendix 4 agreement in place, it does not need to operate PAYE for qualifying individuals which can significantly reduce the administrative burden for both the business and visitors. The Appendix 4 agreement allows the UK company to claim tax relief for individuals resident in a treaty country, provided certain conditions are met.
Once the agreement is in place the UK employer will still need to track their visitors during the tax year but will only need to make one annual report covering details of all their qualifying visitors after the end of the tax year. The deadline for the year-end report is 31 May following the tax year-end. Companies should note that exemption from UK National Insurance contributions should be obtained separately.
3. Still time to apply for a dispensation for certain expenses and benefits for 2015/2016
Employers can apply for a dispensation covering certain expenses and benefits provided to employees. Once the dispensation is in place the relevant benefits and expenses will not need to be reported on year-end benefits statement P11D and P11D(b).
From April 2016 the simplification of expenses and benefits reporting will tax exempt a number of items which would currently be covered by a dispensation. However, if you do not have a dispensation in place for 2015/2016 you can still consider making an application. Although the dispensation takes effect from the date of issue, HMRC may agree to back date it to the start of the tax year.
4. Use a Pay As You Earn Settlement agreement (PSA) to reduce administration
A PSA allows employers to make one annual payment to cover tax and National Insurance due on small and irregular taxable expenses or benefits provided to employees which would otherwise be taxable on the employees. Items covered by a PSA do not need to be reported by the employer or the employee.
Employers can still agree a PSA for 2015/2016 although HMRC may restrict the items which can be included where it has been agreed after the start of the year.
The deadline for applying and agreeing a PSA for 2015/2016 is 6 July 2016.
5. Payrolling benefits
From April 2016 it will be possible for employers to tax certain benefits and expenses through the payroll rather than reporting them on form P11D. Any employer wishing to make use of this facility will need to register with HMRC using the new online Payrolling Benefits in Kind service. Once approved by HMRC, and assuming your software/payroll provider supports the payrolling of benefits, benefits can be included in the payroll and tax deducted on the cash equivalent of the benefit.
The online registration for tax year 2016/2017 should be done before 5 April 2016.
You should note that it will still be necessary to complete P11D (b) forms showing the total benefits and expenses provided even if some have already been put through the payroll.
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