Employee Benefits

From 6 April 2020, the car and car fuel benefit calculations are changing with the introduction of 11 new bands for ultra-low emission vehicles (ULEVs) including a separate zero emissions band.

If a car has a CO2 emission figure of 1-50g/km employers will need to provide the car’s zero emission mileage. This is the maximum distance that the car can travel in miles on a single electric charge. The graduated table of company car tax bands will be based on the zero emission mileage of the car.

This change will result in some new reporting requirements for electric cars that have a CO2 emission figure of between 1-50g/km. HMRC has confirmed that from 6 April 2020, if you are adding a new car or making one available to an employee for the first time, a new zero emission mileage field will be shown on the form P46 (car). The online P46 (car) will be updated with the changes. For paper P46 (car) submissions you will need to ensure you complete the latest version as historic copies may not include the new zero emission mileage field. In addition, there will be a new field on the Full Payment Submission (FPS) to provide the car’s zero emission mileage figure (if relevant).

The zero emission mileage figure should be available on the vehicle’s Certificate of Conformity. For leased cars, the information should be provided from the car leasing firm or fleet provider. If, in extreme circumstances, this information is not available, HMRC allows you to obtain the zero emission mileage figure via the car manufacturer.

There are certain tax rules that it is important to consider if you pay for the public transport costs of your employees. The provision of public transport costs includes season tickets provided for employees, season ticket costs reimbursed to employees, loans made to employees to buy season tickets and contributions to subsidised or free public bus transport.

If you are contributing to subsidised or free public bus transport there are no reporting requirements to HMRC, and you do not have to pay any tax or National Insurance based on these costs. This is because there is a special exemption in place for subsidies to public bus services. One example of this provided by HMRC is where you help finance a bus route that gives your employees free or reduced-rate transport between their homes and work or between workplaces.

However, if the public transport costs are not exempt then the costs will need to be reported to HMRC with tax and National Insurance implications. This includes where season tickets are provided to your employees, where the cost of a season ticket is reimbursed or where a loan is made to your employee to purchase a season ticket.

There are special rules involving bicycles for work use, usually referred to as 'Cycle to Work' arrangements. The Cycle to Work scheme was introduced almost 20 years ago to help promote the use of healthy ways to commute to work using an environmentally friendly mode of transport.

The scheme allows employers to provide bicycles and cyclists’ safety equipment to employees as a tax-free benefit. The scheme was recently extended to include the use of electronic bikes known as e-bikes. The scheme must be offered to all employees and the bike must be used for qualifying journeys (but pleasure use is also allowed). Where the scheme conditions are satisfied, employees can benefit from a tax and National Insurance Contributions (NICs) reduction of between 32% and 42% through a salary sacrifice scheme. In addition, there is no employer liability to NICs.

The cycle to work benefits only relate to the loan period. However, it is commonplace for an employer or a third party bicycle provider to offer the employee the bicycle / equipment they have been using for sale after the loan period has ended. The bike may be offered to the employee for sale at a fair market value, but this must be done as a separate agreement.

Employers of all sizes across the public, private and voluntary sectors are eligible to take part in the scheme to provide (technically loan) bicycles and cyclists’ safety equipment to employees as a tax-free benefit. If you are interested in hearing more about the benefits of this scheme, please let us know.

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel. HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

If employees can use the advisory fuel rates to repay the cost of fuel used for private travel, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding if the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

The latest advisory fuel rates became effective on 1 December 2019. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The new rates are as follows:

 

Engine size	Petrol – amount per mile	LPG – amount per mile
1400cc or less	12p	8p
1401cc to 2000cc	14p	9p
Over 2000cc	21p	14p

 

Engine size	Diesel – amount per mile
1600cc or smaller	9p
1601cc to 2000cc	11p
Over 2000cc	14p

   
Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

HMRC accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car there is no profit. While electricity is not considered a fuel for tax and NICs purposes, the Advisory Electricity Rate is now published quarterly alongside the other advisory fuel rates.

If you are an employee and use your own money to buy things you need for your job, you can sometimes claim tax relief for the associated costs. It is usually only possible to claim tax relief for the cost of items used solely for your work.

You may also be able to claim tax relief for using you own vehicle, be it a car, van, motorcycle or bike. As a general rule, there is no tax relief for ordinary commuting to and from your work. The rules are different for temporary workplaces where the expense is usually allowable and if you use your own vehicle to do other business related mileage.

Employers usually make payments based on a set rate per mile depending on the mode of transport used. There are approved mileage rates published by HMRC. The approved mileage allowance payment rates are available where you use your own car on a business trip. Where the approved mileage rates are used, the payments to you are not regarded as a taxable benefit.

Where an employer pays less than the published rates, you could claim tax relief for the shortfall using mileage allowance relief. For all cars the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile. The approved mileage rates are 20p per mile for bicycle travel and 24p per mile for motorcycle travel.

There is an additional passenger payment you can receive of 5p per passenger per business mile from your employer. This is available if you carry fellow employees in your car or van on journeys which are also work journeys for your colleagues. 

We would be happy to help you review any vehicle related expenses to understand any tax relief that may be available.

Any Christmas bonuses / gifts paid in cash to employees, by employers, are almost invariably taxable as earnings. This view has been upheld by the courts on many occasions and can mean that a gift from a well-intentioned employer is worth less than the giver or the recipient initially expected.

If you are an employer and looking to give a Christmas bonus to your employees, then your best option is probably to give them a gift. To ensure that this is not a taxable gift, it is important to confirm that the trivial benefits in kind (BiK) rules apply.

The tax exemption applies to trivial BiKs where the BiK:

• is not cash or a cash-voucher; and
• costs £50 or less; and
• is not provided as part of a salary sacrifice or other contractual arrangement; and
• is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

For example, a turkey that cost £45 would qualify as would a £15 bottle of wine. It is also possible to provide employees with a gift voucher (not a cash-voucher) if the value is £50 or less. It is important to remember that the gifts must not be provided in recognition of the employees’ services but merely as a gesture of goodwill at Christmas.

There is an annual cap of £300 for directors or other office-holders of close companies and to members of their families or households. The £300 cap does not apply to normal employees.

There is no longer a requirement for employers to report these benefits on P11Ds or PAYE Settlement Agreements. However, if the Christmas gifts have a value of over £50 or cannot be counted as a trivial benefit, then the gift must be reported on form P11D and employer Class 1A NICs will be payable.

There are some important rules to be aware of if you provide parking spaces to your employees. If the parking places you provide are at, or near your employee’s workplace, then you are entitled to an exemption. This means there is no requirement to report anything to HMRC and you would not be required to pay any additional tax or National Insurance for these parking spaces. These rules include the provision of parking spaces for cars or motorbikes at, or near, the employee’s place of work. The provision of facilities for parking bicycles is also exempt.

There is no legal definition of the words 'at or near' in the relevant act and HMRC say the exemption is available in any case where parking facilities can be said to be within a reasonable distance from the place of work, having regard to the nature of the locality. It does not matter if the car park is not the one closest to the place of work.

However, if you provide parking places which aren’t covered by an exemption, you will need to report them on form P11D and pay Class 1A National Insurance on the cost of providing the parking places.

The exemption does not apply to parking spaces you provide that are not either:

• at or near the employee’s workplace
• for use on a business journey.

There are many taxpayers that have reached the State Pension age and continue to work. It should be noted that the requirement to pay any employee or self-employed National Insurance Contributions (NICs) ceases once a taxpayer reaches the State Pension age, subject to the following clarification. Taxpayers remain liable to pay any NICs that were due to be paid on earnings before they reached the State Pension age. The self-employed will need to pay Class 4 NICs for the remainder of the tax year in which they reach State Pension age but will be exempt from the following year.

Certain occupations have a compulsory retirement age after which you are no longer allowed to work. An employer must have a good reason for setting a compulsory retirement age if there is an age limit set by law, or the job requires certain physical abilities. Apart from these special circumstances there is no official retirement age and taxpayers usually have the right to work beyond the State Retirement age. There is also no requirement to provide a date of birth when applying for a new job.

Taxpayers can usually claim their pension whilst they continue to work, as long as they have reached the State Pension age, or the age agreed with their pension provider (if drawing from a personal pension or workplace pension arrangement).

When a new employee is added to the payroll it is the employers' responsibility to ensure they meet the employees’ rights and deduct the correct amount of tax from their salary. This includes any employees who are family members.

HMRC’s guidance is clear that if you hire family members you must:

• avoid special treatment in terms of pay, promotion and working conditions
• make sure tax and National Insurance contributions are still paid
• follow working time regulations for younger family members
• have employer’s liability insurance that covers any young family members
• check if you need to provide them with a workplace pension scheme

It is possible to employ young people if they are 13 or over but there are special rules that govern how long they can work and what jobs they can undertake. Young workers and apprentices have different minimum wage rates from adult workers for the National Minimum Wage.

There are different rules if you take on volunteers or voluntary staff, but you as the employer are responsible for health and safety and must give inductions and proper training for the 'job' at hand.

In some industries, employers provide accommodation to employees because this is required by the nature of the job. There are no tax charges in respect of the provision of living accommodation where

• it is necessary for the proper performance of the employee’s duties that he or she should reside in the accommodation, or
• the accommodation is provided for the better performance of the employee’s duties, and the employment is one of the kinds for which it is customary for employers to provide accommodation for the employee, or
• there is a special threat to the employee’s security, special security arrangements are in force and the employee resides in the accommodation as part of those arrangements.

However, there can be other scenarios whereby an employee is provided with living accommodation and is allowed to sub-let the property. If this is the case, and even if the employee does not sub-let, the ability to sub-let is regarded as money's worth to the employee and will give rise to an earnings charge. 

This issue is covered in HMRC’s manuals. HMRC makes the point that the ability to sub-let is unlikely to be encountered that often in practice.