Tax efficient salary packages
All payments, whether in kind or cash, are a possible source for one form or another of tax. Anything that is officially deducted or taken, no matter what name it goes under, that is not a direct payment for goods or service, is a tax.
New legislation is constantly being introduced to prevent the avoidance of tax on payments or benefits. It is quickly becoming one of the most complex sections of the law that governs income and taxation.
From the 2001 tax year the taxation on benefits in kind has been greatly extended. In HMRC's effort to tax the very air we breath they have made it much harder to provide salary packages to your employees that contain tax efficient elements.
How do we know whether a benefit is taxable or not? In general terms, if there is a resalable value to the benefit, i.e. it can be converted into a cash equivalent, then the benefit is taxable. However, there are also recognised benefits that are not taxable.
Expenses are also classed as a benefit, however, as most reimbursed expenses that were 100% necessary for business purposes would be 'claimed back' by the employee the HMRC has a dispensation scheme that allows these 'zero liability' benefits not to be declared.
A dispensation can be made by HMRC that allows agreed upon expenses not to be listed in the annual declaration of benefits. You would usually expect a dispensation to be granted for traveling and subsistence although it is not guaranteed, you used to be able to get a dispensation for entertainment but, in general, is not now given.
Dispensations are not automatically granted, they have to be applied for and, if granted, may not cover all the employees and expense areas that were applied for. They are reviewed from time to time and have to be kept up to date.
Reporting the payment of benefits
Every employee, who has received a taxable benefit, must have an 'Expenses and Benefits' form, known affectionately as a P11D, completed for them at the end of the tax year. The information from all your employees forms is then consolidated onto the employers version, 'Return of expenses and benefits - employers declaration' P11D(b) form. There are strict rules that govern the completion, distribution and subsequent payments and we would suggest that advise is taken.
