Alvarez and Marsal

A&M Tax Advisor Update

Employer Compliance End of Year Update

Louise Jenkins, Managing Director

ljenkins@alvarezandmarsal.com

Tracey Norton, Senior Director

tnorton@alvarezandmarsal.com

Linda Cameron, Manager

lcameron@alvarezandmarsal.com

Nikki Wells, Manager

nwells@alvarezandmarsal.com

April 8, 2021 / North America

Now that the 2020/21 tax year has ended, employers should be thinking about the various compliance deadlines coming up in the next few months around employee benefits, expenses and share schemes.

We are seeing HMRC step up their activity in this area, and so it is essential that employers have robust processes and controls in place to remain compliant. This article sets out some of the key employment tax deadlines coming up, as well as other important reminders for employers.

End of year reporting

Forms P11D and P11D(b)
Employers are required to report details of certain taxable benefits provided to employees, by 6 July 2021, using Form P11D (where the benefits are not already covered by a payrolling arrangement with HMRC or under a PSA). A copy of the P11D must also be provided to each employee by 6 July 2021. Employer’s Class 1A NIC is payable at a rate of 13.8% on certain P11D benefits and must be paid by employers by 19/22 July 2021.

PAYE Settlement Agreement (PSA)
A PSA is a formal arrangement with HMRC whereby employers choose to settle the tax due (on a grossed-up basis) on certain employee benefits. Typical benefits we see included in PSAs are staff entertaining, gifts and taxable long service awards. Employer’s Class 1B NIC is also payable at a rate of 13.8% on the value of PSA benefits and must be paid by employers by 19/22 October 2021.

A PSA must be agreed with HMRC by 5 July following the end of the tax year to which it relates, however, it is best practice to agree this before the benefits covered are actually provided to employees. Once a PSA is agreed with HMRC, it will remain in place for future tax years (or until amended by the employer/HMRC).

ERS Annual Returns
Employers should also now think about submitting their Employment Related Securities (ERS) Annual Return for any new and existing share plans (HMRC tax advantaged and non-tax advantaged), for the 2020/21 tax year. HMRC will accept share plan returns from the 6th April 2021 and the deadline is 6th July 2021.

Reporting on the ERS Annual Return involves a number of key tasks that are essential in submitting the return to HMRC. These include:

  1. Registering new plans: For new share plan arrangements (note, this includes simple acquisitions of shares by employees and directors) that occurred in 2020/21, companies must first register “a plan” online with HMRC via the ERS Online Services page.
  2. Verify or self-certify the tax-advantaged plans in place including Share Incentive Plans (SIPs), Save As You Earn (SAYE) plans and Company Share Option Plans (CSOPs). If you do not verify them, you risk the beneficial tax treatment being lost.
  3. Submit annual returns with all reportable events including nil returns
    The list of potential reportable transactions/events includes (but is not limited to) any acquisition of shares or securities (e.g. loan notes, carried interest, etc.) made by employees or directors, the grant of share options to employees or directors and certain disposals of securities (where these events have given rise to income tax).

HMRC enquiries

Any review by HMRC (or an advisor on a due diligence) will look at P11D and PSA compliance and ERS Annual Returns, so have copies ready. The common errors/issues we often see arising in such reviews in relation to P11Ds, PSAs and ERS returns include:

  • Not reporting all taxable P11D /PSA benefits, including staff entertaining, gifts and non-cash awards.
  • Benefit values incorrectly calculated under the Optional Remuneration Arrangement rules.
  • Incorrectly recording/not reporting fuel provided for company cars.
  • Using the wrong currency in the ERS return template which will cause the price paid for the shares to be incorrectly reported.
  • For ERS returns, failing to include those individuals that are not UK-based employees but carry out duties in the UK during the period of award.
  • Review, analyse and report correctly the restrictions attached onto the shares.

Penalties

Late P11D filings will incur a penalty of £100 for every 50 employees. HMRC will also charge statutory interest on late paid Class 1A NIC. Additional percentage-based penalties can also be applied for incorrect P11Ds, based on whether HMRC deem that the employer has taken reasonable care and whether the mistake is deemed to be careless, deliberate and/or concealed.

Furthermore, where HMRC uncover errors as part of a review, they will often ask employers to settle unpaid tax on the benefits on the employee’s behalf, on a grossed-up basis, often covering several tax years. This can all result in significant liabilities for an employer as a result of reporting benefits incorrectly.

Late ERS filings will result in similar penalties from HMRC as follows:

TAU

A penalty of up to £5,000 can also be inflicted for material inaccuracy in an ERS return which is not immediately addressed and resolved.

Other key employer changes

Some of the other recent key changes affecting employers include:

  • Coronavirus Job Retention Scheme (CJRS) – CJRS has been extended to 30 September 2021, with employers being required to contribute 10% from July and 20% from August.
  • Off payroll workers (IR35) – changes to the off-payroll working rules for businesses in the private sector came into force on 6 April. These changes have a significant impact for businesses that directly engage individuals via personal service companies (PSCs). All medium and large businesses will be responsible for determining the IR35 status of the contractors they engage. If the contractor is found to be operating inside IR35, the engaging business must make sure the correct tax and NIC are paid.
  • Pensions – consideration should be given to whether the annual allowance (AA) and lifetime allowance (LTA) will be exceeded for any employees. Broadly, the AA is the maximum amount of pension savings an individual can save each year that benefit from tax relief and the LTA is the maximum amount that can be paid from an individual’s pension scheme that can be made without triggering an extra charge.> For 2021/22, the AA is £40,000. For every £2 of adjusted income (broadly, UK taxable income) over £240,000, an individual’s AA is reduced by £1 down to a minimum of £4,000.

    > For 2021/22, the LTA is £1,073,100, which will remain frozen at this level until April 2026.

Key dates to remember – summary

Key dates to remember - Summary

Other deadlines and submissions may also apply. Please let us know if we can assist with these.

How we can help?

At Alvarez & Marsal Taxand, our Reward and Employment Tax team have extensive experience in advising employers on their ongoing employment tax and NIC obligations. We can offer a range of advice and services to assist employers in respect of P11D, PSA and ERS Annual Return compliance, as well as providing bespoke advice on all areas of employee reward and employment tax, including short term business visitor returns and special arrangements for tax equalised employees or overseas workers in the UK (App4-8 agreements).

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