The dates for ‘making good’ non-payrolled benefits-in-kind (BiKs) are to be aligned to 6 July following the end of the tax year in which the tax charge arises.
Who should read this?
Employers who provide BiKs to employees which are subsequently ‘made good’ by the employee and employees who do so.
Summary of proposal
At Budget 2016 the Government announced a package of measures to simplify the tax administration of employee benefits and expenses. This was subsequently followed by several consultations, one of which concerned the alignment of dates for ‘making good’ on non-payrolled BiKs which ran from 9 August to 4 October 2016. On 5 December the Government published their response to stakeholder feedback.
The core proposal outlined in the consultation was to require employees to ‘make good’ most non-payrolled BiKs by the end of the tax year in order for the ‘making good’ to be considered effective for income tax and NIC purposes. A date of 1 June following the end of the tax year was proposed for car and van fuel benefit, credit tokens and beneficial loans. However, in light of stakeholder feedback from KPMG and others regarding the practical difficulties this would entail, the Government have now confirmed that they intend to apply a single date of 6 July following the end of the tax year in which the tax charge arises.
As part of the consultation the Government also considered whether interest paid on an employer-provided loan after the BiK has become final and conclusive should continue to be taken into account. The majority of respondents, including KPMG, were of the view that the status quo should be preserved, not least due to issues with fixed repayment dates that do not coincide neatly with the end of the tax year. The Government has therefore decided not to change the current treatment and interest paid after the BiK has become final will continue to be taken into account. We welcome this decision.
The final limb of the consultation concerned non-cash vouchers and credit tokens: the Government sought views on whether there would be difficulties in requiring employees to ‘make good’ within the earnings period to remove the associated NIC liability.
Unlike the BiKs considered above, which are subject to Class 1A NIC, non-cash vouchers and credit tokens are subject to Class 1 NIC (like cash). Some respondents suggested that non-cash vouchers and credit tokens should be aligned with other BiKs and moved to Class 1A with ‘making good’ being required by 6 July following the end of the tax year.
In fact the Government has decided not to change the NIC treatment of non-cash vouchers and credit tokens because they consider that a Class 1 NIC treatment will preserve contributory benefits and statutory payment rights for low paid workers.
However, the Government’s response reiterates HMRC’s guidance in the NIC Manual in which there is no express provision on the timing required for reimbursement for Class 1 NIC purposes (to avoid a Class 1 charge): “a Class 1 NICs liability is applied to a payment of a non-cash voucher or use of a credit token only where there is no intention to seek reimbursement from the employee”. So, in practical terms, ‘making good’ by 6 July should therefore remove the Class 1 NIC liability as well as the income tax liability.
We understand that HMRC will be publishing further guidance on the changes outlined above in due course.
The changes will take effect for the 2017-18 tax year and subsequent tax years.
We stated in our response to the consultation document that our preference was to have a single deadline for ‘making good’ on all BiKs, ideally of 6 July. We therefore welcome the Government’s announcement.
We believed that further consideration was required in respect of beneficial loans where the payment dates are fixed and fall after the originally proposed 1 June deadline for ‘making good’. With this in mind, due to the varying interest repayment terms which can apply to employer-provided loans, we recommended that the current provisions be retained. Again we welcome the Government’s announcement.
We had hoped that non-cash vouchers and credit tokens would be moved to Class 1A NIC. While the Government has not adopted this suggestion we do welcome their decision not to proceed with a requirement to ‘make good’ in the relevant earnings period.
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