PAYROLL INSIGHT
Tax implications for employees using assets Peter Minchinton, employment taxes consultant at PSTAX, discusses a very important change to the tax legislation regarding assets provided to employees from 2017–18 onwards, which will need to be addressed as a matter of priority
W here an asset is provided to an employee and it is available for their private use, then a benefit arises under section 205 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). In such cases, the benefit has – and will continue to be – calculated based on the higher of 20% of the initial market value or the leasing costs, plus any other expenses incurred in the tax year. From that sum may be deducted any amounts paid by employees for the private use of the asset. Where the asset is used both for business and private purposes section 365 ITEPA has allowed for a deduction of the business element, so that the employee would only have paid tax on the element relating to their private use. However, for Class 1A National Insurance contributions (NICs) purposes the benefit before the business deduction is the chargeable figure. Prior to 6 April 2017, HM Revenue & Customs’ (HMRC’s) guidance gave an example of a private plane being provided. The calculation of the benefit was based on 20% of the market value of the asset, plus additional expenses, less days used for other purposes, an amount paid by the employee and the days used by the
employee on business. Finance Act 2017 made some changes to section 205, which apply from 6 April 2017, and which has brought in two new paragraphs to be used when calculating the benefit. Finance Act 2017 made some changes to section 205, which apply from 6 April 2017... Under the first new paragraph, there is a new reduction where the asset is unavailable. Therefore, the days before the asset is first made available and days when the asset is no longer available are obvious examples. A reduction is then due if the asset cannot be used for more than twelve hours in a day, because it is not in a fit condition for use, it is undergoing repair/ maintenance or it cannot be lawfully used. Finally, there is a reduction where, on a particular day, the employee is obliged to use the asset in the performance of their
duties and does not use the asset for any other reason. The second new paragraph allows a reduction where the asset is shared between two or more employees. However, hiding right at the bottom of the new clause is a change to section 365 which eliminates the opportunity for an employee to claim a reduction for the business use of an asset provided under section 205. This is reflected in the revised example in the HMRC guidance where the benefit, now a helicopter, is still calculated on 20% of the market value plus additional expenses, but the only reductions are now for the days when the asset was used only for employment purposes and days when it was used by another employee. Any reference to the business use reduction has disappeared from the HMRC guidance and, as far as the writer is aware, has not been publicised. This change is going to be particularly relevant to officers in the emergency services who could see their taxable benefits increase sharply. Emergency services provide cars to employees for operational requirements and there are different parts of tax legislation that can
| Professional in Payroll, Pensions and Reward | September 2017 | Issue 33 24
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