MEMBERSHIP INSIGHT
letter to X, as the payment will not be subject to Class 1 NICs; neither primary nor secondary. As the employee left on 31 May 2016 you should have already sent off the P45 so you must now apply tax code 0T on a non-cumulative basis. However, if the employee had died in service you would not issue a P45, and would use the tax code which was already in place and the date of death as the leave date in the full payment submission. You must ensure that you are paying the correct person, i.e. the recipient of the employee’s estate. Q: When calculating the car benefit to report in a P11D return for tax year 2015/16 for an employee who was provided with a company car from 1 September 2015, do I use 366 days instead of 365? A: Yes, as 2016 is a leap year due to inclusion of 29 February. Using the actual number of days in a tax year is relevant if, amongst other things, the car is unavailable on any day before the first day on which it is available to the employee. Section 121 of the Income Tax (Earnings and Pensions) Act 2003 sets out the various steps for calculating the car benefit for the tax year. Steps 1 to 6 give the total amount for the year, with step 7 (which is prescribed in section 143) giving the following formula for calculating a deduction from that amount for periods of unavailability: where: U is the number of days in the year on which the car is unavailable, Y is the number of days in that year, and A is the amount carried forward from step 6 (see https://goo.gl/YmJQjA.) Q: The company is planning to pay off an employee’s student loan (either in full or part) and also where an individual is still at university but expected to join the company following graduation. Can you tell me what the tax and NICs implications would be? A: If the employer pays off the student loan, the employer is paying the employee’s personal bill which is classed as a meeting pecuniary liability. U Y X A
Advisory Service is available 9a.m. to 5p.m. Mondays to Thursdays, and 9a.m.
to 4.30p.m. on Fridays. It is free to all CIPP members * , students and attendees of approved CIPP courses and conferences in the last six months. Call 0121 712 1099 , email advisory.service@cipp.org.uk or visit cipp.org.uk for frequently asked questions.
Advisory
*please see summary at cippmembership.org.uk for details.
Q: One of our employees has been given a Rolex watch worth £3,000 as a prize for a competition we recently ran in-house. How do we treat this? A: Because the competition is not open to the general public, and the prize would be classed as a readily converted asset, the Income Tax (Earnings and Pensions) Act 2003 sets out the treatment. As a readily convertible asset, the value of the benefit falls within the scope of being a notional payment and is therefore added to the employee’s pay at the point they receive the watch so that pay as you earn (PAYE) and Class 1 national insurance contributions (NICs) are operated. The value of the notional payment added to the employee’s pay is the cost of the provision of the Rolex, which you say is £3,000.00. There are specific rules concerning notional payments. The following links are to HMRC’s guidance: ● https://goo.gl/CHUhHR – showing that prizes given to an employee must reported in accordance with the nature of the prize ● https://goo.gl/GiUi37 – understanding when a readily converted asset is being provided to an employee ● https://goo.gl/uYXFy8 – confirming tax and NICs are applied to a readily converted asset through the payroll (i.e. apply PAYE and Class 1 NICs to the payment). Q: I recently read that HMRC will not accept a list of benefits for Class 1A NICs from 2016/17. Does this mean that we cannot use a list for the tax year 2015/16, or does it mean that we cannot report in list format from the beginning of the 2016/17 tax year?
A: You are able to report in list format for the 2015/16 tax year; see the links below that explain that you can still report in a list format for tax year 2015/16. However, you do need HMRC’s permission to do this. ● https://goo.gl/j9uM4n – this links to the relevant Employer Bulletin: please refer to item 3. ● https://goo.gl/wwbvSj – this links to the 480 booklet; please refer to paragraph 25.6 to view guidance on provision of year end information. You will not be able to report the benefits for tax year 2016/17 in list format. Q: We did not pay an employee who commenced employment on 1 April 2016 until 30 April 2016, and we have not issued a P60 certificate. Is this correct? A: The legislation regulating the P60 provision is the Income Tax (Pay As You Earn) Regulations 2003. Though regulation 67 prescribes that an employer should provide an employee with a P60 certificate if they were employed on the last day of the tax year, paragraph (1b) of this defines another condition. The employee has to have had earnings which were subject to PAYE in the old tax year so if they were not due to be paid until 30 April then the employee cannot be issued with a P60. Q: A member of staff left our employment on 31 May, but sadly died on 4 June. We have a further payment to make; how should we process this? A: When an employee dies and the employer has a final payment to make to the employee’s estate you would need to change the national insurance table
| Professional in Payroll, Pensions and Reward | September 2016 | Issue 23 8
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