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Five issues in year-end employment tax reporting

Jonathan Berger Jonathan Berger

Getting ready for year-end employment tax reporting is less straightforward now that we live and work in a world of hybrid working arrangements, displaced employees and evolving travel needs. What is best practice and what are some common traps to avoid in order to get your year-end employment tax reporting right?

More than 500 business leaders attended our most recent #GTEmployersForum virtual and in-person round tables held across the UK. Tax experts gave their insight and guidance on best practice, challenges around new working patterns, benefits and expenses reporting hazards, considerations for globally mobile employees, and also asked what lies ahead for employers in 2022/23.

Feel free to catch up with the webinar recording on demand. Reflecting on this forum, Jonathan Berger outlines some key issues for employers to look out for.

Watch the webinar

Five key issues in employment tax now

Preparing for year-end employment tax reporting and dealing with the changing face of employment tax is a hot topic in our changing world. Ensuring accurate reporting will be a key challenge for employers this reporting season.

Here are some of the key issues raised during our recent employers forum.

1 Hybrid working and the home office

New working patterns continue to be embraced by employers and there may be a significant impact on employment tax cost if payments and provision of equipment continue in the next tax year. The ability to pay tax-free home-working allowances is expected to end for those who are not contracted for regular home working. Meanwhile, questions remain around the status of the desks, chairs and monitors in home offices. Employers will need to consider how they deal with equipment for leavers, as well as what disparities there may be for new joiners during future tax years where equipment for home working is not provided. Weighing up the tax cost as well as the effect on employee morale will be key in relation to an updated policy approach.

2 Christmas in the Spring – beware of too many parties

With employees now returning to the workplace, some are looking to reinstate cancelled or postponed Christmas parties. Timing will be key. It’s possible that the £150 threshold exemption, which applies per attendee, might be breached on aggregate if additional annual functions are held in the same tax year. This may impact entertaining budgets or result in an unexpected tax bill once the annual PAYE Settlement Agreement (PSA) cost is taken into account.

3 Remote working overseas and cross-border home working

Disruption to payrolls and employer reporting continues for many as a result of employees working overseas and/or foreign nationals remaining in or coming to  the UK. For employers operating reduced PAYE schemes – such as Section 690s, net for foreign tax credit (Appendix 5) agreement or NT codes – a further year of disrupted travel has meant that PAYE withheld during the year may be significantly different from that ultimately due. Employers should therefore take care to revisit these in advance of year-end reporting and to adjust for the next tax year where appropriate.

As business travel resumes and commuting arrangements become more common, many employers may have considered that they could rely on short-term business visitor (Appendix 8) arrangements. But the application of the tax treaty can be more complex than it seems, with increasing consideration given to 'economic employment' over physical re-charge, and the often misunderstood 60-day rule, which can transcend multiple tax years. Now is an opportune time for employers to reconsider their processes in order to stay compliant with the relevant conditions and thresholds. 

Finally, if employers agreed to settle overseas taxes on behalf of mobile employees for the first time, and entered into a loan agreement to do so, then they  need to report these on P11Ds.

4 Evolving employee benefits and travel expenses

Our clients have been asking about optional remuneration arrangements (OpRA) legislation. The start of the 2021/22 tax year saw the end of the final transition period for the remaining grandfathered benefits, being company cars (with CO2 emissions above 75g/km), living accommodation and school fees.

The benefit-in-kind calculation should now be based on the higher of either the cash foregone on that benefit or the taxable benefit-in-kind value. Therefore there is the potential for higher benefit-in-kind values arising where provision of these benefits has continued.

Green benefits are excluded from the OpRA rules and are becoming increasingly popular. They include low-emission company cars, including electric vehicles (EVs), as well as bikes under the cycle-to-work scheme.

With the evolving nature of travel and commuting, businesses need to consider coverage of their PSA contract and their expense policy in relation to travel expenses, as well as the reporting of taxable costs. This might include whether bikes under their cycle-to-work schemes continued to be used “mainly for qualifying journeys”. This condition was relaxed for employees who joined and received their cycling equipment on or before 20 December 2020 and provides an easement until 5 April 2022. Otherwise where these conditions are not met, a taxable benefit in kind strictly arises.

5 How can you remain compliant in a changing world?

There’s a lot happening within employment taxes and much for employers to be aware of in order to remain compliant. Employers need to stay on top of a range of issues this reporting season: the impact of increasing numbers of commuters and business travellers, national minimum wage rates, IR35, expenses and benefits in a world of hybrid working – to name but a few.

Staying both cognisant and compliant in an evolving landscape is a big ask but one that we can help you address through our regular employers forum events.

You can stay up to date more easily with our quarterly events – sign up to receive an invitation to our next forum and follow #GTEmployersForum in the meantime. We hope to see you virtually or in person, and have made our recordings and insight available afterwards to allow you to catch up on-demand. Subscribe here for invites and access.

Watch the webinar

You can also read more of our insights in our employers forum hub.

And if you need any further information on the topics raised here, get in touch with Jonathan Berger or Katy Bond.