End of year reporting- Employment tax 2020/21

Employment tax 2020/21: year-end reporting

New coronavirus tax rules and radical shifts in employer expenditure will challenge the existing End of Year compliance processes for 2020/21.

Why it’s different for 2020/21

The year-end procedures must identify taxable benefits and expenses and report these on the correct return, so income tax and NIC are paid at the correct rate and on time to HMRC.

Most employers would have seen a fall in the volume of expense claims and significant changes in expenditure on employee benefits and expenses during 2020/21.

But as expenses and benefits policies were changed to support new ways of working during the coronavirus outbreak – and benefit from temporary new exemptions and reliefs introduced to support new working patterns – employers also saw significant changes in the make-up of those claims and expenditure.

This affects year-end reporting processes.  The impact for each employer will vary according to which new expenses and benefits were introduced across the workforce and whether the temporary new coronavirus exemptions and reliefs apply.

 What should you do?

For many employers, these changes mean it is not going to be possible to replicate year-end processes from previous years.

Issues could arise gathering data; the pace at which employers had to adapt to change and remote working made it more difficult to apply the usual processes and controls to gather information to support claims and expenditure.

In view of this, and with continued pressure on resources, employers should get year-end processes underway as quickly as possible.  Some specific issues to consider include:

• Have you applied for the temporary coronavirus exemptions correctly? Whilst these measures appear generous, the devil is in the detail.  For example, can you demonstrate that home office equipment costs were reimbursed on ‘similar terms’ and the other qualifying conditions were met?  Did any COVID-19 tests provided meet the conditions for a benefit-in-kind exemption?
• Were deductions for payrolled benefits paused for furloughed employees? If so, it’s important to ensure those benefits are reported to HMRC on the correct return and any reporting implications for subsequent years considered.
• Where a specific coronavirus exemption doesn’t apply, is the expense or benefit covered by another exemption, for example for trivial benefits where the cost doesn’t exceed £50 and certain other conditions are met?
• Did your travel expenses policy change? Some employers regarded employees’ homes as permanent workplaces during lockdown and reimbursed the cost of journeys that started at home, even to employees’ former workplaces.  Whilst the rules are complex, in most cases travel costs between home and a permanent workplace are likely to be taxable.
• Did you reimburse additional home working expenses for increased utility bills etc.?  It’s important to ensure the amounts covered meet the requirements of the exemption, and either fall within the £6 per week limit for unreceipted expenses, are based on a scale rate agreed with HMRC, or are fully evidenced.

Where reportable expenses and benefits are identified, employers need to consider whether they should be reported on employees’ Forms P11D or included in a new coronavirus expenses category in the PAYE Settlement Agreement (PSA).

The March Budget announced a new COVID-19 task force and therefore we can expect HMRC’s future enforcement activities to focus on coronavirus-related expenses and benefits.  Employers should therefore retain evidence to support that relief was correctly due for any unreported expenses and benefits in the event of a review.

Additionally, the international displacement of workers due to the outbreak could give rise to the unexpected UK or overseas tax and social security liabilities, and employer withholding and reporting obligations. This could occur where mobile employees unexpectedly establish the UK or overseas tax residence or have more workdays in the UK or another jurisdiction than anticipated. Employers should therefore review their mobile workforce, identify any such exposures, and determine how these should be addressed, where necessary as part of their year-end compliance.

Key actions and deadlines are summarised below.

How Spondoo Accountants can help

We offer a range of year-end support to employers which includes the following:

• Advice on the tax and NIC treatment of coronavirus-related expenses and benefits – we can advise on whether the new temporary reliefs and exemptions apply to your specific circumstances and, if not, whether alternative reliefs or exemptions might apply.
• Preparing and submitting PSAs – we can advise on which items can be included, analyse general or nominal ledger codes, and submit the PSA computations to HMRC on your behalf.
• Preparing and submitting Forms P11D/P11D(b) – we can prepare P11Ds/P11D(b) on your behalf and advise you on your Class 1A NIC liability for the year. We can also review P11Ds prepared by you.
• Payrolling benefits – many employers payroll benefits to ease year-end administration.  We can guide you through the key decisions, challenges, communications to employees, and the changes to payroll processes.
• International mobile employees – we can help review any tax and social security liabilities if you have any displaced employees and also help you prepare and submit your STBV return to HMRC.