Section 17: Paye: Benefits in Kind
Summary
1.This section amends the Income Tax (Earnings and Pensions) Act (ITEPA) 2003, to provide powers to the Commissioners of HM Revenue & Customs (the Commissioners) to make regulations to collect income tax on specified benefits in kind through Pay As You Earn (PAYE).
Details of the Section
2.Subsections (1) and (2) insert new section 1ZA into section 684 (PAYE regulations) of ITEPA 2003.
3.New provision 1ZA (a) provides that the Commissioners may make regulations to authorise an employer to deduct or repay income tax through PAYE where the employer provides an amount to an employee that is charged to tax under the benefits code in Part 3 of ITEPA 2003.
4.New provision 1ZA (b) provides for the regulations to specify the time at which any deduction or repayment are to be made.
5.New provision 1ZA (c) provides for the regulations to specify how any deduction or repayment is to be calculated.
6.New provision 1ZA (d) provides a power for the benefit to be treated as PAYE income for the purposes of the regulations.
7.New provision 1ZA (e) provides that regulations may be made to provide that employers who make a deduction or repayment must account for them to the Commissioners.
8.Subsection (3) adds new provision 1ZA to the list in subsection 684(3) ITEPA 2003, which provides for the rates of income tax that an employer will deduct to be set by PAYE regulations.
Background Note
9.This section introduces new powers for the Commissioners to make regulations to authorise employers to deduct or (repay) income tax through PAYE on the benefits that they provide to their employees (“payrolling”).
10.At Budget 2014 the Chancellor announced a number of measures aimed at simplifying the administration of employee benefits and expenses. This followed the Office of Tax Simplification’s (OTS) review of employee benefits and expenses.
11.The package of four measures consisted of the following:
Abolishing the threshold for the taxation of benefits for employees who earn at a rate of less than £8,500 a year (‘lower paid’ employments), with action to mitigate the effects on vulnerable groups disadvantaged by the reforms;
Introducing a statutory exemption for trivial benefits;
Introducing a system of collecting income tax in real time through ‘payrolling’ of benefits; and
Replacing the expenses dispensation regime with an exemption for paid and reimbursed expenses.
12.This dispensation to allow employers to payroll their employee’s benefits and expenses voluntarily replaces an existing informal practice, where some employers operate payrolling but still have to comply with tax rules that require them to complete a form P11D (return of employee benefits and expenses) at the end of each tax year for each employee. The regulations will disapply that obligation for employers who payroll reducing their administrative burdens.
