The Income Tax (Pay As You Earn) (Amendment No. 4) Regulations 2015

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Income Tax (Pay As You Earn) Regulations 2003 (“the principal Regulations”) (S.I. 2003/2682) which make provision for the assessment, charge, collection and recovery of income tax in respect of pay as you earn income (“PAYE income”).

Regulation 3 removes the definition of “Scottish rate” in the principal Regulations which was inserted by regulation 3(d) of the Income Tax (Pay As You Earn) (Amendment No. 3) Regulations 2015 (S.I. 2015/1667).

Regulations 4, 5 and 8 amend the principal Regulations to remove the requirement for employers to report expenses paid to employees (whether deductible or not) on form P11D at the end of the tax year. These amendments are consequential on the amendments made to the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (“ITEPA”) by the Finance Act 2015 (c. 11) (“FA 2015”) exempting certain expense payments and benefits in kind provided to employees from income tax.

Regulation 6 inserts new Chapter 3A: Benefits in Kind, consisting of new regulations 61A to 61M, into Part 3 of the principal Regulations (Deductions and repayments of tax), which introduces a scheme to authorise employers to deduct tax from employees’ pay in respect of certain benefits in kind that they provide to their employees through PAYE (“payrolling benefits”) from the 2016-17 tax year.

New regulation 61A defines several terms used in Chapter 3A.

New regulation 61B provides that Chapter 3A applies to employers who are authorised by HMRC, in accordance with the procedure set out in regulation 61C, and who provide specified benefits to specified employees (both ‘specified employee’ and ‘specified benefit’ are defined in new regulation 61A). Where Chapter 3A applies, the provision of a specified benefit is treated as a payment of PAYE income for the purpose of the principal Regulations. New regulation 61B provides that any reference in the principal Regulations to ‘relevant payment’ includes an amount that is to be payrolled in accordance with Chapter 3A. But an amount to be payrolled will not be taken into account for the purposes of the overriding limit (as defined by regulation 2 of the principal Regulations). As a result the rule that employers may not deduct more than 50% of an employee’s pay, as provided by regulations 23(5) and 28(5) of the principal Regulations, is unaffected by any provision made in these Regulations.

New regulation 61C defines who is an authorised employer for the purposes of Chapter 3A. An employer will be an authorised employer if, before the start of the tax year in which the employer wants to payroll benefits, they apply to HMRC in respect of an employee receiving a specified benefit. An employer may make an application during the tax year only in limited circumstances. Provision is also made for the circumstances in which an employer ceases to be an authorised employer.

New regulation 61D contains the general rule for calculating amounts of tax to be deducted from an employee’s pay through PAYE in respect of the specified benefits provided by the employer. The general rule is subject to modification by new regulations 61H, 61I, 61J, 61K and 61L (see below).

New regulations 61E to 61G deal with how to calculate the cash equivalent of the benefit for the purposes of the general rule. New regulation 61E is concerned with cars and vans. New regulation 61F is concerned with fuel. New regulation 61G is concerned with other employment-related benefits.

The general rule in regulation 61D is subject to modification in situations where: the employee leaves an employment but continues to receive a specified benefit (new regulation 61H); there is a change in the specified benefit during the year that has effect for tax purposes from the date of the change (new regulation 61I); there is a change in the specified benefit during the year which has effect for tax purposes from the start of the tax year and other changes (new regulation 61J); the employee has not paid the full amount expected to made good the cost of a car, van or other employment-related benefit within the tax year (new regulation 61K); or the employee has not paid the full amount expected to made good the cost of fuel provided for private use by 1 June following the end of the tax year (new regulation 61L).

New regulation 61M provides that an authorised employer must give their employees information about the specified benefits they have received during the tax year and the cash equivalent of those benefits for the tax year in respect of which tax has been deducted.

Regulations 7(a) and (b), 10 to 13 and 14(b) remove existing requirements in the principal Regulations for employers to report benefits provided to employees on form P9D at the end of the tax year in respect of certain excluded employments. These amendments are consequential on the repeal of Chapter 11 of Part 3 of ITEPA by FA 2015 which removed the £8,500 threshold below which certain benefits in kind and expenses were exempted from income tax. From the tax year 2016-17 all employees will be taxable in the same way on benefits in kind and expenses and all returns of such payments will be made on Form P11D.

Regulations 7(c) and 9 amend regulations 85 and 90 of the principal Regulations, respectively to disapply the requirement to submit a Form 11D or Form 46 (Car) in relation to benefits provided in the tax year where new Chapter 3A applies.

Regulation 14(a) amends Schedule A1 to the principal Regulations so that an authorised employer is required to report the amount of a specified benefit that is treated as a payment of PAYE income under new regulation 61B on or before making a payment to an employee.

Tax Information and Impact Notes covering this instrument were published on 10th December 2014 alongside the draft clauses and explanatory notes for the Finance Bill 2015 and are available on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins. They remains an accurate summary of the impacts that apply to this instrument.