Payroll year-end: final issues to consider

With the 2015/16 tax year drawing to a close, there is just the final March payroll and then a small window for supplementary payroll runs before the final payment deadline of 22 April.

We would recommend you need to consider the following key areas before April.

Shares and share options
Where share options have been exercised during the year, and shares otherwise acquired by reason of employment, then an income tax charge will have arisen in the year. Where these shares are readily convertible assets (e.g. shares in a listed company, immediately prior to a sale, or in a company controlled by another company) then the gain will be subject to PAYE and NIC and needs to be reported through the payroll.

From 6 April 2015 the rules changed in respect of internationally mobile employees, such as expats. Whereas previously options granted whilst outside the UK were generally not considered taxable at exercise in the UK, even when resident in the UK at the time, the rules have changed for all exercises from 6 April 2015. The new rules will essentially time apportion the gain over periods of residence and so a PAYE (and NIC) charge can arise where the shares are readily convertible (see above).

Reimbursed expenses
Where expenses are reimbursed that are taxable and normally reported on Form P11D (e.g. home phone/internet) then these expenses are normally subject to Class 1 rather than Class 1A NIC. The difference here is that Class 1A NIC, paid through the P11D system, is an employer only charge, while Class 1 NIC is both an employee and employer charge. Therefore paying the incorrect class of NIC can result in an underpayment arising.

Payroll benefits
Where you are looking to continue to payroll benefits or considering implementation of this for the new tax year, then applications need to be made to HMRC before 6 April. If not, then payroll benefits will not be able to commence until April 2017.

The end of P11D dispensations
While all P11D dispensations will end from 5 April 2016 as we move into a new system of self-assessment by employers, HMRC have confirmed that any bespoke rates of allowance previously agreed in a dispensation within five years before 5 April 2016 will be allowed to continue. If any employers have bespoke rates that were agreed prior to April 2011 then these will not be covered under the new rules and an updated agreement should be sought.

Staff from overseas
Where you have staff visiting the UK from overseas group companies, even if for less than 183 days, a potential PAYE tax charge can still arise. In order to avoid this, it is recommended that an Appendix 4 agreement is agreed with HMRC prior to the end of the tax year. By meeting certain day counting and annual reporting requirements based on the number of days in the UK (generally no reporting required if in the UK for less than 60 days) then HMRC will accept that no PAYE has arisen.

NIC savings for apprentices
The new employer NIC savings rules for apprentices under 25 apply from April 2016. Unlike the under 21 allowances most payroll systems will not previously hold details on those engaged on apprentice terms and so an exercise needs to be undergone to identify the employees affected by these new rules.

Claiming employment allowance
The employment allowance is a £2,000 credit against your National Insurance bill, but care needs to be taken where you are part of a group as only one company in the group is able to claim the allowance. Also, the allowance is not available for service companies who have deemed income under ‘IR35’ intermediary rules. The allowance is also not available for public bodies or businesses doing more than half their work in the public sector.

Previous employer compliance review
One area we often see causing issues is the year-end returns following a recent HMRC enquiry. Once the enquiry is concluded many employers breathe a huge sigh of relief and move on with running their business, but there are often key points raised by HMRC that need to be actioned before the year-end. HMRC, as a matter of course, do monitor these points and where remedial action does not appear to have been taken this will significantly increase the risk of a follow up visit in the near future.

This is only a very brief summary of the areas highlighted and as such cannot be considered to fully cover these points. If you do have any further queries on the issues raised then please do not hesitate to contact the Payroll team to discuss in more detail.