By Lamin Fatty, FCCA
Sadly, one of the less talked about aspects of Brexit is the impact on business as usual, as policy makers and parliamentary draughtsmen (and women, of course) are understandably fighting for precious and limited resource.
As there is still the need for increasing tax, and particularly NI, inflows to fund government spending, new legislation can’t take a Brexit pause, but introducing last year’s complex OpRA changes against this backdrop has proved problematic.
The publication of the draft 2018-19 Finance Bill clauses last week includes two corrections to primary legislation. In a way this is odd, as the government had trailed that it was unhappy with the proliferation of salary sacrifice and was planning to move to limit its efficacy, and yet the ensuing crackdown had its own cracks.
Problem 1: capital contributions
A query emerged when payroll software developers began to test the new P11D working sheet 2B provided by HMRC in order to amend P11D products and advise clients the correct value to ‘payroll’, if they had chosen this route to tax a benefit in kind.
Was it HMRC’s intention that a capital contribution for a company car could lead to a negative P11D value, and if so should that negative be deemed to be nil? The scenario can occur (and will continue to do so through 2018/19) where an employee takes a company car via an OpRA near the end of the tax year and has made a significant capital contribution.
As the company car benefit in kind is pro-rated to the number of days that the car has been made available for use, so should the capital contribution be pro-rated. What emerged was that working sheet 2b was correct in that it followed the legislation, but that the legislation had failed to allow for the capital contribution to be pro-rated.
This did indeed mean that for some lucky taxpayers for 2017/18 and 2018/19 their company car benefit was negative. In an even nicer outcome, this negative benefit had to be reported, leading to a positive impact on an employee’s tax code/taxable income if the benefit was payrolled.
In summary, you get paid by HMRC for having a company car if you were lucky enough to 1) have a company car offered via OpRa 2) change your car at the right time of the year and 3) make a high enough capital contribution to turn your benefit in kind into a negative value.
With the P11D deadline now passed for 2017/18 (and of course final FPSs for 2017/18 were filed by 19 April for payrolled benefits) let’s hope that the correct values have been reported and the correct process followed.
As the legislation will not be corrected until April 2019 this will also be the approach for 2018/19 P11Ds/payrolling. This was what HMRC told software developers to cascade to their clients (my additions in italics)
To ensure the right tax outcome, employers should either:
- File the P11D as normal with a zero figure (in line with the P11D software schema) and submit an amendment to the P11D noting the negative value (the amendment should be in writing), or
- Submit the P11D on paper with the negative value
For cars provided by OpRA that are payrolled:
- In an RTI submission, again the negative figure should be suppressed in line with the schema. The negative figure referred to here is data item 60 ‘the value of payrolled benefits in kind’ which is used by DWP to reduce taxable pay down to reflect cash taxable pay only. Suppressing data item 60 means DWP will assume taxable pay to be lower (as per data item 41A). In theory this could mean an overpayment of Universal Credit, but it is highly unlikely affected taxpayers would be UC recipients
- Data item 41A (Taxable pay in this employment including payrolled benefits in kind – Year to date figure) should be reported as the net figure (cash less any negative payrolled BiK) NB data item 58 isn’t mentioned but this too needs to follow the same approac
Problem 2: the definition of the correct OpRA comparator
The second issue that soon began to appear in the car fleet press was that fact that s239 only required the employer to consider any salary foregone in respect to the car itself, not for any additional services such as maintenance and insurance.
This would apply in any lease arrangements (Type A OpRAs) and where an employee had given up a car allowance and taken a car (Type B OpRA). In a Type B arrangement, the employer would have to be able to demonstrate the component parts of the foregone company car allowance i.e. how much would the employee have received as a cash allowance to purchase a car excluding any compensation for maintaining and insuring their own car.
The net result of this was that if the employee had chosen a low emission car (but still above the 75 g/km limit) the car benefit might still be higher. The government had intended that the salary foregone would be higher leading to the use of working sheet 2B and a resulting higher benefit in kind value.
Whose problem is it anyway?
In the background notes that accompany the draft Finance Bill clauses HMRC say: ‘Neither of the issues subject to amendment in Finance Bill 2018-19 was identified in response to the technical consultation’. So, it’s the fault of stakeholders for not pointing this out sooner to HMRC?
The issue with the capital contribution was only spotted by the software community once HMRC released the new P11D working sheets last August – five months after the legislation went live.
If HMRC’s own teams had carried out the same scenario testing as external stakeholders, then surely they would have picked this up before publishing the working sheets? If they want to enlist the help of stakeholders to avoid a repetition of an issue that it has taken two years to fix, then please involve us earlier – there’s a lot of expertise out here.