Employment tax 2020/21: year-end reporting

Employment tax 2020/21: year-end reporting

New coronavirus tax rules and radical shifts in employer expenditure challenge existing End of Year compliance processes for 2020/21 – are you ready?

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Caroline Laffey

Partner, Employer Reward Services

KPMG in the UK

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Why it’s different for 2020/21

Your 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.

Many employers saw a fall in the volume of expense claims and changes in expenditure on employee benefits and expenses during 2020/21. 

But as expenses and benefits policies were overhauled 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 varies according to which new expenses and benefits were introduced across the workforce and whether the temporary new coronavirus exemptions and reliefs apply. 

What should employers do?

For many employers, these changes mean it won’t be possible to replicate year-end processes from last year. 

Issues could arise gathering data; the haste with 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 resource, employers should get year-end processes underway as quickly as possible.  Specific issues to consider include:

  • Have you applied 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).

With a new COVID-19 taskforce announced at the March Budget, 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 unexpected UK or overseas tax and social security liabilities, and employer withholding and reporting obligations. This could occur where mobile employees unexpectedly establish 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 deadline are summarised below.

Key action

Deadline

Provide employees with statements of payrolled benefits for 2020/21

1 June 2021

Agree a PSA (or make changes to items covered under an existing PSA) for 2020/21

5 July 2021

Submit Forms P11D and P11D(b) for 2020/21

6 July 2021

Submit employment-related securities returns for 2020/21 and register new share plans

6 July 2021

Submit PSA computations for 2020/21 (HMRC usually impose this as a contractual deadline, but in some cases it might be possible to agree a later submission date)

31 July 2021

Pay tax/Class 1B NIC for 2020/21 PSA by post

19 October 2021

Pay tax/Class 1B NIC for 2020/21 PSA electronically

22 October 2021

Register to payroll benefits to be provided during 2022/23

By 5 April 2022

How KPMG can help

We offer a range of year-end support to employers, including a number of technology solutions to improve compliance and reduce the burdens of year-end reporting.

Our support includes:

  • 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 using our data analytics tools, and submit the PSA computations to HMRC on your behalf;
  • Preparing and submitting Forms P11D – we can prepare P11Ds on your behalf, or license our P11D Solutions software so you can prepare P11Ds ‘in house’.  We can also review P11Ds prepared by you;
  • Our Employee Portal takes direct feeds from our P11D Solutions software, allowing you to host P11Ds online, removing the need to email or post individual completed forms, and allowing employees to access P11Ds for multiple years;
  • 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; and
  • Data Analytics – it’s often difficult to analyse thousands of rows of data to identify reportable expenses and benefits.  KPMG’s data analytics engine automates this process, removing subjectivity in identifying reportable items, speeding up the process and providing an audit trail for PSA reporting, HMRC enquiries, and Senior Accounting Officer reporting.

For more information on how KPMG can support you with year-end employer compliance, please contact Caroline Laffey, or your usual KPMG contact.

Some or all of the services described herein may not be permissible for KPMG audited entities and their affiliates.

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