News Items – at 7th January 2008

Redundancy Pay, Guarantee Payments and Tribunal Awards

Annual review of payments and limits

The following statutory limits will take effect where the appropriate day for the particular payment, as specified in legislation, falls on or after 1 February 2008.  The increases are prompted by a rise in the retail price index in the year to September 2007 of 3.948%.

The Work and Families Act 2006 made provision for the redundancy pay limit to be increased on a single occasion by more than the RPI.  The Government has not yet announced if and when it will make use of that measure.

Further information:
The Employment Rights (Increase of Limits) Order 2007  http://www.opsi.gov.uk/si/si2007/pdf/uksi_20073570_en.pdf

Statutory Sick Pay

New form SSP1 and social security benefit linking

Form SSP1 is issued by employers to inform their employees that SSP cannot be paid for a new sickness absence, or continue to be paid for an ongoing sickness absence.  The employer ticks one of the 11 boxes provided to indicate the reason for not paying, or not continuing to pay, SSP.  The boxes are lettered, from A to K.

Having received the completed SSP1, an employee uses the form to support a claim for Incapacity Benefit (IB), the current social security benefit for people who have an illness or disability.  During 2007/08, the three rates of IB are:

• the short term lower rate of £61.35 (non-taxable), paid for up to 28 weeks to employees who did not qualify for SSP
• the short term higher rate of £72.55 (taxable)(the same rate as SSP), paid for a further 24 weeks after 28 weeks at the short term rate, or after 28 weeks of SSP 
• the long term basic rate of £81.35 (taxable), paid from the 53rd week of sickness.

Extra IB may be paid for the spouse or civil partner of individuals with dependent children.

So that Jobcentre Plus can determine the correct rate of IB to pay to an employee who has been receiving SSP but not longer qualifies to receive it, the employer has to enter on form SSP1 details of the SSP already paid to the employee, the employee’s qualifying days and SSP payment history.

If an employee who has been in receipt of IB returns to work but is then absent sick again, entitlement to IB may resume if special linking rules apply.  This is obviously advantageous to an employee who was already receiving IB at the higher, long term rate.  Even if the employee was receiving the short term higher rate (the same as the SSP rate), payment at the higher, long term rate starts after 52 weeks, which includes the previous period for which IB was paid.

The linking rules are as follows:

• 8-week linking – the normal linking period is 8 weeks, the same as the SSP linking period
• 52-week linking – to qualify, employees must have
  • been sick continuously for 28 weeks (not counting Statutory Sick Pay)
  • started work or training within 7 days of leaving Incapacity Benefit, and
  • told the office that pays their IB that they have started work or training within one month of the date of starting.
• 104-week linking – to qualify, employees must have
  • left Incapacity Benefit to return to work
  • been getting short-term Incapacity Benefit (higher rate) or long-term Incapacity Benefit
  • qualified for the disability part of Working Tax Credit
  • not been able to work because of their illness or disability from the day after finishing work, and
  • not been able to work because of their illness or disability within 2 years of last receiving Incapacity Benefit.

If an employee is entitled to resume receiving IB because of qualifying under the rules for one of these linking periods, the employer is not required to pay SSP for the continuing sickness absence.  In order to avoid paying SSP in these circumstances, employers must be aware of their employees’ ongoing entitlement to IB if they are absent again within 8 weeks, 52 weeks or 104 weeks, as appropriate, of an earlier period of entitlement to SSP.  On coming off IB, beneficiaries are issued with a “linking letter” (designated BF220, BF220A or BF220C) to give to their employer.  The letter provides the date up to which the employee is entitled to resume IB if absent due to sickness or disability again.

To avoid paying SSP unnecessarily to employees who are entitled to resume IB, employers should, as part of routine employee administration, ask

• all new employees who are sick for four or more days in a row in their first 2 years of employment, and
• all employees returning to work from sickness absence,

if they have been issued with a linking letter.  If they say that don’t have one of the forms and the employer suspects that they have been in receipt of IB within the previous 2 years, the employer should check with Jobcentre Plus or, in Northern Ireland, the Jobs and Benefit Office, to see if they are entitled to IB.

From October 2008, Incapacity Benefit will start to be replaced by a new benefit, Employment and Support Allowance (ESA).  It will be paid to individuals who

• have an illness or disability,
• have not claimed IB within the past 2 years, and
• are not entitled to SSP or are no longer entitled to SSP.

ESA will also have linking rules – a 12-week linking period and a 104-week linking period.  Applicants for ESA will have to undergo a new Work Capability Assessment and, if the assessment shows that, despite their illness or disability, they are still capable of working, they will not be given ESA but given instead the support and skills needed to get a job.    IB will continue to be paid to individuals who retain entitlement to it under the linking rules.

As a result of the introduction of ESA, form SSP1 is being amended so that ongoing entitlement to both IB and ESA are shown as reasons why the employer cannot pay SSP.  Also, as the rate at which ESA will be paid does not depend on the length of an employee’s sickness absence, the new form no longer has a section for the employer to enter details of the SSP already paid to the employee, the employee’s qualifying days and SSP payment history.

The current SSP1 allocates a letter, A to K, against the 11 reasons why the employer cannot pay SSP.  The draft version of the new SSP1 form lists 12 reasons but the letters allocated to each, A to L, differ from those used for each of the disqualifying reasons.  Unless there is a change to the final version of the form, this means that payroll systems that produce reports for the different disqualifying reasons will require some coding changes.

Further information:
Incapacity Benefit  http://www.jobcentreplus.gov.uk/JCP/Customers/WorkingAgeBenefits/008025.xml.html
SSP1 draft notes  http://www.paypershop.com/downloads/SSP1_Notes_1008v2 (2).pdf
SSP1 draft form  http://www.paypershop.com/downloads/SSP1_1008v2 (2).pdf
Work is good for you: new medical test to assess work capability – Hain  http://www.dwp.gov.uk/mediacentre/pressreleases/2007/nov/drc055-191107.asp

Expenses and Benefits Reporting

Consultation on abolishing forms P11D and P9D

On 31 March 2007, the Institute of Payroll Professionals (IPP) published a Report on a survey that was conducted among its members on the possibility of reducing the burden on employers by replacing the reporting of expenses and benefits on form P11D each year with a procedure for taxing them instead through the payroll.  The practice of “payrolling benefits” was introduced successfully in the Republic of Ireland in 2004.

The IPP’s report was submitted to the Government with a recommendation that a public consultation be undertaken and an Impact Assessment prepared.  The Government has accepted the recommendation and HMRC has published a consultation document and a detailed explanatory Impact Assessment.  The key recommendations are for

• the £8,500 earnings rate threshold, below which form P9D reporting rules apply, to be abolished from April 2009, and
• the taxation of all benefits and expenses through the payroll by all employers from April 2011.

The Impact Assessment document also explains various other options for change that were considered before deciding on the two major proposals mentioned above.  These include:

• leaving the earnings rate threshold at its current level, or increasing it to a more significant level
• allowing employers to choose whether to complete P11Ds etc as now, or to tax benefits and expenses through the payroll
• phasing in payrolling of different benefits at different times.

For those interested, HMRC’s reasons for rejecting those options can be considered in the two documents.

In the following notes, the term “lower-paid employees” is used for those employees for whom employers would submit a form P9D because their earnings rate is less than £8,500.

HMRC’s assessment of the IPP’s Report is that it confirms that employers and their representatives are unhappy about the burden of determining whether or not benefits-in-kind need to be reported for their lower-paid employees.  Respondents to the survey  were critical of the process, seeing it increasingly as outdated and burdensome, and suggesting that it was unnecessary as very few employees were now paid below £8,500 a year and even fewer of those receive benefits from their employment.  The survey also found widespread support for abolishing form P11D.  HMRC acknowledges that the P11D process is cited consistently by employers in all sectors of business as a major irritant, that it is a costly, time-consuming burden and that the frequent delays in updating employee’s tax codes are frustrating.

The implications of these proposals are as follows:

From April 2009

• Form P9D would cease to be used for reporting benefits and expenses for lower-paid employees.  There were only 19,000 P9Ds submitted in 2004.
• All lower-paid employees receiving benefits and expenses, both those for whom P9Ds are currently filed and those whose benefits are exempt from tax under the P9D reporting rules, would be liable for tax under the Benefits Code and a form P11D would have to be filed as necessary.  Lower-paid employees currently have to pay tax on the provision of vouchers, credit cards and living accommodation but would, in addition, have to pay tax on assets transferred or made available to the employee, the provision of cars and vans, loans, and other employment-related benefits, such as private medical insurance.

From April 2011

• The value of benefits and expenses provided in a tax year would be added to gross pay for tax purposes, spread out proportionately over all of the pay periods in the tax year.  Class 1 NICs would also be calculated for those benefits and expenses liable for Class 1 NICs, such as vouchers and non-business-specific expenses, but not for those that are liable for Class 1A NICs.  There is no intention of changing the NICs on benefits in kind from Class 1A to Class 1.
• The provision of benefits in one tax year would no longer affect tax codes in the next, so there would be more standard tax codes, fewer K codes, and fewer changes of tax code.
• Existing informal arrangements between employers and tax offices for payrolling benefits would have to be handled according to the new statutory rules.
• Employers would still need to keep records of the benefits and expenses provided but would no longer have to complete forms P11D, P11D(b) and P46(Car).
• Additional information, but not in the same detail as given on forms P9D and P11D, would be reported annually on revised returns P14/P60.  Class 1A NICs liabilities would be reported on return P35, to meet the 19 May deadlines instead of the 6 July deadlines.
• The deadline for payment of Class 1A NICs would continue to be 19/22 July.
• Employees who complete a self-assessment tax return only because of receiving benefits and expenses would no longer have to do so.

The cost impact of the proposals have been identified as:

Reductions

• Employers would no longer have to decide whether the tax rules for lower-paid employees apply and, from April 2009, would only complete form P11D – overall administrative savings estimated at £890,000 per year.
• From April 2011, reporting benefits and expenses on form forms P11D, P11D(b) and P46(Car) would cease – estimated annual savings of between £18 and £25 million.

Increases

• Lower-paid employees would pay tax for the first time on benefits such as private medical insurance - estimated increase in tax revenue of around £10 million per year.
• Class 1A NICs would be due on benefits reported for the first time for lower-paid employees – estimated increase in employer liabilities of £4 million per year.
• Additional work by employers would be involved in completing year-end returns – estimated at £3 million per year.
• Employer would incur one-off compliance and transition costs, such as learning the new reporting requirements, re-training and informing staff, setting up new payroll and accounting procedures, software changes – estimated at between £21 and £37 million

The consultation document identifies the following issues for employers:

When employees leave: An employee’s new employer would not be liable for the tax and NICs implications of any benefits and expenses provided by the previous employer.  When an employee leaves, therefore, the employer would have to ensure that all tax and, as appropriate, Class 1 NICs have been accounted for on the benefits and expenses provided in that employment.  That could mean that any outstanding tax and NICs arising from the benefits and expenses in that employment would have to be deducted from payments made at termination.  The current P45 makes no provision for reporting the benefits/expenses and the tax/NICs paid on them.  In order for that information to be passed on cumulatively from one employer to the next, the P45 would have to be amended or replaced.

Valuing benefits and expenses: HMRC proposes that, where the exact value of a benefit is not known, the best estimate should be used initially for inclusion in the payroll.  (Best estimates are already used for taxing readily-convertible assets.)  An adjustment would be made at a later period when the exact value is known.  If the exact value is determined after the year end but before the P14 is completed, the estimated value and the difference between that and the actual value would be entered on the P14.  If the exact value is still not known when the P14 is completed, the estimated value would be entered on the P14 and the exact value reported to HMRC not later than the following 31 January.  (This is similar to the approach already taken for tax and NICs liabilities for tax equalised employees.)

Matters for further discussion: HMRC has highlighted the following exceptional situations which could prevent a benefit or expense being included in the payroll for tax purposes:

• where the tax due on the benefit or expenses in a particular pay period reduces the employee’s net pay below a certain percentage of gross pay
• where there are insufficient cash earnings in a pay period from which to deduct the tax due on the benefits and expenses
• where it is not possible even to estimate the value of a benefit or expenses by the end of the tax year
• where exceptional circumstances mean that a benefit or expense cannot be included in the payroll, e.g. benefits provided for overseas workers where the main salary is paid via a UK-based payroll.

The consultation document includes the following example, involving the provision of private medial insurance (PMI), to illustrate the current procedure and what the new procedure would be.

Current Process

1. Employer contracts with a supplier of private medical insurance to provide cover for all employees in 2006/07 tax year. Details are reported to HMRC on form P11D and a copy provided to each employee before 7 July 2007.
2. Employer reports the Class 1A NICs due on form P11D (b) and pays what is due by 19 July 2007 for payments by post or in cash or 22 July 2007 for payment by an approved electronic payment method.
3. Employees who complete a Self Assessment Return must enter the value of PMI from their copy of the P11D on their Self Assessment Return and submit it to HMRC by 31 January 2008, using the information provided on their copy of the P11D.
4. Any tax liability arising on benefits provided in the previous year can be included in the employee’s tax code for the following year, depending on the amount due together with the estimated value of the benefit for the current year.
5. Irrespective of whether individuals are required to complete a Self Assessment return; where there is a discrepancy between what has been included in the tax code and the figure on the P11D the tax code is automatically amended to reflect the correct figure provided on the P11D.
6. As adjustments to tax codes are not made until the P11D and/or SA return has been received, it is generally some months into the next tax year before the new tax code reflects the value of the benefit provided and further underpayments can arise. This is estimated at the time the code is amended and included in the employee's tax code for the following year in addition to any underpayment from the previous year.
7. The revised coding notice is sent to employer and employee.
8. Employer actions the new tax code and deducts the tax due accordingly.
9. Employer reports details of pay received and tax deducted to HMRC and employee on form P14/P60.

Statutory Payrolling Process

1. The employer includes the value of the benefit, which can be spread over the remaining number of pay periods in the tax year in the payroll and deducts the tax from cash earnings in the pay period. No adjustment is needed to employee’s tax code.
2. Employer reports details of benefit included in the payroll to HMRC on the modified P14 and the Class 1A NICs due is reported on form P35 by 19 May after the end of the tax year.
3. Employer pays the Class 1A NICs due by 19 July following the year of assessment for payments by post or in cash; or 22 July for payment by an approved electronic payment method.
4. Employees receive details of benefits and expenses provided on a modified form P60 and that information is used to complete their Self Assessment Return where required to do so.
5. Only where it has not been possible to account for all the tax due through the payroll on the benefit provided would HMRC need to calculate any further tax liability and adjust the employee’s tax code accordingly.

Employers, their payroll agents, their software providers and their representative bodies and employees are all invited to respond to the various questions raised by HMRC in the consultation document.  In summary, these questions are:

1. What advantages and disadvantages do you see of operating the current statutory P11D process compared with the proposal to include benefits and expenses in the payroll?
2. What are your views on the proposal to introduce a statutory basis for payrolling and a framework to ensure consistency across all arrangements?
3. What do you think will be the advantages/disadvantages of formally introducing a system that enables employers to account for the tax due on benefits and expenses through PAYE?
4. What guidance would you like from HMRC and what would your preferred style/format be for that guidance e.g. paper, internet or CD-ROM?
5. What are your thoughts on HMRC’s proposed approach for handling the tax implications of benefits and expenses provided when an employee changes employment?
6. What issues, if any, would you see with extending the practice of best estimates to Benefits and Expenses generally; but only where the actual value is not known?
7. What views do you have on the information provision requirements, particularly in relation to the P14/P60?
8. What are your thoughts on the proposal to remove the £8,500 earnings threshold for Benefits in Kind?
9. If you provide benefits or pay expenses to lower-paid employees, can you provide some examples of the circumstances when this situation arises?
10. How would your estimate of the potential savings for you compare with those included in the Impact Assessment document?

Written responses to these questions should be sent to the addresses and in the format given on pages 29 and 30 of the consultation document, not later than 17 March 2008.

Further information:
Institute of Payroll Professionals - Final P11D Report - 31st March 2007  http://www.payrollprofession.org/pdf/070331_Final_Report_for_ P11D_Survey.pdf (cut and paste this link or it will not work)
Including Benefits in Kind and Expense Payments in the Payroll - A Fresh Approach   http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?
_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=docu
ment&columns=1&id=HMCE_PROD1_028208
Impact Assessment of Including Benefits in Kind and Expense Payments in the Payroll  http://www.hmrc.gov.uk/ria/exp-ben-in-payroll.pdf

Employer Financed Retirement Benefits Schemes

List of benefits excluded from tax charge extended

Draft Regulations were issued by HMRC with the 2007 Budget documents that would add to the list of benefits which, if provided to retired employees from a non-registered pension scheme, would be treated as “excluded benefits” and, as a result, would not be subject to a tax charge.

The final version of the Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2007 were made on 14 December and come into force on 8 January 2008.  However, the exclusions apply retrospectively to benefits provided in tax year 2006/07 and onwards.

The long list of benefits that are now treated as exempt from tax include:

• non-cash benefits in respect of terminations that occurred before 6 April 1998
• the provision of certain specified living accommodation
• removal expenses and related insurances in connection with exempt living accommodation
• repairs and alterations to employment-related living accommodation
• payment of council tax on exempt living accommodation
• welfare counselling
• recreational benefits
• annual parties or similar annual functions
• the provision of will-writing services
• the provision of equipment for disabled former employees.

More details of these excluded benefits and the conditions that must be met for the tax exemption to apply are provided in this week’s Employer FAQ.

Further information:
The Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2007  http://www.opsi.gov.uk/si/si2007/pdf/uksi_20073537_en.pdf
Explanatory Memorandum on The Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2007  http://www.opsi.gov.uk/si/si2007/em/uksiem_20073537_en.pdf

Payroll deadlines during the next month

January 5 – This is the final day of tax month 9.  Tax and NICs etc. for payments made in the tax month to January 5, or in the tax quarter to January 5, are due for payment to the Accounts Office by January 19, or by January 22 if paid electronically.

January 18 – (January 19 is a Saturday) – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 9 by employers who pay monthly, for tax months 7 to 9 by employers who pay quarterly, unless they make their payments electronically.

Payroll FAQ's

Employer Financed Retirement Benefit Schemes

What benefits can be provided for retired employees without a tax charge?

From 6 April 2006, when an employer provides payments and benefits to employees who are retiring or to the family or relatives of an employee who dies in service but which are not provided from a registered pension scheme (e.g. an occupational pension scheme), the payments and benefits are treated as being provided under an Employer Financed Retirement Benefit Scheme (EFRBS).  An EFRBS is a non-registered pension scheme and any “relevant benefits” are fully taxable under the provisions of sections 393-400 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA),  unless they do not exceed £100 in value in the tax year.

In the context of retirement and death, the legislation defines “relevant benefits” as including any payment or non-cash benefit that is provided

1. on or in anticipation of the retirement of an employee or former employee,
2. on the death of an employee or former employee, or
3. after the retirement or death of an employee or former employee in connection with past service.

However, specifically excluded from the definition are any such payments or benefits that are provided from a registered pension scheme or that are “excluded benefits”.

There is a long list of “excluded benefits” and they may be split into two groups, namely

• where the retirement or death is as a direct result of the employment, and
  where the benefits provided after retirement were exempt from tax before retirement.

Retirement or death resulting from the employment
Benefits from an EFRBS are “excluded benefits” if they are:

• benefits in respect of ill-health or disablement of an employee during service
• benefits in respect of the death by accident of an employee during service
• benefits in respect of an employee’s non-accidental death in service and payment of which is already provided for under the rules of the scheme on 6 April 2006
• benefits under a group life policy or certain prescribed individual life policies.

Consequently, payments and benefits that are prompted by the employee’s ill-health, disablement or death in service are not subject to an income tax charge.  The effect is that all other payments and benefits made in the event of retirement and death are taxable.  This includes taxable benefits that were provided during the employment and that continue to be provided after retirement, e.g. private medical insurance, use of a company car or other company asset, club memberships.  They are not taxable as “section 62” earnings from the employment – the person is no longer an employee – but as “section 394” employment income from an EFRBS.  If the total value of the benefit in a tax year does not exceed £100, there is no tax liability.  If the benefit is in the form of a lump sum payment, it is taxable under PAYE.  Otherwise, the total value of the benefit in a tax year is taxed under self-assessment at 40%.  See Reporting benefits provided under an EFRBS, below.

Benefits that were exempt from tax before retirement
The following benefits provided by an employer (or by someone who has taken on the responsibility for providing the benefit in place of the employer) from an EFRBS continue to be exempt from tax if they were exempt when they were being provided as an employment benefit before retirement or death in service. 

The following definitions need to be understood:

Living accommodation is “similar accommodation” if, at the time the employee or member of the employee’s family starts to occupy the new accommodation, its market value does not exceed that of the accommodation occupied immediately prior to it by more than 20%.

Living accommodation is “improved property” if work has been done to improve it, other than to comply with a statutory requirement, so that its market value when the work is completed is more than 20% of what its market value would have been if the work had not been done.

The following are “members of an employee’s family”:

• the employee’s spouse or civil partner (or, as relevant, former spouse or  former civil partner),
• the employee’s children and their spouses or civil partners,
• the employee’s parents, and
• the employee’s dependants.

The “performance of an employee’s duties” refer to

• the better performance of the employment duties, or
• employment in the case of which it is customary for employers to provide living accommodation for employees.

The benefits described here are divided into four groups, according to who, in each situation, benefits from the tax exemption, namely

1. the employee
2. the member of the employee’s family
3. the employee or, in certain specified situations, a member of the employee’s family
4. the employee or, after the employee’s death, a member of the employee’s family.

1. The employee only may benefit from the continuing tax exemption in the following two situations:
   1. Living accommodation that continues to be provided for a former employee if
      • it is not “improved property”, and
      • the employee had lived there, or in “similar accommodation”, continuously for five or more years immediately prior to retirement, and
      • throughout the five years, the accommodation was not taxable because it was exempt from tax (ITEPA s.99 or equivalent earlier legislation) because it was provided for the performance of the employee’s duties.
        The following breaks in the occupation of the living accommodation do not affect continuity of occupation:
      • any one break not exceeding six months,
      • breaks not exceeding one month each,
      • breaks (of any duration) resulting from the employee’s ill health.
   2. Equipment, services and facilities that continue to be provided for a former disabled employee which, when they were first provided, were not taxable because they were exempt under the provisions of the Income Tax (Benefits in Kind) (Exemption for Employment Costs resulting from Disability) Regulations 2002.  The continuing exemption applies also to any such equipment, services and facilities that have to be replaced subsequently.
      
      
2. A member of the employee’s family only may benefit from the continuing tax exemption in the following situation:
   1. Living accommodation that is provided to a member of the employee’s family after the employee’s death, if it is not “improved property” and if,
      • where the employee died before retirement,
        • the employee had lived there, or in “similar accommodation”, continuously for five or more years immediately prior to the employee’s death, and
        • throughout the five years, the accommodation was not taxable because it was exempt from tax (ITEPA s.99 or equivalent earlier legislation) because it was provided for the performance of the employee’s duties.
      • where the employee died after retirement, the living accommodation was already exempt from tax because it met the conditions in Situation 1(a) above.
        The same breaks in occupation as described in Situation 1(a) above also do not affect continuity of occupation.
        
        
3. An employee or a member of the employee’s family may benefit from the continuing tax exemption in the following situations involving living accommodation.  A family member may only benefit if the employee dies, or takes up residence elsewhere (than in the living accommodation concerned) as a result of ill-health, or following a separation, the annulment or divorce of a marriage, or the nullity or dissolution of a civil partnership.
   
   1. Living accommodation that continues to be provided by a local authority which, when the former employee worked for the local authority, was exempt from tax (ITEPA s.98) because it was provided on equivalent terms to other council tenants.
   2. Living accommodation that continues to be provided if
      • the employee had been employed as a minister of a religious denomination
        • for five or more years immediately before retirement, or
        • immediately before the employee’s death, or
        • if the employee retired immediately after a period of ill-health (substantiated by medical evidence), immediately preceding the beginning of that period, and
      • at any time while the employee had been a minister, the accommodation was not taxable because it was exempt from tax (ITEPA s.99 or equivalent earlier legislation) because it was provided for the performance of the employee’s duties.
   3. Living accommodation that continues to be provided if
      • at any time before the employee’s retirement or death, the accommodation was not taxable because it was exempt from tax (ITEPA s.100 or equivalent earlier legislation) because of a security threat to the employee, and
      • the security threat requiring the provision of the living accommodation is continuing even though the employment has ended.
   4. Removal expenses and related insurance costs incurred in connection with a change of residence if
      • the former residence is the living accommodation in Situations 1(a), 2(a) or 3(a) to 3(c), and
      • payment by the employer of such expenses and costs would have been exempt from tax (ITEPA s.271) if it had been provided in the course of the employment and the change of residence had met the statutory conditions (ITEPA s.273).
        The exemption does not apply to any amount by which the expenses and costs exceed £8,000.
   5. Repairs and alterations to living accommodation in Situations 1(a), 2(a) or 3(a) to 3(c) if
      • such repairs and alterations would have been exempt from tax (ITEPA s.313) because of being carried out on living accommodation provided by reason of the employment, and
      • they do not have the effect of turning the living accommodation into improved property.
   6. Payments or reimbursements of council tax and other property taxes in respect of living accommodation in Situations 1(a), 2(a), 3(b) or 3(c) if they would have been exempt from tax (ITEPA s.314) because the accommodation was provided for the performance of the employee’s duties or because of a security threat to the employee.
      
      
4. An employee or a member of the employee’s family may benefit from the continuing tax exemption in respect of the following benefits.  A family member may only benefit if the employee dies.
   1. The provision of a non-cash benefit that is not taxable because it was received in connection with the termination of the employee’s employment, and that termination took place before 6 April 1998.
   2. The provision of welfare counselling, i.e. counselling other than advice on finance (other than on debt problems), advice on tax, or on leisure or recreation, and legal advice, which would have been exempt from tax (Income Tax (Benefits in Kind) (Exemption for Welfare Counselling) Regulations 2000) if it had been provided in the course of the employee’s employment.
   3. The provision of sporting and recreational benefits that would have been exempt from tax (ITEPA s.261) if it had been provided in the course of the employee’s employment.
   4. The provision of an annual party or similar annual function that would have been exempt from tax (ITEPA s.264) if it had been provided in the course of the employee’s employment.
   5. The provision of a service for the writing of a will or similar testamentary document if the cash equivalent of the benefit (ITEPA s.203) does not exceed £150.

Reporting benefits provided under an EFRBS
Under the provisions of the Employer-Financed Retirement Benefits Schemes (Provision of Information) Regulations 2005, employers are required to notify their tax office when an EFRBS scheme starts and annually thereafter.  Notification is made by the “responsible person”, i.e.

• if there are one or more trustees resident in the UK, each of them, otherwise
• if there are one or more persons controlling the management of the scheme, each of them, otherwise
• any employer who established the scheme or their successors, provided they still exist, otherwise
• any employer of employees for whom the scheme provides benefits, otherwise
• if there are one or more trustees not resident in the UK, each of them.

By 31 January following the end of the tax year in which the scheme comes into operation, the employer must notify the tax office of

• the name of the scheme,
• the address of the person responsible for it, and
• the date the scheme came into operation. 

A scheme “comes into operation” on the earlier of (1) the date on which an employer contributes to the scheme, and (2) the date on which benefits are first provided.

Every year, by 7 July following the end of the tax year in which any benefits are provided, the responsible person must notify the tax office of

• the name, address and NI number of the recipient(s) of the benefit
• the nature of the benefit
• the value of the benefit, and
• confirmation of the identity of the responsible person.

The value of a non-cash benefit is the greater of (1) its money’s worth, and (2) its cash equivalent under the Benefits Code (i.e. the value that would be reported on form P11D if the recipient were still an employee). 

Form P11D should not be used to send these details to the tax office and the information should be send separately from any P11Ds, clearly marked “Employer Financed Retirement Benefit Scheme – Benefits Provided”.  There is no liability for Class 1A NICs on benefits provided under an EFRBS.

REPUBLIC OF IRELAND

Earnings Limit on Tax Relieved Contributions

Increase announced for 2008

The earnings limit which applies for the purpose of tax relief on contributions to pension products is increased annually in line with the earnings adjustment factor.  The factor, which is published by the Minister for Finance in December each year and published in Iris Oifigiúil (the official Irish State Gazette), is 1.049 for year of assessment 2008.
As a result, the earnings limit increases from €262,382 for 2007 to €275,239 for 2008.

Further information:
Iris Oifigiúil, Number 102, Page 1402  http://www.irisoifigiuil.ie/pdfs/ir211207.pdf

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