BDO: Is your business prepared for the new tax year?
PUBLISHED: 11:30 28 February 2018 | UPDATED: 09:35 01 March 2018
Whatever your situation preparation for the new tax year is always sensible, says Diane Deller, senior tax manager at BDO's Norwich office.
Many employers will be facing significant cost increases from April.
Minimum wage rates increase depending on the age of the employee, and auto-enrolment pension contributions will double. Employees who have not opted out of the auto-enrolment scheme will see their compulsory pension contributions rise from 1% to 3% of salary. Employer’s minimum contributions will rise from 1% to 2%. Putting a salary exchange arrangement in place for pension contributions will help to reduce costs for both employees and employers.
It may sound counter-intuitive to suggest employees should voluntarily give up some of their salary to protect their net take-home pay. However, the reduction in NIC paid on earnings and the increased pension contributions by the employer on their behalf mean there can be significant savings for basic rate taxpayers leaving more in their pay packets.
Employers will also save NIC. They may choose to share some of this saving with employees (ideally as extra pension contributions) which can be tax-efficient. Calculating the benefits of such an arrangement can be complex and it is vital to get expert advice on implementing salary sacrifice plans to ensure they are effective for tax purposes.
If you provide employees with other benefits in kind, there are further issues to consider. Employers offering salary exchange for flexible benefit packages must now take account of the new rules on optional remuneration arrangements. These mean that, for most benefits (apart from pension contributions, company cycles, ultra-low emission vehicles and childcare) the value of the benefit that must be taxed on the employee is the higher of the value of the benefit under normal benefit valuation rules and the amount of cash foregone. There may therefore be advantages in unwinding existing schemes and revisiting the benefits that you offer.
With the P11D benefit reporting season imminent, it may be appropriate to plan ahead for future tax years by registering to ‘payroll’ benefits in kind for your employees but you need to act before April 5. By recording an amount for their assessable benefits as part of the employees’ monthly pay, year-end reporting after April 2019 is confined to form P11D(b).