Changes to EMI working time arrangements

Temporary changes to EMI working time arrangements will ensure that individuals who are furloughed or who have their working hours reduced below the current statutory working time requirement for EMI as a result of coronavirus (COVID-19) will retain the tax advantages of the scheme. These changes will apply for a limited period and will have effect from 19 March 2020 until 5 April 2021.

The use of the EMI can help small growing companies to attract and retain sought after employees. The EMI allows employees to buy shares free of Income Tax and NICs on the difference between the amount paid for shares when an option is used and the actual value at the time.

The value of shares over which options may be held by an employee under the EMI scheme is currently £250,000 in a 3-year period. In addition, the shares must be in an independent trading company that has gross assets not exceeding £30 million, has fewer than 250 employees and operates a ‘qualifying’ trade.

Companies that work in 'excluded activities' aren’t allowed to offer EMIs. Excluded activities include:

  • banking
  • farming
  • property development
  • provision of legal services
  • ship building

New advisory fuel rates published

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel. HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. In this case, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding if you the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

The latest advisory fuel rates became effective on 1 September 2020. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The new rates are as follows:

Engine size    

Petrol – amount per mile  

LPG – amount per mile

1400cc or less     

10p

7p

1401cc to 2000cc      

12p

8p

Over 2000cc      

17p

12p

 

Engine size     

Diesel – amount per mile

1600cc or smaller  

8p

1601cc to 2000cc    

10p

Over 2000cc  

12p

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

HMRC accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car there is no profit. While electricity is not considered a fuel for tax and NICs purposes, the Advisory Electricity Rate is now published quarterly alongside the other advisory fuel rates.

Using your own vehicle for work?

If you are an employee and use your own money to buy things you need for your job, then you can sometimes claim tax relief for the associated costs. It is usually only possible to claim tax relief for the cost of items used solely for your work.

You may also be able to claim tax relief for using your own vehicle, be it a car, van, motorcycle or bike. There is generally no tax relief for travel to and from your place of work. The rules are different for temporary workplaces where the expense is usually allowable and if you use your own vehicle to do other business related mileage.

Employers usually make payments based on a set rate per mile depending on the mode of transport used. There are approved mileage rates published by HMRC. The approved mileage allowance payment rates are available where you use your own car on a business trip. Where the approved mileage rates are used, the payments to you are not regarded as a taxable benefit.

Where an employer pays less than the published rates, you can make a tax relief claim for the shortfall using mileage allowance relief. For all cars, the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile. The approved mileage rates are 20p per mile for bicycle travel and 24p per mile for motorcycle travel.

There is an additional passenger payment you can receive of 5p per passenger per business mile from your employer. This is available if you carry fellow employees in your car or van on journeys which are also work journeys for your colleagues. 

Tax and company cars

Most employers and employees are aware of the additional costs of providing company cars and the tax implications they create. However, for many employees the lure of having a company car means that this remains a very popular option. There are some circumstances where it can be possible to offer employees car benefits that are exempt from tax. 

These include:

Cars available for business journeys only

To avoid reporting for car benefit or car fuel benefit, the car should only be available to staff during working hours for employment related duties or to travel to a temporary workplace. The business must also clearly tell their employees not to use the vehicle for private journeys and check that they do not.

Cars adapted for an employee with a disability

These cars are exempt if the only private use is for journeys between home and work and for travel to work-related training.

Fuel paid for by employees
The fuel benefit is removed when an employee pays for all their private fuel use or if the employer pays and the employee reimburses the amount (during the tax year). 

'Pool' cars
Employers are not required to pay or report on 'pool' cars. These are cars that are shared by employees for business purposes only and normally kept on your premises. Employers must ensure the ‘pool’ car rules are properly adhered to. 

Privately owned cars
Employers do not have to pay anything on cars that directors or employees own privately.

Expenses and benefits filing deadlines

The deadline for submitting the 2019-20 forms P11D, P11D(b) and P9D is 6 July 2020. Employees must also be provided with a copy of their P11D by the same date.

Employers pay Class 1A National Insurance contributions on most benefits. If you provided taxable benefits to staff or directors your business is likely to have a Class 1A employers’ NIC liability. The deadline for paying class 1A NICs is 22 July 2020 (or 19 July if paying by cheque).

P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits. This is known as payrolling and removes the requirement to complete a P11D for the selected benefits. However, a P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled.

Where no benefits were provided during 2019-20 and a form P11D(b) or P11D(b) reminder is received, employers can either submit a 'nil' return or notify HMRC online that no return is required. Employers should ensure that they complete their P11Ds accurately, including the full details of cars and loans provided. There are penalties for late filing of returns.

Any tax or National Insurance due for 2019-20 under a PAYE Settlement Agreement (PSA) needs to be paid electronically to clear into HMRC’s bank account by 22 October 2020 (19 October 2020 for payments by cheque).

Reimbursing expenses for home office equipment

HMRC has updated its guide for employers who have employees working from home due to the COVID-19 outbreak. This could be a result of the workplace being closed or because employees are following government advice to self-isolate.

The updated guidance reflects temporary changes to the rules for reimbursing employees for the purchase of office equipment whilst working from home. The guidance originally published on 26 March 2020 stated that if employers reimburse expenses for office equipment their employees have bought that this is taxable and should be reported on the employers PAYE Settlement Agreements.

In a written statement published on 13 May 2020, Jesse Norman, The Financial Secretary to the Treasury announced the introduction of a temporary measure to support employees who are working from home as a result of the pandemic. This temporary measure states that employer reimbursements for the cost of home-office equipment expenses will be exempt from tax and NICs.

The expenditure must meet the following two conditions to be eligible for relief:

  1. That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the Coronavirus outbreak, and
  2. The provision of the equipment would have been exempt from Income Tax if it had been provided directly to the employee by or on behalf of the employer (under section 316 of ITEPA).

The exemption is a temporary measure and will have effect from the day after the regulations come into force until the end of the tax year 2020/21. However, we are told that HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any reimbursed payments made from 16 March 2020 (the date the government recommended working from home) to the date these regulations take effect.

Employee car ownership schemes

An Employee Car Ownership Scheme (ECOS) is a set of arrangements whereby employees acquire cars from a specified, often single source and within a specified financing framework. The use of an ECOS can effectively be seen as a halfway measure between providing a company car and leaving an employee to make all their car arrangements privately.

An ECOS gives employees similar benefits to having a company car, for example a new car on a regular basis, and/or central organisation of insurance and servicing but is structured in such a way that normal car and fuel benefit provisions do not apply.

HMRC has published special guidance on the ECOS due to the Coronavirus restrictions. If an employee has not been able to return the car to the dealership or factory for its assessment, there may be an Income Tax charge on the amount of the loan still owing.

If the loan period was less than 4 years, it may be possible for the employee to arrange an extension with the loan provider for a few more months. This will cover the period until the car can be returned and the loan settled. If this is done, HMRC will accept that the arrangements do not give rise to the Income Tax charge. If, however, the loan is extended beyond 4 years, an Income Tax charge will arise.

New advisory fuel rates published

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel. HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. In this case, HMRC will accept there is no fuel benefit charge. The advisory rates are not binding if you the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

The latest advisory fuel rates become effective on 1 June 2020. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The new rates are as follows:

Engine size     Petrol – amount per mile   LPG – amount per mile
1400cc or less      10p 6p
1401cc to 2000cc       12p 8p
Over 2000cc       17p 11p

 

Engine size      Diesel – amount per mile
1600cc or smaller   8p
1601cc to 2000cc     9p
Over 2000cc   12p

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

HMRC accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car there is no profit. While electricity is not considered a fuel for tax and NICs purposes, the Advisory Electricity Rate is now published quarterly alongside the other advisory fuel rates.

Working from home tax breaks

HMRC has a useful guide for employers who have employees working from home due to the COVID-19 outbreak. This could be a result of the workplace being closed or because employees are following government advice to self-isolate. This guidance is not relevant for furloughed workers as they should not be doing any work whilst on furlough.

Employers may reimburse employees for certain household expenses incurred if they are required to work from home. In general, the expenses must be in relation to business use and there must be no significant private use. For example, if laptops, tablets, computers and office supplies are provided for business purposes and there is no significant private use, these are treated as non-taxable. There is no restriction on the private use of mobile phone and SIM cards which are limited to one per employee; these costs are non-taxable.

If an employer reimburses expenses incurred by an employee buying office equipment, this is taxable and should be reported on a PAYE settlement agreement.

Employers can pay a fixed amount of up to £6 per week (or £26 a month for employees paid monthly) to cover additional expenses for employees working from home to cover extra expenses relating to electricity, heating or broadband. These figures increased from £4 per week (or £18 a month for employees paid monthly) that were in place up to 5 April 2020.

Employers can also provide an employment-related loan. Loans provided with a value less than £10,000 in a tax year are non-taxable.

Expenses and benefits filing deadlines

The deadline for submitting the 2019-20 forms P11D, P11D(b) and P9D is 6 July 2020. Employees must also be provided with a copy of the information relating to them on these forms by the same date. P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits.

This is known as payrolling and removes the requirement to complete a P11D for the selected benefits. However, a P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled. The deadline for paying class 1A NICs is 22 July 2020 (or 19 July if paying by cheque).

Where no benefits were provided from 6 April 2019 to 5 April 2020 and a form P11D(b) or P11D(b) reminder is received, employers can either submit a 'nil' return or notify HMRC online that no return is required. Employers should ensure that they complete their P11D accurately, including all the details of cars and loans provided. There are penalties of £100 per 50 employees for each month or part month a P11D(b) is late.  There are also penalties and interest if for late payments.

Any tax or National Insurance due for 2019-20 under a PAYE Settlement Agreement (PSA) needs to be paid electronically to clear into HMRC’s bank account by 22 October 2020 (19 October 2020 for payments by cheque).