Employer provided benefits The Chancellor’s Pre-Budget Report 2007 outlined changes to the NIC exemption on holiday pay paid via a third party. The NIC exemption on holiday pay was introduced in the 1960s to take account of the high mobility and turnover of the labour force in the construction industry and situations where one employer would have to pay holiday pay which they had not actually funded or had only partially funded. Holiday stamp and credit schemes are often used where employees change jobs on a regular basis within specific industries. For this reason, they are particularly common in the construction industry, although increasingly retail and financial institutions have adopted such schemes in recent years to avoid Class 1 NIC liabilities, contrary to the original policy intention. Social Security (Contributions) (Amendment No 9) Regulations 2007 SI 2007 No 2905 remove with effect from 30 October 2007, the exemption that allowed contributions made by a group of employers to a central, independently managed holiday pay fund, with the employer making the payment being entitled to reimbursement from the fund, to be disregarded in the calculation of earnings for Class 1 NIC purposes. However, in recognition of the longstanding nature and wide range of benefits typically provided by schemes, the holiday pay NIC exemption will be maintained until 30 October 2012 for the construction industry, to allow time to adjust to this change. The exemption continues where the employer is carrying on ‘construction operations’ and the earner was personally engaged in such operations at the time that entitlement to that pay accrued. HMRC are to examine with business ways of improving guidance on tax and NICs and issue a consultation document in November 2007 on how best to introduce a system to tax benefits in kind and expenses through the payroll. HMRC are contemplating: introducing a quality standard for Form P11D; standardising the approach to providing P11D information in list form; and changes to the official P11D guidance, to the extent that it should be easily accessible and follow a more logical order than the current myriad of guidance and support offered to employers HMRC are to consider removing the lower paid employment threshold of £8,500 a year, below which the special rules in the ‘benefits code’ (for Form P11D employees) do not apply, with the exception of living accommodation and vouchers or credit-tokens, making it simpler for employers when reporting benefits. In any case, the £8,500 limit is unlikely to ever be raised, as increasing it in line, with say wage inflation, would decrease the revenue yield by taking taxpayers outside the ‘benefits code’. Some employers already collect tax on benefits in kind via the payroll e.g. the cost of providing their employees with private medical insurance and/or treatment. By extending this principle across all taxable benefits in kind, this would remove the need for a separate end of year reporting process e.g. completion of Forms P9D and P11D by 6 July following the relevant tax year-end. Paul Tew, Pay Magazine Snowdrop provides a range of Payroll solutions that are fast, flexible and easy-to-use, to suit the many and varied needs of each organisation. To find out more about the software and services that we provide, please click here >>