Tax rule changes can cause reporting errors

Changing rules around the tax treatment of benefits, and a failure to implement effective policies, processes and systems, are the most common causes of errors on employers’ end-of-year benefits tax returns.

These could result in penalties for organisations.

Richard Webb, tax director at Grant Thornton, said employers must be aware of these issues in order to file accurate tax returns for employee expenses and benefits.

“A case in point in recent years would be the treatment of the value of a bike potentially transferred to the employee at the end of the hire period where it was provided under a bikes-for-work tax scheme,” he said. “Many employers did not consider any benefit issues or believed there were understandings with HM Revenue and Customs (HMRC) about a nominal value.

“HMRC has, in recent years, set out its position clearly but there are still a multiplicity of arrangements offered by the scheme suppliers to deal with the tax position.”

To help employers reduce the likelihood of making errors on forms, HMRC has updated its expenses and benefits from employment toolkit to help employers. The toolkit includes information on dispensations and pay-as-you-earn (PAYE) agreements, areas of risk within expenses and benefits, and a checklist on reviewing benefits and expenses.

However, using HMRC’s checklist will not help if an organisation does not have effective policies, processes and systems in place, said Web.

“It’s all very well having a toolkit checklist advising employers to tick off that a variety of benefits have been identified and reported, but for larger employers without good policies and systems, compliance with reporting obligations will be difficult and uncertain,” he said.

“We are seeing more challenge again from HMRC around company car fuel benefits. The company policy may not provide for non-business related fuel costs but is the recording and monitoring of fuel use and mileage records adequate to be sure no benefit in practice has arisen?

“Employers will use this toolkit most effectively in conjunction with regular reviews of policies, testing of processes and training of relevant staff to keep up to date with changes in tax rules.”