Employment tax reporting 2021/22

Year-end employer compliance procedures must identify taxable benefits and expenses, and report these so the correct income tax and NIC are paid to HMRC. The pandemic saw significant changes in employer expenditure on benefits and expenses to support new ways of working, and temporary COVID-19 income tax exemptions and reliefs continued to apply for 2021/22. However, the transition out of lockdown meant that, at certain times throughout the year, many businesses began to experience increases in certain expenditure (e.g., on relocation, travel, and subsistence). Different government homeworking guidance across the UK, the uneven nature of the emergence from lockdown, and changing employer policies, add a layer of complexity to 2021/22 year-end processes. The impact for each employer will vary depending on which employee expenses and benefits to support coronavirus working patterns were provided in 2021/22, and whether the conditions of the temporary coronavirus exemptions and reliefs were met.

What should employers do?

To some extent, changes to end of year processes implemented for 2020/21 to reflect lockdown working will apply for this year. However, increased expenses and benefits expenditure during 2021/22 heightens the risk of any unidentified weaknesses producing significant compliance errors.

For example, issues could arise gathering data where expenses policies and benefits provided changed over the year to support a return to the workplace and, in some cases, a return to a period of homeworking.

Many employers will therefore need to review their year-end processes to ensure that, considering changing work patterns and policies over 2021/22, they can comply with their end of year reporting obligations. Some employers are taking the opportunity to review their systems and processes whilst the level of expenses is still relatively low, such as refreshing expenses policies, expenses system setup to support better output reporting, and using data analytics to integrate expenses and general ledger data rather than use manual reviews.

In view of this, and with continued pressure on resource, employers should start their year-end processes as quickly as possible.

Specific issues to consider include:

• Were temporary coronavirus exemptions applied correctly? For example, can you demonstrate that home office equipment costs were reimbursed on ‘similar terms’ and the other qualifying conditions were met, and did any COVID-19 tests provided meet the conditions for a tax/NIC exemption? If so, has this been documented in case of HMRC review?
• Where a COVID-19 exemption doesn’t apply, is another exemption in point? For example, could the trivial benefits exemption apply where the cost doesn’t exceed £50 and certain other conditions are met?
• Did your travel expenses policy change? Some employers regarded employees’ homes as permanent workplaces during lockdown and reimbursed the cost of journeys that started at home, even to employees’ former workplaces. Whilst the rules are complex, in most cases travel costs between home and a permanent workplace are likely to be taxable.
• Did you reimburse additional home working expenses for increased utility bills etc.? It’s important to ensure the amounts covered meet the requirements of the exemption, and either fall within the £6 per week limit for unreceipted expenses, are based on a scale rate agreed with HMRC, or are fully evidenced.
• If employees were furloughed during the year, were deductions for payrolled benefits paused? If so, it’s important to ensure those benefits are reported to HMRC on the correct return and any reporting implications for subsequent years are considered.
• If internationally mobile employees were displaced, did unexpected UK or overseas tax and social security liabilities, withholding and reporting obligations arise? This could happen where mobile employees unexpectedly establish UK or overseas tax residence or have more workdays in the UK or another jurisdiction than anticipated. Employers should review their mobile workforce, identify any such exposures, and determine how these should be addressed, where necessary as part of their year-end compliance.

Where reportable expenses and benefits are identified, employers need to consider whether they should be reported on employees’ Forms P11D or included in a coronavirus expenses category in the PAYE Settlement Agreement (PSA).

What are the key actions and deadlines?

Key actions and deadlines for 2021/22 employer year-end compliance are set out in the table below:

Additionally, some employers provide benefits that fall outside the usual reporting regime. For example, post termination benefits (such as a temporary extension of private medical insurance beyond the termination date) should, in certain circumstances, be reported to HMRC outside the annual Form P11D reporting process by 6 July following the end of the tax year.

Similarly, where an Employer-Financed Retirement Benefits Scheme (EFRBS) operates, it should be reported to HMRC by 31 January following the end of the tax year in which it first receives an employer contribution or first provides ‘relevant benefits’. Additionally, ‘relevant benefits’ provided by an EFRBS should be reported to HMRC by 7 July following the end of each tax year.

It is therefore important for businesses to understand which benefits they provide and the associated reporting obligations.

For further information please contact:

• Hayley Perkin
• Francesca Graham