How do I ensure our scheme is HMRC compliant?

Explainer: The LE salary sacrifice scheme requires the employee to give up, or

sacrifice, an amount of salary, before tax, in order to cover the cost of the electric

car. However, in order to legally enable you to deduct the amount, it is necessary

to agree an amendment to the employment contract. The employee needs to

give you permission to reduce the salary that they will receive i.e. opt-in to the

scheme. It is important to make clear to employees and to check yourself as the

employer (as you will be responsible for breaches) that: (i) the salary sacrifice must

not bring their salary below national minimum wage; and (ii) that the employee’s

notional salary (i.e. before the salary sacrifice) is what determines their pay

increases, overtime rates, sick pay etc. This is made clear in the documentation

provided by LE to employers/employees.

In April 2016, HMRC introduced the facility for employers to payroll their taxable

benefits paid to their employees (e.g. provision of cars). It is entirely voluntary and

allows an employer to adjust employees taxable pay through PAYE, and

importantly, pay the Benefit in Kind (BiK) tax in real time throughout the tax year

(as opposed to tax codes being amended at a later date upon completion of

P11Ds). But, companies must sign up by 5th April in order to use the service for the subsequent tax year (starting 6th April). You must also check that your payroll

provider will allow you to payroll benefits. HMRC link to sign up.

Note that payrolling benefits only deals with the income tax element; you still

must file form P11D(b) and pay Class 1A National Insurance contributions

(employer contributions) – see step 5.

Explainer: You must use your online payrolling service to notify HMRC that an

employee has been provided with a car. This is called the employee’s ‘Full

Payment Submission’ (FPS). Deadline for submitting the ‘FPS’ is 28 days from the

end of the quarter that the change took place. Information needed for the form

will be found on the ‘Payroll Report’ sent to you by loveelectric. This includes:

make and model of car, registration date, CO2 emissions, zero emission mileage,

car identifier (reg), calculated price, lease from and to dates. You must send

written notification (by payslip, email or letter) to each employee that you’re

payrolling, by 1st of June each year. The notification must tell your employees that

they will not be taxed twice (i.e. they will not also have to pay income tax on the BiK at the end of the tax year) because you have registered to payroll their

benefits with HMRC before the start of the new tax year. See here for what to

include in the communication.

Explainer: You may wish to use the HMRC calculator before you submit your P11D

or P11D(b) forms. The calculator will enable you to double check the BIK value (or

cash equivalent) figure is correct. It is necessary to calculate the cash equivalent

figure of the benefit being provided to the employee to ensure the correct BiK

(Benefit in Kind) calculation has been done and is accurately reflected in the

payroll and tax calculations. Additionally, it is important to ensure the employees

payroll is correctly reflecting the tax and national insurance changes associated

with the salary sacrifice scheme.

(NOTE THAT P11Ds FOR INDIVIDUAL EMPLOYEES ARE NOT REQUIRED

TO BE COMPLETED WHEN BENEFITS ARE PAYROLLED)

Explainer: Even though you no longer need to complete a P11D form for each

individual employee when you use the HMRC Payrolling Service, you DO still need

to complete a P11D(b) form. This form tells HMRC how much Class 1A National

Insurance (employer’s contributions) you need to pay on all benefits provided to

all employees.

It is due on 6th July following the end of the tax year (5th April) and payment due to HMRC by 22nd July (cleared into HMRC’s account if paying electronically) or 19th July for cheque.

Explainer: The LE salary sacrifice scheme requires the employee to give up, or

sacrifice, an amount of salary, before tax, in order to cover the cost of the electric

car. However, in order to legally enable you to deduct the amount, it is necessary

to agree an amendment to the employment contract. The employee needs to

give you permission to reduce the salary that they will receive i.e. opt-in to the

scheme. It is important to make clear to employees and to check yourself as the

employer (as you will be responsible for breaches) that: (i) the salary sacrifice must

not bring their salary below national minimum wage; and (ii) that the employee’s

notional salary (i.e. before the salary sacrifice) is what determines their pay

increases, overtime rates, sick pay etc. This is made clear in the documentation

provided by LE to employers/employees.

In April 2016, HMRC introduced the facility for employers to payroll their taxable

benefits paid to their employees (e.g. provision of cars). It is entirely voluntary and

allows an employer to adjust employees taxable pay through PAYE, and

importantly, pay the Benefit in Kind (BiK) tax in real time throughout the tax year

(as opposed to tax codes being amended at a later date upon completion of

P11Ds). But, companies must sign up by 5th April in order to use the service for the subsequent tax year (starting 6th April). You must also check that your payroll provider will allow you to payroll benefits. HMRC link to sign up here.

Note that payrolling benefits only deals with the income tax element; you still

must file form P11D(b) and pay Class 1A National Insurance contributions

(employer contributions) – see step 5.

Explainer: You need to complete the P46 car form which can be done online (you

need Government Gateway ID/password) or using the postal P46 car form. Links

to both found here. Deadline for submitting this form is 28 days from the end of

the quarter that the change took place. Information needed for the form will be

found on the ‘Payroll Report’ sent to you by loveelectric. This includes; make and

model of car, registration date, CO2 emissions, zero emission mileage, car

identifier (reg), calculated price, lease from and to dates. Employees’ tax codes

will be adjusted to take account of BIK at this point and this may mean they do

not have any income tax left to pay on the benefit at the end of the tax year once

the P11D is submitted.

P46 Online / Paper Form

Explainer: You may wish to use the HMRC calculator before you submit your P11D

or P11D(b) forms. The calculator will enable you to double check the BIK value (or

cash equivalent) figure is correct. It is necessary to calculate the cash equivalent

figure of the benefit being provided to the employee to ensure the correct BiK

(Benefit in Kind) calculation has been done and is accurately reflected in the

payroll and tax calculations. Additionally, it is important to ensure the employees

payroll is correctly reflecting the tax and national insurance changes associated

with the salary sacrifice scheme.

Explainer: The annual P11D form is used to report benefits in kind. There is one

P11D form per employee and a copy should be sent to each employee. As benefits

in kind effectively increase an employee’s salary, income tax and National

Insurance Contributions need to be paid on them. The National Insurance

Contributions are paid by the employer, not the individual.

Our payroll reports provide the breakdown of figures for you, including the cash

equivalent value of the benefit of the car. P11Ds are filed by the employer, and

must be filed by 6th July following the end of the tax year in question (5

th April).

The P11D figures are used by the individual in their Self Assessment tax return

(although any income tax due will likely have already been collected by HMRC having adjusted the individual’s PAYE tax code and sent a new coding notice

during the year so that the tax has been deducted monthly from their pay).

The P11D(b) form tells HMRC how much Class 1A National Insurance the employer

needs to pay on all benefits provided to all employees. The P11D(b) summarises

the individual employees’ P11D forms. It is due on 6th July following the end of the

tax year in question (5 April). Payment by the employer of NICs is due to HMRC by

22nd July if paying electronically (cleared into HMRC’s account by then) or 19th July for cheque.