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Filing 2021/22 expenses and benefits returns
· MTD for VAT for all
· Identifying NIC increases on the payslip
· Claiming NIC veterans’ relief from April 2022
· Plastic packaging tax – who is liable?
Filing 2021/22 expenses and benefits returns
Employers who provided their employees with taxable expenses and benefits in 2021/22 need to report these to HMRC by 6 July 2022, unless they have been payrolled or included within a PAYE Settlement Agreement.
Taxable expenses and benefits should be reported to HMRC on form P11D. A P11D is needed for each employee for whom benefits and expenses need to be notified to HMRC. A P11D(b) is also needed. This is the employer’s declaration that all required P11Ds have been filed, and also the Class 1A National Insurance return. A P11D(b) must be filed even if all benefits have been payrolled as payrolled benefits must be taken into account when working out the Class 1A National Insurance liability.
Filing options
Employers can file their P11Ds and P11D(b) returns electronically or in paper format. HMRC encourage electronic filing and for most employers this will be the preferred option. However, the electronic filing options are reduced this year as HMRC have decommissioned their Online End of Year Expenses and Benefits Service and consequently it cannot be used to file 2021/22 returns. However, employers can instead use HMRC’s PAYE Online Service, or file using commercial software package.
PAYE Online
HMRC’s PAYE Online service can be used by employers to undertake a number of tasks, such as accessing tax codes and notices about employees, checking what they owe HMRC, paying bills, checking their payment history and appealing a penalty. It can also be used to file expenses and benefits returns. However, it can only be used to file returns for up to 500 employees. Employers who need to make more than 500 submissions will need to file using a commercial software package.
To use the PAYE Online service to file expenses and benefits returns, employers must be registered to use the service and will need to log on via their Government Gateway account. Employers who are not yet registered and who wish to use the service to file their 2021/22 expenses and benefits returns should allow sufficient time to register and submit their returns by the 6 July 2022 deadline.
HMRC stress that the service should be straightforward to use; however, employers who encounter problems can either use the help function or contact HMRC’s Online Services Helpdesk, via the webchat facility or by phone on 0300 200 3600.
Commercial software packages
Employers can also file online via their expenses and benefits software package. Where they need to make more than 500 submissions, they must use a commercial software package to file online. Employers needing assistance should contact their software provider.
Paper returns
It is not mandatory to file P11Ds and the P11D(b) online; paper returns can still be filed. However, this is only likely to be an option for employers who only have a few returns to file.
Nothing to file this year?
Employers who have no returns to file this year but who have been sent a P11D(b) of a notification to one file will need to make a nil declaration online on the Gov.uk website.
This is important as a penalty may be charged otherwise.
MTD for VAT for all
Under Making Tax Digital (MTD) for VAT, VAT-registered traders must keep electronic records and file their VAT returns electronically using software that is compatible with MTD for VAT. Prior to 1 April 2022, MTD for VAT was only mandatory for VAT-registered traders whose turnover for VAT purposes was above the VAT registration threshold of £85,000. VAT-registered traders whose turnover was below the VAT registration threshold could choose whether to join or not.
Extension to all VAT-registered traders
MTD for VAT is extended from 1 April 2022 to all registered traders. VAT-registered traders whose turnover is below the VAT registration threshold of £85,000 and who have not already joined MTD for VAT must do so from the start of their first VAT accounting period beginning on or after 1 April 2022.
Example
John is a VAT-registered trader with turnover for VAT purposes of £50,000. His VAT quarters run to 31 January, 30 April, 31 July and 31 October. He has not yet joined MTD for VAT.
John must start complying with MTD for VAT from 1 May 2022. This is the first day of the VAT quarter to 31 July 2022 and the first day of his first VAT accounting period that begins on or after 1 April 2022.
He must file the return for the period by 7 September 2022 using MTD-compatible software.
Need to register
Traders who are joining MTD for VAT from 1 April 2022 will need to sign up. They can do this via their Government Gateway Account. Alternatively, if they want to use an agent to submit their returns on their behalf, their agent can sign them up, but will need authorisation from the trader to do so.
Traders who pay by direct debit should avoid signing up too close to the return deadline as they may end up paying their VAT twice. The window to avoid is the period from seven days before the return is due until five days after the return is due.
Electronic records
Under MTD for VAT, the trader must keep their VAT records electronically. This can be done via a software package. Alternatively, spreadsheets can be used. However, where spreadsheets are used, these must be linked to the return – figures should not be entered manually.
Return software
VAT returns must be filed using software that is compatible for MTD for VAT. HMRC publish details of software packages that can be used (see www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat). However, it should be noted that HMRC do not recommend particular products. Traders should find a product that they are happy with in advance of the deadline
Worth de-registering?
Traders whose turnover is under the VAT registration threshold may wish to review whether, in light of the need to comply with MTD for VAT, it remains beneficial to be VAT-registered.
Identifying NIC increases on the payslip
For 2022/23 only, the rates of Class 1 (employer and employee) National Insurance contributions are increased by 1.25 percentage points, along with the rates of Class 1A, Class 1B and Class 4 contributions. The NIC increases are a temporary increase pending the introduction of the Health and Social Care Levy from 6 April 2023. The levy will raise ring-fenced funds for health and adult social care; the 2022/23 temporary increases in National Insurance contributions will do likewise. The rates are due to revert to their 2021/22 levels from 6 April 2023 when the new levy comes into effect.
Employer and employee rates for 2022/23
As a result of the temporary NIC increases, for 2022/23, the main rate of primary contribution (payable on earnings that fall between the primary threshold (£190 per week; £823 per month; £9,880 per year) and the upper secondary threshold (£967 per week; £4,189 per month; £50,270 per year)) is set at 13.25% and the additional primary rate (payable on earnings in excess of the upper earnings limit) is set at 3.25%.
Employers will pay secondary contributions at the rate of 15.05% on earnings in excess of the secondary threshold (set at £175 per week; £758 per month; £9,100 per year). Where an upper secondary threshold applies, employers will pay secondary contributions on contributions at 15.05% above the relevant secondary threshold (£967 per week; £4,189 per month; £50,270 per year where the employee is under the age of 21, an apprentice under the age of 25 or an armed forces veteran in the first year of their first civilian employment since leaving the armed forces and £481 per week; £2,083 per month; £25,000 per year where the employee is a new Freeport employee). The 1.25% increase does not apply to earnings charged at the zero rate.
Employers will also pay Class 1A and Class 1B National Insurance contributions at 15.05% for 2022/23.
Identifying increases on the payslip
In the December 2021 issue of their Employer Bulletin HMRC asked employers to include a message for employees on all payslips between 6 April 2022 and 5 April 2023 to explain that their increased National Insurance contributions are being used to meet health and social care costs. They instructed that the payslip message should read ‘1.25% uplift in NIC funds NHS, health & social care’.
HMRC reiterated this request in the February 2022 issue of Employer Bulletin. The article notes that while HMRC have been in contact with payroll software providers to request that they include it in their software packages, they realise that some employers will need to amend payslips directly in order to include this message.
HMRC will also be sending out emails to employers to remind them to include this message.
To encourage employers to employ armed forces veterans, a new relief was introduced with effect from 6 April 2021 where an employer took on an armed forces veteran in the first year of their first civilian employment since leaving the armed forces.
Nature of the relief
Under the relief, an employer only pays secondary Class 1 National Insurance contributions on earnings to the extent that they exceed the veteran’s upper secondary threshold where the veteran is in the first year of their first civilian employment since leaving the armed forces. The secondary rate is 13.8% for 2021/22 and 15.05% for 2022/23. Contributions are payable at a zero rate on earnings that fall between the secondary threshold and the veteran’s upper secondary threshold.
To qualify for the relief, the employee must have served at least one day on the regular armed forces (a single day undertaking basic training counts). The employee must also be in their first civilian job since leaving the armed forces – it does not matter when they left.
The relief is available from 6 April 2021 onwards for the first year of the veteran’s first post-forces civilian employment. Where the employment commenced after 6 April 2020, the relief period runs from 6 April 2021 to the first anniversary of the employment start date. If the veteran has more than one job in this period, all employers can benefit. Likewise, if the veteran changes jobs before the end of the relief period, the new employer is eligible for the relief until the end of the relief period.
The relief only applies to employer’s contributions; the armed forces veteran pays employee contributions on earnings above the primary threshold as for other employees.
Giving effect to the relief
Although the relief applies from 6 April 2021, employers were required to pay secondary contributions as normal on the veteran’s earnings for 2021/22 where these exceeded the secondary threshold. They can claim the relief retrospectively from 6 April 2022 through the payroll via Real Time Information.
To claim the relief for 2021/22 through the payroll, the employer will need to submit a revised FPS after 6 April 2022 using the category letter V where the employee would otherwise have category letter A (standard contributions). From 2022/23 the relief is given through the payroll. Category letter V should be used where A would otherwise apply. At the end of the relief period, the veteran’s category letter should revert to A.
If the veteran would otherwise have a category letter other than V (for example, if they have reached state pension age), employers will need to write to HMRC to claim the relief due for 2021/22.
Corporation tax increases soon to take effect
Corporation tax is being reformed and companies with profits of more than £50,000 will pay corporation tax at a higher rate than they do now. While the changes do not come into effect for a year, applying from the financial year 2023 which starts on 1 April 2023, their impact will be felt sooner where accounting periods span 1 April 2023. Consequently, they will be relevant to accounting periods of 12 months starting after 1 April 2022.
Nature of the changes
From 1 April 2023, the rate of corporation tax that you pay will depend on the level of your profits and the number of associated companies that you have, if any.
If your profits are below the small lower limit, from 1 April 2023, you will pay corporation tax at the small profits rate. At 19%, this is the same as the current rate of corporation tax.
If you profits are above the lower limit, you will pay corporation tax at the main rate. This has been set at 25% for the financial year 2023.
If your profits fall between the lower limit and the upper limit, you will pay corporation tax at the main rate, but you will receive marginal relief which will reduce the amount that you pay. Marginal relief is calculated in accordance with the following formula:
F x (U-A) x N/A
Where:
· F is the marginal relief fraction (set at 3/200 for the financial year 2023);
· U is the upper limit;
· A is the amount of augmented profits (profits plus dividends from non-group companies); and
· N is the amount of total taxable profits.
Where a company benefits from marginal relief, the effective rate of corporation tax will be between 19% and 25%. A company with profits nearer the lower limit will receive more marginal relief than a company with profits nearer the upper limit and pay tax at a lower rate.
The lower limit is £50,000 and the upper limit is £250,000 for a company with no associated companies. Where a company has one or more associated companies, the limits are divided by the number of associated companies plus 1, so that, for example, the lower limit for a company with one associated company will be £25,000 and the upper limit will be £125,000.
The limits are time apportioned where the accounting period (or pro rata period) is less than 12 months.
Plan ahead
Where the accounting period spans 1 April 2023 the profits are for the period are apportioned and those relating to the period prior to 1 April 2023 are taxed at the financial year 2022 corporation tax rate of 19%, while those relating to the period from 1 April 2023 to the end of the accounting period are taxed at the relevant rate for the financial year 2023 depending on the company’s profits.
Where the company will, from April 2023 pay corporation tax at a rate above 19%, now is the time to plan ahead and, where possible, accelerate profits so that they fall in the current accounting period rather than one spanning 1 April 2023. On the other side of the coin, delaying costs so that they fall in a period spanning 1 April 2023 rather than the current period will also reduce the tax that is payable at a rate above 19%.
Example
ABC limit prepares accounts to 30 September each year. It has annual profits of £300,000.
Its profits for the year to 30 September 2022 will be taxed at 19%.
However, its profits for the year to 30 September 2023 will be time apportioned and six months’ worth will be taxed at 19% and the remaining six months’ worth at 25% -- an effective rate of 22%.
The company accelerates a profitable contract so that it is completed before 30 September so that the profit is taxed at 19%.
Plastic packaging tax – who is liable?
Plastic packaging tax is a new tax that comes into effect from 1 April 2021. The tax has a green agenda – its aim is to reduce the amount of plastic packaging that does not contain at least 30% recycled plastic.
Liability
The tax applies to packaging that it predominantly plastic by weight and which does not contain at least 30% recycled plastic by weight. It is levied on those who manufacture or import plastic packaging. The tax arises when the packaging component is finished, or where it is imported, when it is imported.
However, to ensure that the administrative burden is not disproportionate, it only applies to those who manufacture or import at least 10 tonnes of plastic packaging within the scope of the tax each year. Guidance on what constitutes plastic packaging for the purposes of the tax can be found on the Gov.uk website (see
Where the tax applies, it is charged at the rate of £200 per tonne.
Registering
Manufacturers and importers who are liable for the tax will need to register with HMRC from 1 April 2022. This can be done online. A business must register when they have manufactured or imported 10 or more tonnes of plastic packaging within the scope of the tax, or if they plan to do so in the next 30 days. Therefore, when determining whether a liability to register arises, it is necessary to look both backwards and forwards. As the tax only applies from 1 April 2022, in the first year of the tax, there is no need to look back before 1 April 2022.
Where the threshold of 10 tonnes in the previous 12 months is reached, the liability to register arises from the first day of the month following that in which the threshold was reached. Registration must be done within 30 days.
Example
A business manufactures 4 tonnes of plastic packaging containing less than 30% recycled plastic each month. By 30 June 2022, they have manufactured 12 tonnes of packaging since 1 April 2022. As the 10 tonne threshold has been exceeded on 30 June 2022, the liability to register arises on 1 July 2022. The business must register by 30 July 2022.
Where a business expects to exceed the 10 tonne threshold in the next 30 days, the requirement to register arises from the date that the business expects to be liable to register. Again, the business must register within 30 days.
Example
A business normally manufactures 2 tonnes of plastic packaging a month. On 4 May 2022 it receives an order for 15 tonnes of plastic packaging that contains less than 30% recycled plastic. The liability to register arises on 4 May 2022 and the business must register by 2 June 2022.
Planning tips
The tax is payable by the manufacturer or importer, not by the end user. However, depending on price sensitivity, they may be able to pass the cost on. As the tax only applies where the plastic packaging does not contain at least 30% recycled plastic, increasing the recycled element to at least 30% will remove liability of the tax. Likewise, moving away from plastic packaging so that the 10 tonne threshold is not breached will also take a business outside the tax, increasing its green credentials in the process.