Tax Focus – A Summary Of Current Tax Issues For Companies, February 2007

Reporting employee benefits and expenses

Due to various legislative changes over the past 12 months, it is advisable to consider the following points before reporting your employee expenses and benefits on P11D forms, both this year and next.

Company vans and private usage

The taxation of vans provided to employees has changed a few times over recent years. The first welcome change, implemented in April 2005, was to allow for limited private use without triggering a benefit charge. But the next change, which comes into effect on 6 April 2007, could result in a 700% increase on the cost of the taxable benefit. The new tax treatment will result in a significant increase in the tax charge payable for unrestricted private use and introduces a private fuel benefit.

From 6 April 2007, the van and private fuel benefits combined will be £3,500 - the maximum taxable amount is currently £500. For an employer to avoid these charges, the van should be provided mainly for the employee's use on business travel with private use restricted to commuting and insignificant trips. The cost of fuel for private use must be borne by the employee.

If employers have not already done so, these changes should be implemented if the current benefit is accepted but the new one is too expensive - either in terms of the employee's tax or the employer's Class 1A NIC.

Retirees' benefits

The Government took the opportunity presented by the new pension regime to eliminate an unintended advantage enjoyed by retired employees whose ex-employers provide them with benefits in kind. These benefits were, in most cases, exempt from tax, but as of A-Day (6 April 2006), they became fully liable. The most commonly supplied benefit in retirement is private medical insurance, but the provision of benefits such as company cars is not unusual.

Employers who provide these benefits are required to submit a report to HMRC, similar to a form P11D, for each retired recipient by 6 July 2007. Although it's not a legal requirement, employers should inform retired employees of the new situation.

Mobile phones and computer equipment

New rules regarding mobile phones and computer equipment provided to employees for private use were announced in the 2006 Budget. Since 6 April 2006, mobile phones and PDAs/Blackberries provided for private use have been chargeable to tax and have to be disclosed on forms P11D for 2006/07.

Transitional relief was granted for employees already in possession...