The Pay As You Earn Settlement Agreement (PSA) regime will extend to cover any expenses incurred from employees working from home due to the coronavirus.
What is a PSA?
A PSA enables employers to settle an employee’s tax liability on minor or irregular benefits as well as items that are impractical for an employer to apply pay as you earn to a particular emolument. Benefits and expenses of employees are reported on a single form and an annual payment covering the tax and Class 1B National Insurance (NIC) @ 13.8% is settled by the employer (not employee). Payment of both tax and NIC should be made electronically to HMRC by 22 October following the end of the tax year.
Items normally covered by a PSA include minor or occasional items such as flowers/ hamper to an employee or annual parties exceeding £150 per employee. Below are a number of expenses linked to the coronavirus that may be incur whilst employees (excluding furlough workers) work from home:
A mobile phone and sim card (one per employee) provided by an employer will be exempt from tax even if the employer is paying to cover an employee’s personal calls. On the other hand, reimbursing an employee any private calls or standing charges will be a taxable benefit.
Laptop, computers, office supplies
If any items are wholly or mainly used for business purposes than there will be no taxable benefit. Any expenses reimbursed where an employee has incurred the cost, will be taxable and reportable.
If an employee already pays for broadband no further expenses related to this can be claimed.
Electricity, heating or broadband
A payment or reimbursement of up to £4 per week (£6 per week from 6 April 2020) to employees can be made tax free. No records need to be maintained by employees. Any amounts exceeding this will be subject to firm approval and will require records to be maintained by the employee.
Loans provided to employees
Many families may experience financial hardship and it may be necessary to support your employees with either a salary advance or loan. Any loan provided in a tax year of less than £10,000 will not be a taxable benefit.
It may be necessary for an employee to self-isolate outside of their own home. An employer may reimburse any hotel and subsistence costs, which will be taxable.
How do I set up a PSA?
Employers will need to enter into an agreement with HMRC before 6 July following the end of the tax year. Once entered into, the agreement will remain in place for subsequent years unless amended or cancelled. We at CBW can assist on setting up an arrangement with HMRC as well as guiding you on types of expenses, completion and submission of the forms and necessary administration to make sure you get this right.
If you have any questions or concerns regarding this topic, please get in touch with our tax team who will be happy to help.