On line Filing Incentives & Van Benefits

June 22, 2006

On line Filing Incentives & Van Benefits

All may not be what it seems

We all welcome Gordon Brown’s strenuous efforts to reduce the tax burden, or even to send us money tax-free, and recently he has done just that in relation to on-line filing of PAYE returns and van benefits….

But wouldn’t it be dreadful if, without our realising, tax-free cash and non-taxable benefits were taxed after all? Yet there is a real risk of this happening unless you keep a close eye on what Her Majesty’s Revenue and Customs (‘HMRC’) is doing!

Tax-free incentive payments

You probably know that if you have fewer than 50 employees you will not have to file PAYE returns on-line until 2010, but that in voluntarily doing so earlier, you can receive incentive payments of up to £825 tax-free – great!

Unfortunately, because of perceived abuses of this generosity, HMRC has gone off the idea of sending out cheques and usually employers merely make an adjustment to their PAYE payments. But then, of course, the tax-free sums can ‘get lost’ in the accounts. If they are not specifically adjusted for in the year-end tax computations HMRC will automatically recoup up to 41% of the ‘tax-free’ amount – ouch!

Van benefits

You may also know that from 2005/06 there is no benefit charge for insignificant private use of a van provided by an employer. Insignificant private use basically means home-to-work travel, and in this circumstance there is no tax to pay – great again!

However, if the benefit is still included as a taxable item in a PAYE coding notice, the tax is probably still being paid anyway – ouch again!

Barnes Roffe Topical Tips:

  • Ensure your year-end tax computations are adjusted to take into account the tax-free PAYE on-line payment incentive.
  • Carefully scrutinise coding notices to ensure that the van benefit is removed where there is insignificant private use, both for the current year and for 2005/2006. This is especially important for employees who do not usually file tax returns, as they may be quite unaware that they are entitled to a refund!