Policy paper

Dates for 'making good' on benefits-in-kind

Published 5 December 2016

Who is likely to be affected

Employers and those employees who make payments in return for any benefits in kind they receive. A diverse range of employees make payments in return for benefits in kind but a common example is an employee who makes payments in return for the fuel provided by their employer for private use, as an alternative to paying the fuel benefit charge.

General description of the measure

Where an employee gives something (usually a cash payment) to the person providing a benefit in kind in return for it, this is known as ‘making good’. The payment has the effect of reducing the taxable value of the benefit in kind, often to zero. This reduces the amount of the employee’s taxable earnings.

The measure sets a date of 6 July after the end of the tax year for making good on benefits in kind which are not accounted for in real time through Pay As You Earn (‘payrolled’). The taxable value, and the value on which Class 1A National Insurance contributions (NICs) are payable, will be reduced only if the benefit in kind is made good by that date. There are already dates in legislation for making good on benefits in kind which are payrolled.

Employees will still have the discretion to make good after 6 July but doing so will not reduce the taxable value of the benefit in kind.

Policy objective

At present, there are a range of dates for making good on benefits in kind and, for some benefits in kind, there is no date in legislation. The policy objective is to eradicate the scope for confusion arising from the current system and to help employers and employees understand their obligations.

This will be achieved by setting clear dates for making good, including setting a date where there is currently no date in legislation.

Background to the measure

The Office of Tax Simplification, employers and representative bodies have said that there is confusion and practical difficulties in complying with the current dates.

At Budget 2016, the government announced that it would introduce a package of measures to simplify further the tax administration of employee benefits and expenses. This included consulting on proposals to align the dates for making good on benefits in kind.

The government held a consultation from 9 August 2016 to 4 October 2016 on proposals to align the dates for making good.

Detailed proposal

Operative date

The measure will have effect for making good on a tax liability that would arise in tax year 2017 to 2018 and after. The current rules will apply in relation to making good on a benefit in kind chargeable to tax in 2016 to 2017 or earlier years.

Current law

Current law on making good for non-payrolled benefits in kind is included in different sections of the Income Tax (Earnings and Pensions) Act 2003. The provision for an employee to make good is in section 203. Making good on car fuel is in sections 151 and 152, making good on van fuel is in sections 162 and 163, making good on private use of a company car is in section 144 and making good on private use of a van is in section 158. For these benefits in kind, making good must take place by the end of the tax year.

For other (non-payrolled) benefits in kind, there is no specific date set in legislation for making good.

Regulations 71 and 80 of the Social Security (Contributions) Regulations 2001 set the dates by when payments of NICs must be made.

Proposed revisions

The dates for making good for non-payrolled benefits in kind will be 6 July following the end of the tax year in which the tax charge arises.

There are to be no changes to the dates currently set in legislation for making good on payrolled benefits in kind.

The draft legislation amending the existing sections will be published on 5 December 2016.

Summary of impacts

Exchequer impact (£m)

2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
-	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

There is not expected to be any significant impact on individuals or households.

The change is not expected to impact on family formation, stability or breakdown.

Equalities impacts

HM Revenue and Customs (HMRC) has had due regard to equality to comply with section 149 of Equality Act 2010 and relevant Northern Ireland legislation.

It is not anticipated that the proposed measure will have any adverse impacts on groups with protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible one-off cost on affected businesses and civil society organisations as they familiarise themselves with the uniform date. There will also be a negligible on-going reduction in administrative burdens as the uniform date will ensure employers and employees have a better understanding of their obligations.

Responses to the consultation on the change in policy have indicated that many employers and employees are already working to the date of 6 July in practice. For this reason, we envisage that there will be a minimal impact on the processes of many businesses and civil society organisations.

Obtaining data on making good payments in order to assess the impact is difficult. The act of making good often reduces the taxable value of the benefit in kind to nil, which means there is nothing for HMRC to record in terms of tax or NICs.

Operational impact (£m) (HMRC or other)

There will be no significant operational impact.

Other impacts

Other impacts have been considered and none has been identified.

Monitoring and evaluation

This measure will be kept under review through regular communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact the Employment Income Policy team on Telephone: 03000 521589 or email: employmentincome.policy@hmrc.gsi.gov.uk.