HMRC Payroll Regulations and Returns

  Employees Self Employed Artists
Payroll deductions Tax & NI deducted at source No deductions No deductions
Annual returns P60 – All fees & expenses paid by the production

P11D All taxable benefits paid by the production

**Section 16 Return – Fees & personal expenses paid directly to Freelancer, including VAT **Section 16 Return – Fees & personal expenses paid directly to Artist, including VAT
Allowable expenses “wholly, exclusively and necessarily in the performance of duties” “wholly and exclusively  for the purposes of their trade” “wholly and exclusively for the purposes of their trade”
Taxable benefits Tax & NI deducted at source or PSA* assuming the employer wishes to bear tax Not applicable Not applicable

*PSA – PAYE Settlement Agreement – see below

https://www.gov.uk/paye-settlement-agreements

**Schedule 16 return is only prepared if requested by HMRC since.  Guidance notes can be found at: https://www.gov.uk/government/publications/notes-for-submitting-a-return-under-section-16-of-the-taxes-management-act-on-a-spreadsheet-general-1fa

P45s and P60s

When an employee leaves a production a P45 return must be generated and given to the employee.  All starter and leaver information must be reported to HMRC via the payroll software each time someone is paid.

The PAYE tax year runs from 6 April to the following 5 April. At the end of the tax year, a P60 return must be given to all employees who are still employed by the Company on 5th April. The P60 gives details of the employees pay in the tax year together with details of national insurance, PAYE and student loan deductions.

Note: The employers copy of the P60 is called P14.

P11Ds, P11D (b)s and Dispensations

P11D – If you’re an employer, you need to complete form P11D at the end of the tax year to report expenses and benefits you’ve provided to company directors or to employees earning at a rate of £8,500 or more per year. You must also provide a copy to the director or employee, as they will need it to complete their end of year tax return. You can download a P11d from the following HMRC link:-

https://www.gov.uk/government/publications/paye-end-of-year-expenses-and-benefits-p11d

P11D(b)-Where a P11D is prepared, an employer also has to prepare a P11D(b). This form advises HMRC that P11Ds have been completed and also accounts to HMRC for the Class 1A National Insurance due on the benefits in kind.

You can download a P11d (b) from the following HMRC link:-

www.hmrc.gov.uk/forms/p11db.pdf
P11D Dispensations

A dispensation is a notice from HMRC that removes the requirement for the employer to report certain expenses and benefits at the end of the tax year on Form P11D. There is also no need to pay any tax or national insurance contributions on items covered by a dispensation.

It also removes the requirement for employees to submit claims for deductions against expenses previously reported on form P11D.  Once granted, dispensations last indefinitely. However, HMRC reviews them regularly (usually at intervals of five years or less) to make sure that the conditions under which they were issued still apply.  For up to date information, see the attached link to HMRC website.

http://www.hmrc.gov.uk/payerti/exb/schemes/dispensation.htm

PSA – PAYE Settlement Agreement

A PSA is a flexible scheme you can use to settle any PAYE tax and NI due to HMRC on three types of expense and benefit: minor items, irregular items, and items it’s impractical to operate PAYE on, or to value for P9D/P11D purposes.

If HMRC agree to include an expense or benefit in a PSA, you won’t have to take any of the following steps that might otherwise apply to it:

  • include the item on an employee’s form P11D, P9D or P14 at the end of the tax year
  • put the item through your payroll to work out any PAYE tax or Class 1 NICs due
  • pay Class 1A NICs on the item at the end of the tax year

Instead, you settle the tax and NICs due on the items covered by a PSA with a single payment that includes both:

  • the tax due on the expenses and benefits covered by the PSA – note that this tax would normally be payable by your employee (usually through their tax code), and that the tax you pay must be ‘grossed up’ taking account of the tax rates payable by the employees covered by your PSA
  • Class 1B NICs, calculated not just on the value of the items covered by the PSA but also on the tax paid under the PSA. This is because paying an employee’s tax liability counts as providing them with a further benefit

Significance of Permanent Place of Work

Tax free flat rate payments for meals can be paid to employees as long as they do not exceed the HMRC rates specified on this page:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30240

The qualifying conditions are:

  • the travel must be in the performance of an employee’s duties or to a temporary place of work, on a journey that is not substantially ordinary commuting.
  • the employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours.
  • the employee should have incurred a cost on a meal (food and drink) after starting the journey and retained appropriate evidence of their expenditure

 

Treatment of Expenses

The most common areas of expenses are as follows:-

Per diems – HMRC publish guidelines for the level of per diems that can be paid without deduction of PAYE and National Insurance when working in a temporary workplace. If the workplace is permanent or the level of per diems exceeds the approved rates then per diems have to be treated as part of an employees’ income and taxed in the normal fashion through the payroll.  You should be aware of the guidance on permanent place of employment as location shooting in the UK is not necessarily a temporary workplace.

HMRC Meal Allowance Rates

Mobile phones – Where a Director or employee (currently earning in excess of £8500 per annum pro rata) is paid for mobile phone usage then the reimbursed expenses should be put on the P11D and an election should be made to exclude the business proportion of this usage for tax purposes. The level of business usage is a matter for negotiation between the employer company and HMRC.  You should be aware of the concept of dispensations.  Any sums reimbursed for private usage including the rental or standing charges would be liable to PAYE and NIC

Fuel/mileage – HMRC have approved mileage rates that can be paid without deduction of any tax. However, employees making such a claim should provide a list of the journeys made to support any such mileage claim. Where a claim is made by an employee to reclaim fuel costs, the employer should exclude the part of the fuel claim that relates to private mileage (and be able to provide a justification for the business proportion claimed).

Where mileage is paid in excess of the HMRC approved rates or where none of the fuel claim is reduced to reflect private usage, then such expenses should be processed through the payroll and taxed.

HMRC Business Travel Mileage

Section 16 Return – Gross Payments

Section 16 of the Taxes Management Act, HMRC can require businesses to provide them with information on the gross payments made to contractors (and to PSC companies through which contractors are invoicing). Anyone paid under PAYE is not covered by this legislation but where an individual or an individual invoicing through a PSC company is paid in excess of HMRC de minimus limit (including vat) in a tax year (between 6 April and the following 5 April) for their services, the earnings must be declared to HMRC if they write to a company requesting the information.  HMRC have produced a standard excel format spreadsheet on which they require companies to file their return.  This spreadsheet can be found at the following web address:-

https://www.gov.uk/government/publications/notes-for-submitting-a-return-under-section-16-of-the-taxes-management-act-on-a-spreadsheet-general-1fa/notes-for-submitting-a-return-under-section-16-of-the-taxes-management-act-on-a-spreadsheet-general-1fa

PAYE/National insurance for Company Directors 

The taxation of company directors is subject to some different rules compared to employees who are not company directors. The main differences are as follows:-

1) Company Directors should generally be taxed under PAYE, even if the company director is doing a role accepted as being a freelance role in the Film Industry guidance notes. Where a director regularly earns income as a freelancer and obtains these earnings from several different clients then an argument can be made that the earnings should be treated as freelance income even though the work is for a company for which he/she is a company director. The argument for self-employed treatment is strengthened if the company director is working for several different clients at the same time that he/she is working for the company for which he/she is a director. Where there is any doubt as to the correct tax treatment of a company director, the Production Accountant should see advice from the HMRC film industry unit and should obtain written confirmation from HMRC if the company director is to be treated as a freelancer.

Freelance payments to company directors should be disclosed in the company’s statutory accounts as related party transactions.

2) National insurance for company directors – company directors’ national insurance is calculated in a different way. Your payroll software will be able to accommodate this so it is very important that you identify the individual as a company director in the payroll software and the software should then operate the rules applying to company directors.

Full details of the regulations concerning company directors’ national insurance can be found at the following link:-

www.hmrc.gov.uk/nitables/ca44.pdf

3) An annual P11D return has to be made for any company director who is paid expenses or who is provided benefits.