Monday, 13 October 2008

Dear Sir/Madam

My records show that you currently submit benefit in kind returns to this office.

The States of Guernsey has recently decided that with effect from 1 January 2009 it will be necessary for employers to deduct tax, under the ETI Scheme, in respect of benefits in kind provided to employees.

Where benefits are provided, the amount of the benefit should be added to the employee’s gross pay in the pay period in which the benefit was provided, and tax should be deducted from the total amount (i.e. as if the benefit had been paid in cash).  Please be aware that share option/share award schemes should also be included where there is a taxable emolument. 

As you are aware, the first £450 of certain benefits provided to an employee is exempt from tax.  Previously, this adjustment was carried out by the Income Tax Office but it will now be necessary for you to take the exemption into account when the benefits are included in the gross pay of your employees.

If your employee receives benefits on a continuing basis (for example, individual health insurance cover of, say, £100 per month) the benefit to be included in each pay period would be calculated as follows:

This £62 should then be added to the employee’s gross monthly pay and the tax deducted accordingly on the total figure.

Note: The £450 exemption does not apply to motor vehicle or accommodation benefits or emoluments arising under share option/share award schemes.  As such, if your employee receives a car benefit of, say, £2,500 per annum, the relevant monthly figure of £208 (i.e. £2,500 ÷ 12) should be added to your employee’s gross pay each month and tax deducted accordingly.

Where your employees receive one-off benefits (such as a performance incentive prize) then the full £450 may be offset against this benefit in the month in which the payment is made.  For example, if your employee receives an incentive prize of £600 and no other benefits are, or will be, provided to that employee during the year, the full £450 may be deducted from the payment made and the amount of £150 should be added to the gross pay for the month and tax deducted accordingly.

With the taxation of all benefits in kind through the ETI Scheme, it will no longer be necessary, from 2010, for benefit in kind returns to be submitted.  However, it will be necessary for the benefit in kind return to be completed in January 2009, providing details of all benefits provided for the calendar year 2008.

There will be an exception in cases where it is not possible for tax to be deducted from the benefits provided (for example, where there is no cash payment from which to deduct tax).  This may apply where, for example, a caretaker receives free accommodation in lieu of salary.  In such cases it will still be necessary for a benefit in kind return to be completed at the beginning of the following year, and such forms will be issued on request.

I should point out that the above changes also apply when calculating the gross wage for Social Security contribution purposes. 

If applicable, please ensure your payroll software is updated in order to ensure it is compliant with the new Regulations, as from 1 January 2009. 

If you require any further information regarding the taxation of benefits in kind through the Employees Tax Instalment Scheme, please contact the ETI Section of this office on 740440.

Yours faithfully

R GRAY

Administrator