Benefits and Calendar Year: Example
If your benefits relate to a calendar year and you want to ensure that the correct value is being taken as taxable benefit when you have entered an annual amount for the cost to you, you must use the option “Is the cost to you an annual amount?”.
This will ensure that the components are analysed and the tax year amount is used to calculate the taxable amount for the relevant tax year.
Furthermore, it’s possible that a benefit relates to a year other than the tax year (6 Apr to 5 Apr) such as a calendar year (1 Jan to 31 Dec). In such cases, the benefit amount will be calculated taking into account the different annual values entered and will use fields Available From and Available To.
If a new rate is not available until closer to the time it takes effect, at the beginning of the tax year (or at the start of employment for a mid-year starter), create the component with these values:
| Field | Value |
|---|---|
| Effective From date of the component |
6Apr or the start date of the employee, if later
|
| Available From | 6Apr or the start date of the employee, if later |
| Available To | 5 Apr |
| Annual Rate | Enter the amount, for example, £2000 |
| Annual Amount | Select this check box |
| Processing Rule | Tax across remaining tax periods |
The application will then calculate the annual amount (prorating where the employee started after the start of the tax year), and tax a periodic equivalent each period (either dividing by 12/52, or by the number of periods in the tax year after the employee start date). (In this example Value for the period = £166.66)
In January, the value of the benefit changes to £2400. Here are the values to use:
- Existing Original component (effective as of 6-Apr or later)
- Leave it open, only enter the available to date
- Set the Available To date of this component to 31-Dec
Then create a new component with these values:
| Field | Value |
|---|---|
| Effective From date of the component |
01 Jan or the effective date of change in the rate
|
| Available From | 01 Jan |
| Available To | 5 Apr |
| Annual Rate | Enter the amount, for example, £2400 |
| Annual Amount | Select this check box |
| Processing Rule | Tax across remaining tax periods |
In this case, the recalculation will be done using these values:
- Original component’s prorated amount between 6 April and 31 December. This will
result in a slight difference to the tax already deducted as the number of days
used will exclude 01-05 Apr.
- 270 days (6 April to 31 Dec) = £1479.44
- Minus amount already taxed - £1499.94 (£166.66 x 9)
- The prorated amount from the new component of January to 05 Apr.
- 95 days (01Jan to 05 Apr) = £624.65
- Splitting the taxable amount across the remaining 3 payroll periods in the tax year.
In this example the remaining tax periods’ value of the benefit is £208.27 each period. So overall, the total benefit will have been correctly taxed by the end of the relevant tax year.
For more information, see Benefits Proration Examples.