While things have been relatively quiet recently on matters to do with FBT, we shouldn’t be lulled into a false sense of security that it is not a focus for Inland Revenue. Inland Revenue are still issuing payroll questionnaires and carrying out payroll audits which very much have a significant focus on fringe benefits.
With the fourth quarter FBT return due on 31 May, it is an ideal time to check that all is well on this front. In this article we highlight a few things for employers to consider this month as they wrap up that last quarter calculation.
To attribute or not, that is the question
Employers may have chosen in the first three quarters to pay FBT at the single (and highest) rate of 49.25%. This option is the easiest from a compliance point of view but employers are likely to pay more FBT than necessary in the long run under this option. However all is not lost as employers are still able to replace the fourth quarter calculation with a full year attribution calculation subtracting the FBT paid in the first three quarters.
Our experience shows employers can and do save material amounts when going through the full attribution exercise. At the very least, rather than perform the full attribution calculation, employers should consider whether it is possible to “pool” eligible benefits at the lower rate of 42.86%.
Are your processes and systems up to scratch?
In a review, Inland Revenue will ask questions about the company’s processes, checks and procedures for the preparation of FBT returns. If Inland Revenue came knocking, how would your business fare in answering the following questions:
- Who can explain the processes involved in preparing FBT returns and describe the source documentation that is used to identify fringe benefits?
- What kind of checks are undertaken to ensure that all benefits are considered for inclusion in FBT returns?
- Do you have written procedures for the preparation of FBT returns?
- Are FBT returns reviewed before they are filed?
If there have been changes in staff responsible for preparing FBT returns, this can be an ideal trigger to review these matters.
Do I deduct PAYE or pay FBT?
A common query is whether something is subject to PAYE or FBT. The general rule is that if the employee is contractually obliged to pay for something but the cost is met by the employer (excepting genuine business expense reimbursements, it is subject to PAYE. Generally where the employer is obliged to pay for the item provided to the employee, then this will be subject to FBT. One exception relates to the taxable provision of accommodation, which is always dealt with under PAYE regardless of any arrangements in place.
Is it GST on FBT or FBT on GST?
GST is payable on some fringe benefits as the employer is treated as supplying the benefit to the employee as if it was a normal sale of goods and services by the employer to the employee. The rule to remember in this regard is that what goes on the FBT return stays on the FBT return and so this GST adjustment is made in the FBT return (not the GST return). It’s quite common for this to be double-counted and included in the GST return as well.
Don’t miss these benefits
There are a number of unclassified benefits that may also give rise to an FBT liability when provided to employees. A few examples we’ve encountered include:
- Flowers and Christmas gifts
- Prescription spectacles
- Leaving gifts
- Free or discounted goods and services
- Security Systems
- Use of employer's assets off the premises and for private purposes (e.g. use of employer’s boat)
- Child care (not provided on premises)
- Allocation of "frequent flyer points" if the membership is in the name of the employer
- Home newspapers
- Magazine subscriptions
- Study fees (when the course is unrelated to work)
- Travel (not work related)
- Club memberships (not being work related societies and professional bodies)
Issues with motor vehicles
The provision of motor vehicles probably accounts for most of the FBT payable in returns. It is also an area where errors easily occur. Issues often arise with what cost basis is used, the tracking of private use and exempt days, what is a work-related vehicle and other such intricacies. It can be worthwhile reviewing this periodically to make sure what is recorded stacks up, that appropriate logs are kept, and that work related vehicles are treated correctly, and particularly whether they are exempt from FBT or not.
Undertaking a regular health check on FBT is beneficial
We have only listed a few of the many things to watch out for with regard to FBT. We know from experience that Inland Revenue finds fewer risks with organisations that undertake a regular “health check” of their compliance processes. Not only does it reduce risk and save on potential penalties where FBT is underpaid, but savings can also be found if FBT is overpaid.
If you require assistance with your final quarter calculations or wish to explore the benefits of a FBT health check further, please contact your usual Deloitte tax advisor.