Given the importance of keeping your PAYE and GST record-keeping and payments in order, it might be tempting to think that Fringe Benefit Tax, or FBT, is a relatively minor thing. But don’t be fooled. In 2017, Inland Revenue created a dedicated audit team to focus on this issue.
One of the team’s aims is to ensure employers have the right business structures and documentation in place. And it turns out that many don’t.
If this sounds like you, now’s a good time to put things right. Regardless of whether you’re acting correctly or not around FBT, a lack of proper records leaves you in a weak position and liable to negotiated settlements (that is, having to pay more than you expected) or, worse, serious penalties.
Most FBT revolves around company vehicles, so let’s look at what IRD expect from you if you provide one to any of your staff:
- The employee’s job description and employment contract
- The company policy on motor vehicles
- Any private use restriction letter in place, signed by the Directors and the employee
- Documentation that shows regular checks on the vehicle to ensure it’s not being used for private matters
- The employee’s performance review notes confirming they’re sticking to company policies.
So, what can you do?
For an SME owner, that’s quite a daunting list, and a good reason to talk to your accountant. An expert, independent set of eyes will help you determine what you need to do in all cases, what you don’t need to do, and also how to go about doing it (including creating proper documentation).
The value of expert advice is heightened by some of the finer points of FBT legislation. For example, did you know that if an employee takes a vehicle home one evening and returns to work with it the next morning, the laws says it’s been available for private use on two days?
Did you know that IRD expects you to check that employees are adhering to restricted use policies at least once every quarter?
Did you know that just because a vehicle has your company logo on it, that doesn’t automatically make it a work-related vehicle, which then means it doesn’t automatically become exempt from the usual requirements of FBT?
Did you know there is also a new option for some companies that have one or two vehicles to elect to use the motor vehicle expenditure rules rather than pay FBT in certain circumstances?
If you didn’t know all those things, take a bow – you’re in great company! FBT is complex, to say the least!
The good news is that IRD also recognises this and will work closely with you to help you comply. The best approach is to get professional advice (that’s us) and, where appropriate, go to IRD for a written opinion on any matters that aren’t crystal clear.
That way, even if IRD disagrees with your FBT return, they’ll see that you’ve taken reasonable care to get things right and may not impose penalties.
So, when are you liable for FBT? Any time you provide non-cash benefits to your staff – which means the list is potentially endless. In practice, however, most non-cash benefits fall into one of these categories:
- Insurance premiums
- Motor vehicles
- Subsidised transport
- Staff vouchers
- Offsite carparks