I would add that I have come across this scenario a few times in organisations of varying size; it's a common misconception usually advocated by those who wish to pay the vat free amount!
As Paul Benny has advised, but mention to the employee that they may be able to claim income tax relief online on cleaning, repairing or replacing specialist tools they use in the workplace. There is no relief for the initial purchase. Look this up on www.gov.uk.
Trust me, if you have enough monetary payments stretched across many employees, HMRC may allow these to be included on an enduring PSA on request. Why would they not, when they can collect all the tax and NI in one hit, without much work on their part? I think you are right for a one off occurrence like this though. In practice it does happen, albeit exceptionally.
I agree, it seems odd to want to pay a grossed up PSA liability when you can put this through the payroll, or include benefits on a P11d and let the employees pay, but there are companies out there that have objectives other than pay & tax/NI reduction.
Whilst you can volunteer to put this on a PSA settlement agreement, there's no obligation for HMRC to approve this, not least as it's not the sort of cost that would ordinarily appear. That said, I've seen non-PSA costs on an agreement before.
For the tax years not disclosed to date, make a written disclosure to HMRC (before they find out) and take the penalties on the chin. At that point you can ask for the item to be on a PSA agreement going forward. You won't get a PSA agreement for this for back years; maybe 18/19.
My local Chinese takeaway doesn't take cards and neither does the associated Nail Parlour next door to it. A lot of smaller businesses operate on this basis.
I have an acquaintance who is currently buying a relatively large tea rooms in a genteel sea-side town, which is largely cash based. The seller has timed the completion to occur just after Easter. I summised this is for two reasons; the tea rooms are heaving at the moment because of the Easter break and they want to capture the best sales before they transfer the business and they also want to dispose of the business before or just as MTD hits.
Why? Well, the word is they have been skimming off the top and discovery is now much more likely. There is a good chance that some other cash based businesses do the same. We would look a bit silly if we didn't consider this was at least a possibility.
Personally I'm all for a more equitable system of business taxation where this isn't possible.
You can analyse the hell out of it (I looked at the 4% of minimum turnover as well) but it all boils down to how long you are spending on it and how much the client is prepared to pay.
If the client is in a low margin business, is that a good reason to charge less? What would your competitors be charging? You might want to discount it slightly and tell them you will discount it for the first year and you will review in 12 months. If the client's only interest is cost and they are having difficulty generating turnover (a badly positioned café or tea-room with low pay zero contract staff springs to mind) do you want that business in the long term?
Used to do family accounts, tax planning and returns years ago, then the brother-in-law complained about his tax bill aggressively (you know; you prepare the accounts, it must be your fault, etc.) and failed to say thank you at any point. So I politely declined, because of failing health (I feel a lot better now!) and recommended a friend in practice. He got the point when his first annual £1,400 fee came in.
Many years ago, I carried out a very successful negotiation with HMRC on behalf of a client. The client was ecstatic and sent me a brand new PC, screen, keyboard, mouse and speakers as I had mentioned in passing that I only had a work computer system and nothing at home! This was reasonably early on in PC development (e.g. dial up internet) and was totally unexpected.
I can only say you are lucky then, as in my experience HMRC never adjust tax codes to reflect current and future year income changes, even where these changes are frequent and regular (e.g. consistent payment of annual bonuses and annual increases in salary) unless you bring this to their attention and give them specific directions on what changes to make in the tax code. Even then, it's touch and go.
Of late, I have taken to changing the PAYE income projections found online and notifying them of new income streams the same way, since they no longer appear to be prompted by letters or comments made in the Tax Returns.
Where taxpayers are mainly PAYE, as some have said, they may not want to have large balancing payments as at 31st January, myself included. And it's not just a timing difference; most folk under PAYE quite reasonably expect to pay the majority of their tax in the tax year, not after the event. If they can't, then the system isn't really fit for purpose.
I think others have covered the BIK angle. Pay as you go, has to be more tax effective in that respect.
The alternative, if you want to show the players you are serious about their health and well being, is to negotiate with HMRC to get the PMI onto the PAYE Settlement agreement and meet the benefit cost up front. Yes, it's expensive but aren't they worth it?