Last week, The Learn Centre commenced its series of seminars on Real Time Information and Pensions Reform / Auto-Enrolment.  This week, we advise that the ‘Special’ section of our Payroll-Help Forum has been updated with topics devoted to each of the above subjects.  We encourage you to use these sections and share information and queries.

Related posts:

1. Surrogacy – Private Member’s Bill
2. Statutory Redundancy Pay – Private Members’ Bill seeks to link increases with average earnings
3. P35 Reminder, RTI Goes Live, Bringing Forward the Staging Date, HMRC Objectives 2012/13 and Budget 2012 – Pensions

Payroll news | Payroll questions | Employment Law advice from Payroll Help

We have recently produced articles regarding the looming P35 deadline, which is 19 May 2012 for tax year 2011/12.  This can be summarised:

P 35 Reminder

This was the first communication reminding employers of their year-end filing obligations, outlining the late filing penalties.

P35 Reminder (2)

This was the second communication, advising the same information.

In Employer Bulletin 41, HMRC advise the procedure where the employer has no annual P35 or P14 liability.  This is in the circumstance, for example, that there have been no employees on the payroll in the previous tax year; however, the PAYE scheme remains a valid one.  In this instance, whilst no P35 is due, employers still have to return a ‘no return to make’ notification.  This is to ensure that HMRC can record this information in their records and do not send reminders and, importantly, penalty notices.

Whilst this can be done by telephone or post, using HMRC’s two online forms is the quickest and cheapest way to perform this task – there is one for agents and one for employers.  Plus, as HMRC point out, a confirmation E-Mail is sent to acknowledge receipt of the form.  The following information must be provided on the forms:

• PAYE Agent reference and contact details (Agents only)
• Scheme PAYE reference
• Confirmation that P11D(b) is either due or is not due

Further Information

• Payroll Help 15 April 2012 – P35 Reminder
• Payroll Help 03 May 2012 – P35 Reminder (2)
• HMRC  - Employer Bulletin 41
• HMRC  – Employer No Employer Annual Return to make Notification
• HMRC  – Agent No Employer Annual Return to make Notification

Related posts:

1. P35 Reminder
2. P35 Reminder (2)
3. Notifying HMRC when No P35 is due

Payroll news | Payroll questions | Employment Law advice from Payroll Help

This is particularly relevant as we are in the final week of P35 processing:

What is a “free of tax” payment in the context of P35 reporting, and does it involve PSAs?

Question 2 in the Part 3 Checklist of the P35 Employer Annual Return asks:

“Did you make any ‘free of tax’ payments to an employee? In other words, did you bear any of the tax yourself rather than deduct it from the employee?”

This question can be mistaken by employers, as it is not clearly worded, and the explanation in the E10 ‘Finishing the tax year.. .’ Helpbook is similarly vague.  This states that  a ‘free of tax’ payment is a payment where the employer (rather than the employee) bears any tax due’.

These payments are, simply, where the employees are paid a net amount as take-home / cash-in-hand pay rather than a gross amount before the calculation of tax and National Insurance Contributions.  Whilst simple for the employee, the employer has to ensure that the correct tax and NICs liabilities are accounted for in the payroll and paid over to HMRC.  The calculation of this liability will depend on whether the employer is making payments that are just free of tax or are free of tax and NI.

Employers must not use this arrangement unless they have contacted their tax office and received instructions on how to handle the grossing-up process.  For employers handling such payments manually, the tax office can provide special P11(FOT) working sheets, FOT tax tables (Tables G), and FOT1 guidance notes.

Some commercial payroll software will perform the necessary calculations, however, the overriding obligation to contact HMRC remains.  This is so that when they see the ‘Yes’ box ticked that free of tax payments were made, HMRC are already aware that this method of paying wages is used.  If they have not been contacted, the ‘Yes’ tick may prompt HMRC to investigate and query the payments being made.

HMRC provide good guidance on their Website  which links to other guidance such as the CWG2 Employer’s Further Guide to PAYE and NICs and HMRC contact details.

Returning to the original question, this question on the P35 does not relate to PAYE Settlement Agreements (PSAs), even though the employer is bearing the employee’s tax liability on the payments and thereby avoiding having to handle the tax and NICs liabilities through the payroll.  If the only way in which an employer is bearing an employee’s tax is a PSA, question 2 should be answered NO.

Related posts:

1. PAYE Year-end Procedures – Clarification of Question 6 of form P35
2. Republic of Ireland – P35 refunds and P35 amendments
3. Notifying HMRC when No P35 is due

Payroll news | Payroll questions | Employment Law advice from Payroll Help

On 17 April 2012, under the Ten Minute Rule Bill, John Healey, MP for Wentworth and Dearne, introduced the Surrogate Parents (Leave, Pay and Allowance Arrangements).  The aim of this Bill is to widen existing maternity and adoption rights so that they apply to surrogate mothers as well as birth or adopting mothers.

His Bill is taking forward the case started by two ladies from his constituency.  Amy Bellamy agreed to be an IVF surrogate mother for her cousin Jane Kassim, as she was unable to have children of her own.  However, according to Mr Healey’s Common’s address, Mrs Kassim was ‘stunned’ to be told by her employer that she had no rights to pay or leave.  She would only be entitled to unpaid Parental Leave, however, this would only be granted when she and her husband Adis were granted a Parental Order, transferring legal rights from Amy Bellamy.

Mr Healey said ‘The first and most important step is to secure basic maternity rights so that mothers like Jane, who have their children through surrogates, have the same rights as other women who give birth themselves or who adopt children.  That is the purpose of my Bill’.

Comment

To complete the story, Amy Bellamy gave birth to twins Isla Jane and Ivy May on 16 March 2012.

This is introduced at the same time the Adoption Bill seemed to have fallen by the wayside.  This is co-sponsored by Valarie Vaz, introducer of the Adoption Bill.

Related posts:

1. Statutory Redundancy Pay – Private Members’ Bill seeks to link increases with average earnings
2. Adoption Bill
3. Adoption Bill

Payroll news | Payroll questions | Employment Law advice from Payroll Help

The case law C-D v S-T ET/2505033/11 may, in time, rewrite maternity legislation in the UK.

A woman in long-term employment had a child through the use of a surrogate in 2011.  The woman began breastfeeding the child, induced by drugs and hormone treatment.  Her employer refused maternity leave, though offered a career break, reduced hours and unpaid leave.

The refusal by the employer led to a claim of discrimination on the grounds of sex and maternity against the employer, which was taken to Tribunal.  In the UK, leave is only granted in the instances of maternity and adoption.  Domestic legislation makes no reference to surrogacy, though this is not mentioned in the underlying Directive from the EU, which is the Pregnant Workers’ Directive of 1992.  This does, however, make reference to leave entitlements for workers who are breastfeeding.  The UK Regulations, which confer this to domestic legislation, do not make such reference.

The Tribunal has found that ‘C-D’s’ position is not covered under the current domestic legislation and has asked the European Court of Justice (ECJ) to consider the case.  The ECJ will look at the UK’s domestic legislation and see if there is a contravention to the EU’s Directive.

Comment

A spokesperson for the Department for Business Innovation and Skills (BIS) confirmed that there were no planned changes to the UK’s interpretation of the Directive.  Therefore, there are  no planned changes in respect of offering maternity rights in the cases of surrogacy.

It will be interesting to pursue this case.  I would hope that the EU decision will come before any further progress of Mr Healy’s Bill.  Let’s sort it out, including adoption pay, with a Directive from Europe.

Related posts:

1. CJEU Ruling on Holiday Pay for Employees on Long-term Sick – KHS AG v Winfried Schulte
2. Maternity rights for self-employed and partners of self-employed – Maternity Leave and Pay
3. Statutory Maternity Pay – Maternity rights to self-employed and wives of self-employed

Payroll news | Payroll questions | Employment Law advice from Payroll Help

Another Bill that failed to make its passage through the last session of Parliament was the Carers and Employment Bill, which was attempting to amend the Employment Rights Act 1996.  For England and Wales only, this Bill would have provided for carers’ rights to flexible working.

Related posts:

1. Northern Ireland: Flexible Working – Entitlement extended to carers of children up to age 16
2. Time to Train – New Bill provides right to request time off for training
3. RTI timetable, minimum wage, agency workers, PAYE Tools, state pension consultation, SMP, default retirement age, 0T again, legal costs, flexible working surprise, Northern Ireland, Finance Bill, payrolling of benefits, PDV, R40, childcare

Payroll news | Payroll questions | Employment Law advice from Payroll Help

The State Opening of Parliament was last held in the autumn of 2010.  The Fixed Term Parliament Act 2011 gives the UK five 12-month parliamentary sessions, which start and end in the spring of each year; therefore, there was no Opening in that year.  The Opening for the 2012/13 session was on 09 May 2012.  It is a ceremony draped in history and tradition and is the only annual event at which the Sovereign and Her Lower and Upper Houses actually meet.

The Queen’s Speech from the Throne outlines the main bills that will form the legislative agenda for Her Government in the new session.  However, the Speech also provides for ‘other’ Bills to be laid, therefore, the contents of the Speech does not fully represent all of the Government’s activities.

The Speech contained references to 19 Bills, many of which see the Government continuing with measures we are already aware of.  Those measures that may impact the payroll and HR worlds are:

Charities

In his Budget 2012 Report at point 2.88, the Chancellor announced that there would be a new Gift Aid Small Donations Scheme effective April 2013.  This will enable charities to claim a ‘Gift Aid-style top-up payment’ on up to a total £5,000 of ‘small’ donations.  Small is defined as a donation of up to £20 or less.  This is without the need to collect the current Gift Aid declarations and associated administration that this involves.

The Small Donations Bill, which HMRC is currently consulting on, will allow charities to submit claims for repayments of 25p for each £1.00 donated. The total that can be reclaimed for the taxpayer, therefore, is the £5,000 total x 25% relief, equalling £1,250.00

Comment

OK, whilst not directly payroll-related, it is worth mentioning.  We have previously commented on the Government’s plans to cap tax relief on charity donations, therefore, it is correct to comment on a tax relief that is being given and which may positively affect many hundreds of small charities.

Pensions

Not one, but two Pensions Bills to look forward to in this session of Parliament:

The Public Services Pensions Bill

This Bill will pursue the Government’s controversial path of reforming public sector pensions, moving them to career-averaged schemes rather than final salary benefit schemes.  The Bill also extends the age at which it can be drawn by members.

Pensions Bill

This Bill will propose bringing in further reforms to the Basic State Pension and State Pension age (SPa):

• The Pensions Act 2007 proposed increasing the SPa to 67 between 2034 and 2036. The Bill will accelerate this so that it is between 2026 and 2028.  This is as per the announcement in the 2011 Autumn Statement and follows the Pensions Act 2011 which gave the green light to accelerate the SPa to 66 between December 2018 and April 2020.
• The Bill will ensure that the SPa will be linked to longevity in future, meaning that as life expectancy increases, so will the SPa
• The Basic State Pension will be reformed to pay a universal flat-rate in England, Wales and Scotland.  This will apply to new pensioners reaching the SPa.  The current regime will continue to apply to existing pensioners

Business

The Government hopes to cut red-tape and make Britain more competitive through its Enterprise and Regulatory Reform Bill.  Vince Cable, Business Secretary, said that the Bill will be part of measure to ‘strengthen the business environment’.

Measures to be contained in the Bill include:

• A National ‘green’ bank, the UK Green Investment Bank (GIB) will be established as a stand-alone and independent bank
• Strengthening the existing framework for setting directors’ pay by the introduction of binding votes
• Repeal of ‘unnecessary’ legislation, reducing the administration burden on business
• Reform of the employment tribunal and dispute resolution systems.  Effectively, this will mean that employees and employers have to seek arbitration before using the appeals process

Further Information

• BIS – UK Green Investment Bank
• Payroll Help 19 March 2012– BIS Employment Law Review 2012

Families

There are number of measure to be contained in the Children and Families Bill, expected in early 2013.  This includes speeding up the adoption process (England only) and a six-month time limit for family courts to decide on whether a child should be taken into care (England and Wales).  ‘Where it is safe and in the child’s best interests’, the law will be strengthened to ensure that both parents have access to a child in the event of separation (England and Wales).  Improved assistance and definitions will apply to special needs and disabled children from 2014 (in England).

Of greatest professional interest will be the provisions for Flexible Parental Leave.  These will apply to the whole of Great Britain but not Northern Ireland, which has devolved responsibility.  This comes following Imelda Walsh’s 2008 Independent Review and the Government consultation in May 2011 entitled Modern Workplaces.  This consultation ran from May to August 2011.  In December 2011, The Department for Business, Innovation and Skills stated ‘due to on-going discussions within Government, there will be a delay in publishing the Government’s response’ to the consultation and that it was expected early in 2012.   Therefore, without this responses document, there are few indications of what will be contained in the Bill.  However, the consultation document proposed retaining only 18 weeks maternity leave for the woman, with the remainder being classed as Parental Leave, which could be shared.  This new Parental Leave incorporates the current unpaid Parental Leave provisions.  Similar entitlements will apply to adopters and same-sex couples.

Further Information

• Department for Education – Press Notice 09 May 2012
• Payroll Help 19 May 2011 – Consultation on Parental Leave and Flexible Working

Europe

The Speech acknowledged the likely accession of Croatia into the European Union from July 2013, subject to the agreement of the Accession Treaty, which was signed on 09 December 2011.  In 2013, Croatia will become the EU’s 28^th Member State and currently has ‘active observer status’.

Others

Every contract needs an ‘Other’ clause and so the Speech concludes that ‘Other measures will be laid before you’, indicating there is flexibility to introduce more.

Related posts:

1. Pre-Budget 2008 – Date for Chancellor’s Report speech announced
2. Pre-Budget 2009 – Date for Chancellor’s Report speech announced
3. Increase to State Pension Age Delayed

Payroll news | Payroll questions | Employment Law advice from Payroll Help

As we reported, the RTI pilot went live on 11 April 2012.  Since this time, 10 volunteer employers have joined the pilot.  Last week, HMRC confirmed that they had received 100,000 employee records from these 10 initial pilot employers.  Stephen Banyard, Acting Director General for Personal Tax, said:

‘It is early days but all the signs are good.  RTI is on track – all expected RTI submissions have been received from the 10 pilot employers and processed’.

HMRC also confirmed that another 310 volunteer employers will join the pilot between 08 May and the end of June 2012.

Comment

It is good to have these feedback press releases from HMRC and maintains our enthusiasm for the whole RTI project.  I am looking forward to getting some insight into the ‘issues’ that HMRC reports have been highlighted from the pilot so far.

Further Information

• Payroll Help Website 15 April 2012 – Real Time Information Goes Live!
• Cabinet Office Website 09 May 2012 – RTI Pilot Forges On

Related posts:

1. HMRC confirms that a pilot RTI scheme will start in April 2012
2. The Learn Centre Consulting on RTI pilot
3. RTI Needs You (Still)!

Payroll news | Payroll questions | Employment Law advice from Payroll Help

The following is a selection of questions that have been posted to our Forum over the past week.  Can you contribute to any of the discussions?………….

1. We are a payroll bureau and have received a court order this month, but it was actually issued in February to the client.  Do I take three months’ worth of deductions this month?
2. Can someone please confirm whether a Canadian, working in the UK on a Tier 4 visa for a German company has to pay NICs?
3. Can you please confirm that, if a woman gets a pay rise in the relevant period, it is only SMP that is affected?
4. What is the PAYE and Class 1 NICs position when an employer makes an Intellectual Property Rights / Royalty payment to an employee?  Is the treatment different from any other earnings?
5. An employee wants to use childcare vouchers for a tutorial company for a period of six months.  Is tutoring a valid use of a childcare salary sacrifice?
6. Say an employee’s earnings initially qualifies for auto enrolment at the point of assessment, but we decide to invoke the 3 month waiting option. The employee’s earnings then falls below the threshold during all of that period but then, suddenly increases again at the very point we are required to re-assess (ie after 3 months). Do we then have to auto enrol or is there a further option to invoke a further 3 month waiting period, and so on and so on?

Related posts:

1. Questions from our Payroll Forum
2. Questions from our Payroll Forum
3. Questions from our Payroll Forum

Payroll news | Payroll questions | Employment Law advice from Payroll Help

The new Scotland Act will give us something to get our teeth into, as if we hadn’t got enough to chew over anyway.  Amongst other things, the Act will create a Scottish Taxpayer and ‘Rest-of-the-UK’ Taxpayers and I am looking forward to reading this and commenting on it in later Newsletters.

Just a quick message this week, therefore, to wish you a pleasant Holiday on Monday the 7^th.

Related posts:

1. Revised Implementation Proposals for Workplace Pensions Reform, Budget 2012 Other Taxation Issues and Benefits, Finance Bill 2012 Published, 2012/13 Rates and Thresholds, P38(S) for 2012/13, Error in E14
2. Scotland Act 2012
3. Adoption Bill, Self-Assessment Reminder, Tax Information Exchange Agreement Aruba, Tax Codes for 2012/13, HMRC 0T Draft Regulations and RTI – The Employer Alignment Submission

Payroll news | Payroll questions | Employment Law advice from Payroll Help

The Scotland Bill received Royal Assent on 01 May 2012 and can now be referred to as the Scotland Act 2012.  This transfers from Westminster to Holyrood a number of fiscal measures, and implements the recommendations of the Final Report of the Commission on Scottish Devolution (the Calman Commission).  The Act includes powers for:

• A new Scottish rate of income tax (from 2016)
• A new process for Scottish criminal cases that go before the UK Supreme Court
• Devolution of stamp duty land and landfill taxes (from 2015)
• Creation of new taxes
• Increased borrowing powers
• Complete responsibility for drink driving and speed limits

Obviously, the headline-grabber for payrollers is the Scottish Rate of Income Tax.  Whilst this will not be effective until tax year 2016/17, the Act now gives the Scottish Parliament the power to vary the rate of income tax from the rate that applies to the rest of the UK.  This creates a Scottish Taxpayer and a UK Taxpayer.

The Scottish Parliament will be required to set a single rate each year in advance of the start of the tax year.  This will apply to Scottish Taxpayers, which HMRC have indicated as ‘broadly, if you live in Scotland, you are a Scottish taxpayer’.  The Basic, Higher and Additional rates for Scotland will then be calculated by deducting 10 from each of the UK rates and adding on to each the Scottish single rate.

For example, assuming the arrangement applied this year, if the Scottish Parliament set a rate of 8 for 2012/13, the Scottish rates would be:

• Basic 18% (being 20 – 10 + 8)
• Higher 38% (40 – 10 + 8)
• Additional 48% (50 – 10 + 8)

The arrangement will allow the Scottish rates to go as low as 10%, 30% and 40%.

We will be looking at the Act when it is published in its entirety and will provide the necessary links next week.

Comment

In the meantime, just in case, I am off to purchase a property in Scotland in the event that the Scottish rate is lower than the UK – or have I got the concept of a Scottish Taxpayer wrong?!

Related posts:

1. Scotland – new income tax proposals in Scotland Bill
2. Scotland: Scottish Agricultural Wages Board – Scottish Government confirms that SAWB will be retained
3. Scottish income tax and its impact on pension schemes

Payroll news | Payroll questions | Employment Law advice from Payroll Help

At the start of the year, we reported on Valerie Vaz’s proposed the Adoption (Leave, Pay and Allowance Arrangements) Bill that was added to the list of Bills before Parliament.  Under the ’10 minute rule’, this Bill sought to equalise the rights to pay and leave with those that exist for maternity cases.  The first reading in the House of Commons was taken as 29 June 2011, being the day that it was proposed.  It was unopposed and listed for a second reading in January 2012.  This seemed to change to March, and then April 27^th until, this week, we were advised that the Bill did not get a second reading after all:

‘The Bill was not moved for debate on 27 April 2012.  The order to read the Bill a second time has lapsed.’

The Bill has, therefore, run out of time and will make no further progress in this Parliamentary session.

Comment

The Bill’s intentions to equalise the entitlements of adoption with maternity has stalled, which appears a great shame.  HM The Queen marks the start of the next Parliamentary session at the State Opening of Parliament on 09 May 2012.  Will we see it returns by another name?  It appears long overdue. 

Further Information

• Payroll Help 22 January 2012 – Adoption Bill

Related posts:

1. Adoption Bill
2. Finance Bill 2012
3. Maternity and Adoption Rights – New guidance from Business Link

Payroll news | Payroll questions | Employment Law advice from Payroll Help

When requested by HMRC, Regulation 97 of the Income Tax (Pay As You Earn) Regulations 2003 requires employers to ‘produce’ their ‘PAYE records’, other than those that they have already been sent, at a ‘prescribed place’.  This is for a period of not less than three years following the tax year to which they relate.  Put another way, employers must keep the current year’s records, plus those for the previous three years.

The Regulations defines PAYE records as:

• all wages sheets, deductions working sheets, P46 forms for low-paid employees that were not sent to HMRC, and any other documents and records that relate to
• the calculation of employees’ income for PAYE purposes,
• any other relevant payments to employees, and
• the deduction of tax from such payments, e.g. P45s, coding notices, and
• all documents and records relating to any information which an employer is required to provide on forms P11D and P9D.

These definitions refer to paper records but, where the information from paper records is retained on computer instead of on paper, e.g. the figures needed to complete year-end P14s, P46 details, P38(S) details, the employer must ensure that the computer records are kept in such a way that an HMRC officer would be able to inspect them.

Similar provisions are to be found in the Regulations relating to NICs, statutory payments, National Minimum Wage, payments to subcontractors, gains on share options and Student Loan deductions.  The three-year retention period applies, therefore, to all records that are created solely for PAYE and related purposes.

The Regulations define a ‘prescribed place’ as:

• a place in the United Kingdomthat the employer and HMRC agree on or, in the absence of an agreement:
• the place where the records are normally  kept, or, if there is no such place
• the employer’s principle place of business in the United Kingdom

However, some records that are relevant for PAYE and other payroll-related purposes are, strictly speaking, accounting records and, as a result, they must be retained for the periods defined for accounting records.  Examples of such records would be expenses claims relating to business travel, business entertaining and staff entertaining.  The Companies Act 2006, sections 386 to 389, requires public companies to keep ‘accounting records’ for the previous six years.  This means, for Corporation Tax purposes, six years starting from the end of the company’s accounting period.

So, whilst the retention period for most payroll records is three years plus the current, most employers keep such records for six years plus the current, to match the general retention period for accounting records.

Further Information

·         HMRC  – PAYE Record Keeping

Related posts:

1. For how many years must we keep our payroll records?
2. Employee Database Records – Service restrictions during October 2008
3. Employee Database Records – HMRC delays migration of PAYE data

Payroll news | Payroll questions | Employment Law advice from Payroll Help

HMRC has issued another reminder to employers that the P35 and P14 deadline is 19 May 2012 for the tax year that finished 05 April 2012.  They are writing to all employers who have not, yet, sent in their return advising of the penalty charges that will apply for late returns.  See our table below:

As part of their response to criticism in the First Tier Tribunal last year, HMRC advised that they would be communicating with employers more frequently at this time of the year – aiming to remind employers of their online filing obligations, prevent non-compliance and penalties.

The next communication will be from 31 May and in the form of a ‘P35 Interim Penalty Letter’.  This will advise that a penalty has been incurred and encourage filing to prevent future penalties.

Comment

It seemed ominous to receive an E-Mail this week about this ‘looming’ deadline.  However, this is all part of HMRC’s drive to communicate in a more timely fashion with employers and prevent late filing, the imposition of penalties and then criticism in the courts, like last year.  So, whilst it was ominous at first sight, this is a welcome communication and reminder from HMRC.

The only thing missing from the statement was HMRC’s frequent line that it is the returns they want, not the penalties.

Further Information

• HMRC – Deadline Looming for Employers
• HMRC  – Penalties if you file PAYE Returns Late

Related posts:

1. P35 Reminder
2. HMRC explains the 4-month delay in issuing P35 penalty notices
3. P35 Filing Penalties

Payroll news | Payroll questions | Employment Law advice from Payroll Help

HMRC have published their Q&A document on what the employer needs to do in respect of share-based payments made after 06 April 2012 and after a P45 has been issued.  These could be in relation to earnings in respect of:

• Securities
• Interest in securities, and
• Securities options

These are replicated below:

Q1

How should tax code 0T be operated on share-based payments subject to PAYE made to an individual after their employment has ceased, which have not been included on Form P45, in the following circumstances:

a)

Where more than one share-based payment is made to an individual in the same payment period?

A1 a)

Code 0T must be operated separately on each payment. This will apply equally where the payments are made from a single source, such as an employer, or more than one source, for example an employer and another party.

For these purposes ‘another party’ will include any entity which did not directly employ the individual to whom the share-based payment is made. This might include share scheme administrators, an employee trust or the employer’s parent company.

b)

Where a mixture of cash and share-based payments are made to an individual in the same payment period?

A1 b)

Code 0T must be operated separately on each share-based payment and code 0T must be operated in aggregate on the cash-only payments made in the same pay period.

c)

Where multiple cash-only payments are made to an individual in the same payment period?

A1 c)

Code 0T must be operated on the aggregate amount of cash-only payments made in the same payment period.

Q2

What is the position where separate share-based payments are made by separate entities within the same group to an individual after their employment has ceased and their P45 issued? For example, where “XYZ Ltd” and “ABC Ltd” make separate payments of PAYE income and both are subsidiaries of the “ABC-XYZ Group”.

A2

Code 0T should be operated separately on each payment, so each subsidiary within the group will not need to know the details of a payment made by another subsidiary within the group.

Q3

Which tax code should be reported as the “final tax code” on the P14 for the tax year 2011-12, where the final payment is a combination of a standard payment (taxed using code 0T) and a share-based payment (taxed using code BR)?

A3

HMRC recognises that for the tax year 2011-12 there may be uncertainty over which tax code to report on the P14, where a final mixed payment is made or two separate payments (e.g. share-based and cash-based payments) are made within the same tax period. If this happens you should record tax code 0T as the final tax code on the P14.

Q4

Code 0T is operated on a non-cumulative basis. Is this the same as the “week 1/month 1″ basis?

When a code is operated on a non-cumulative basis you use week 1/month 1 of the Tax Tables on each weekly or monthly pay day. This means you don’t add the current pay period’s pay and tax to the previous weekly or monthly figures for pay and tax. For this purpose, “week 1/month 1″ and “non-cumulative” are considered to be the same.

Q5

Which tax code should be used on payments made after employment has ceased but Form P45 has not yet been issued?

A5

You must use the last tax code that was issued during the individual’s employment with you and include the payment on Form P45. If Form P45 has been issued, Regulation 37 of the Income Tax (Pay As You Earn) Regulations 2003 applies and the correct tax code to operate on any subsequent cash and share-based payments from 6 April 2012 will be code 0T.

Q6

If an employer has been issued with a NT code because the employee is non-resident or not ordinarily resident does the requirement to operate 0T override that or should the NT code still be used?

A6

The employer should not deduct tax using code 0T in circumstances where the code immediately prior to leaving employment was code NT and the employee’s circumstances have not changed, and code NT should be used. However, if an employer has information to suggest that code NT is not appropriate (for example, if the employee’s residence status has changed) they should contact HMRC to review the code.

Q7

Are the rules changing regarding National Insurance Contributions (NICs) in relation to post-employment share-based payments which have not been included in Form P45?

A7

There are no changes to the NICs rules in relation to this tax code change. Further information on NICs can be found on the HMRC website at:  http://www.hmrc.gov.uk/ni/index.htm.

Q8

If the individual believes they have paid too much tax how can HMRC assist?

A8

If an individual believes that they have paid too much tax then they may be able to claim a repayment of tax before the end of the tax year by contacting HMRC directly.

Where an individual immediately commences another employment or starts to receive an occupational pension, the refund will be made through their salary or pension by their new employer or pension provider. If they will not start a new employment or receive the pension until later in the tax year or they are likely to have other PAYE income during the year, a repayment of tax before the end of the tax year may be possible. HMRC has an existing process for making repayment claims of over deducted tax from lump sum termination payments and individuals should contact HMRC directly to discuss this.

Comment

These Q&As replace the draft Q&A document that we reported in January 2012.

Further Information

• HMRC – Payment of share-based earnings
• Payroll Help 29 January 2012 – 0T Reversal Q&A Document Published

Related posts:

1. HMRC in 0T Reversal
2. Employee Share Schemes – New user manual published
3. OTS – Review of Tax Advantaged Employee Share Schemes

Payroll news | Payroll questions | Employment Law advice from Payroll Help

The major recent change in employment law is that any new employees you take on must acquire two years of service before they can claim unfair dismissal. However this increases the likelihood that, if dismissed, they will find some other grounds for a claim that require no service qualification, for example a breach of the Equality Act. Frankly, if you cannot establish that someone is not performing or behaving satisfactorily and cannot go through an appropriate remedial procedure within one year, you really should take stock of your management skills. But even so, do check your procedures and the behaviour of your management staff to ensure that you are not vulnerable under discrimination and other legislation that requires no minimum service qualification.

No related posts.

Payroll news | Payroll questions | Employment Law advice from Payroll Help

Mighty oaks from little acorns grow. Indeed major conflicts can grow quickly from small grievances, and nowhere is this more apparent than in the workplace. The law provides a process for managing grievances, but this is quite mechanistic and in any case requires that the issue first be explored less formally so that the grievance may be resolved more amicably, more quickly and more cheaply.

What constitutes a grievance is anything at work that causes an employee to feel discontented, regardless whether there is any foundation to the complaint or whether the employee is in any way responsible for it. The issue becomes a grievance if the employee perceives, rightly or wrongly, that the employer is not dealing with it properly. Therefore, if you find that one of your employees has a grievance, you need to deal with it promptly and effectively if you are to nip it in the bud and not allow it to grow into something that lands you in the Employment Tribunal or that spreads to other employees and becomes a major industrial relations issue.

Handling a grievance calls for sound human relations skills. Not the skills of a psychologist or professional counsellor but those that most of us have and use in our day-to-day lives. And the first of these is the ability to spot when something is wrong. You almost certainly are able to do this with your family, perhaps without knowing how. Probably it is a change in attitude or behaviour. Whatever, this is something you should be able to detect in your employees once you get to know them. At home you would probably say “What’s wrong?”, so why not keep your eyes and ears open at work and, if you suspect something is bugging one of your team, ask the same question. Surprisingly perhaps, many grievances are resolved just be doing that because you have shown an interest in an employee who felt undervalued. You may just get a response like “Oh, nothing really”, and the employee just feels better for having been approached, or you may find yourself being told what is the problem, but the employee neither takes nor expects any further action because he or she has unloaded it into a sympathetic ear.

However you may find that the employee has indeed got a grievance and your simple question does not drive it away. Possibly you understand the grievance, recognise that it is justified and are able to do something about it, but otherwise arrange a time and a place where you can sit and listen to what is bothering the employee. At this meeting the employee will certainly require two things: first that you listen carefully to what he or she is saying, and second that you show understanding. These requirements are initially more important than the facts of the issue, and anyway, the employee’s perceptions are more important to him or her than facts. You value the suggestions the employee makes in meetings, he perceives that you do not, therefore he has a grievance and your straight denials or assurances will not resolve it. Instead you need to listen carefully to the employee, make appropriate “mmms” to indicate that you understand – and interrupt if he says something that indeed you do not understand. Ask for examples by all means, but recognise that you are likely to be dealing with strong feelings rather than hard facts. When you feel that the grievance has been fully aired, summarise it back to the employee to check that you fully understand what has been said and what is at the heart of the problem. You may also find it prudent to make a record of the meeting and read it back to the employee.

Having the employee accept that you recognise his or her feelings is greatly important and indeed may be all that is necessary to kill the problem. However, if the employee wishes you to take action you must be honest. If you can take the action, do so. If there will be a delay, tell him or her how long. But if you cannot do what the employee wants, explain why. Often, even if employees do not get what they wanted, they will nevertheless not only put up with the situation but will also feel much better for you having listened to them and valued their comments.

Sometimes, try as you will, you are unable to resolve employees’ grievances. This may be because they are generally unhappy with life and wish everyone to join them in their misery. If you are convinced that this is the case, you need to have a calm talk to the individual, explain that you will listen to genuine grievances, but that you cannot put up with people who are permanently miserable because they infect the atmosphere in which the team works. Make clear that, unless they behave better, you will be talking discipline with them. Another reason for being unable to get to the bottom of an employee’s miseries may be that the causes of grievance are nothing to do with work, but the workplace is a convenient outlet for them. The employee cannot complain to his wife about her cooking otherwise she will tell him to get his own meals; he cannot control his teenage children because they just turn their backs and ignore him; he cannot complain to British Gas about the cost of fuel; and he cannot complain to anyone about his car, which is falling to pieces and costing a bomb. So he takes it out on his employer who by law is required to listen to employee’s grievances. So you get complaints about the heat, the noise, the shop layout and so on. The only way to deal with this is, when a grievance is being voiced that you recognise has no sound foundation, ask if there is anything outside work that is bothering the employee. You may be able to help by, say, arranging some financial advice or by booking an appointment with a counsellor or CAB, but you may find that it was sufficient just to listen to the employee’s grumbles and show genuine sympathy. Otherwise look out for hesitations when you have given a reasonable response and make comments such as “Is that really what has been bothering you?” or “Are you sure there isn’t something else?”. These questions often bring a response of “Well …” – and out comes the real problem.

Despite all your efforts you may find that the employee still wishes to pursue his or her complaint through the formal grievance procedure. In such a case you must not only exercise good listening skills but also follow the formal procedure, the ACAS Code of Practice, and any case law that has built up. You will then be swimming in treacherous waters so are well advised to attend, and have your management staff attend, our forthcoming course on “Managing Grievances” where you will learn exactly how to deal with employees’ complaints safely and efficiently. This is a popular course so book now – you will sleep better!

Related posts:

1. Discipline and Grievances – Draft code of practice issued by Acas
2. Discipline and Grievances – Acas success with the Pre-Claim Conciliation service
3. Handling requests for “time to train”

Payroll news | Payroll questions | Employment Law advice from Payroll Help

A question that is put to us from time to time in a rather embarrassed way is “How much notice do we have to give to senior staff?”. Why it is embarrassing, we do not understand, but certainly there are quite a few misconceptions about the topic, so we probably need to set things straight for you.

The law demands only two things. The first is that the length of notice required to end employment, whatever that may be, must be set out in writing in the contract of employment or the written statement that you give to each employee on commencement of employment.

The second demand is that this notice is at least the length set out in statute law. After one month of service the employer wishing to dismiss an employee is required to give at least one week of notice per year of service with a minimum of one and maximum of twelve weeks of notice. An employee with one month of service is required to give the employer at least one week, and that does not increase with service.

You can however give and demand longer lengths of notice. There may well be customs and expectations, for example that all staff are on a one month notice arrangement but senior staff come in on three months from day one, but you are not obliged to follow these standards and may set your own lengths of notice period. Take care, however, that you do not discriminate directly or indirectly if you have a mixture of notice length arrangements.

Rather than follow tradition blindly, consider both what you may want and what is realistic. For example, if you want to dismiss someone, how much notice would you want to give? Would you want them to stick around for three months or would you want them off site as soon as possible and, in the latter case, how much pay in lieu might you be happy to pay? Conversely, if someone puts in their notice would you want them off site as quickly as possible because they may harm the business or cause discontent, or would you want them to stay until you have rethought their job, advertised it, interviewed candidates, waited until the successful candidate has worked his or her notice and then completed on-the-job training?

Decide what you want, then think realistically. You may consider it a good idea to put key staff on twelve months notice but, if they are offered another job, is the new employer likely to wait for them for a year? Your employee is likely to leave with minimal notice and yes, this would be breach of contract, but you are not likely to gain anything even if you take the person to court. Far better would be to put them on, say, three months notice but even so sit down with them, review their work, agree work that you want them to complete or hand over before they leave, and promise that as soon as they have completed it they will be free to go. This would be an incentive for them to work diligently. Also, if the new employer wants them as soon as possible, they will have an incentive to get the work done, otherwise you may be prepared to continue paying them for at least part of their notice period.

Even if you do put people onto long periods of notice, why not start small? For example put senior staff onto one month of notice in year one, two months in year two and then the full three months thereafter, or similarly build up to a full six or twelve months notice period gradually. This minimises the cost if you discover early on that the person you have recruited is unsuitable.

This issue is another example of the importance of understanding employment law. When you have got to grips with it you will realise just how much freedom you have to tailor your employment contracts to meet the needs of your particular business.

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1. Paid Annual Leave – Failure to take full entitlement due to insufficient notice
2. PAYE Procedures – P45 received after receiving P6 coding notice
3. Changes to redundancy and notice periods – Jersey Employment Law

Payroll news | Payroll questions | Employment Law advice from Payroll Help

Health & safety responsibilities

I am the Manager of our Admin Office but have just been made in addition Safety Officer for the whole commercial organisation. I am told that this is because I possess good common sense, but even so I am worried stiff that I do not know enough about the topic and what the law demands. What do I need to know?

Reply

Well, unfortunately far, far more than I can tell you in this brief answer. Certainly you need good common sense, but also an eye for real or potential hazards and an extensive knowledge of the law surrounding health and safety. You really must get yourself trained as soon as possible before you have to deal with a safety incident, and I would recommend our course on “Health and Safety for Managers”. It covers the subject in great detail and will equip you to operate effectively.

Jubilee Holiday work

What will we have to pay people who work on the Diamond Jubilee Holiday on 5^th June?

Reply

If you follow national agreements that are negotiated by employer representatives and trade unions, they almost certainly will tell you. If you have a traditional payment for Bank Holiday work, then that is what you should pay because it will have become what is called “custom and practice”. Otherwise there is no requirement for you to pay more than normal wages provided, of course, that you meet the National Minimum Wage.

Why not seek out the republicans in your workforce and ask them to work as a symbol of protest and let the rest of us wave our flags in peace? Might save you a bit.

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1. HR Problems Page
2. HR Problems Page
3. HR problems page

Payroll news | Payroll questions | Employment Law advice from Payroll Help

The problem you were left with last month was this:

You have carefully packed for export fifteen pairs of black gloves and fifteen pairs of brown gloves. Your boxes can hold only ten pairs of gloves, therefore you have packed one box full of black gloves, one of brown, and one of black and brown gloves, and you have labelled each box accordingly. Unfortunately, due to a misunderstanding, you realise that your packer has labelled each box incorrectly. You really do not want to open every box so how can you re-label each box correctly by opening just one box?

The solution?

Open the box marked “black & brown”. Inside, say, you find black gloves so you can re-label the box accordingly. The brown gloves cannot be in the box labelled “brown”, so they must be in the remaining box labelled “black” so you can re-label them correctly. The box labelled “brown” must therefore contain black and brown gloves.

Now try this:

A man travels to work at 6.00am at an average speed of 60mph. He returns home by the same route at 6.00pm when the road is heavily congested at an average speed of 40mph. What is his average speed for the round trip?

Answer next month.

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Payroll news | Payroll questions | Employment Law advice from Payroll Help

Thankfully, it is nice and quiet on the payroll front as far as news and updates are concerned.  As regards processing, this is one of our busiest times of the payroll year, with year-end on the near horizon, followed by P9D and P11D processing right behind.

Please do not struggle and ensure that you are familiar with both of our excellent courses on these topics.

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1. Pensions and Auto-Enrolment, Penalty Notices, Basic PAYE Tools, Tax Relief Bills, Smartphones, Case Law Corner, RTI Needs You (Still) and the NI Verification Request
2. ‘May Day Call for Tax Returns’ by HMRC
3. Budget 2012 (2) – Charity Tax Relief

Payroll news | Payroll questions | Employment Law advice from Payroll Help

Aside from the ‘Granny Tax’, perhaps the most controversial issue to come from Mr Osborne’s Budget 2012 was the proposal to cap unlimited tax reliefs at 25% of taxable income, or £50,000, whichever is the greater.  Whilst we await the draft legislation, this is widely understood to cover:

• Qualifying loan interest relief
• Gift Aid and charitable donations of shares and land, and
• Loss relief

As we mentioned in the Budget coverage on 02 April 2012, it is the cap on charity contributions that will affect payroll.  It is also an issue proving troublesome for the Government at the moment.

A number of individuals, including the Conservative party treasurer, have criticised the plan.  Lord Fink warned his party that ‘it will put people off’ giving, specifically the wealthiest.  Mr Cameron himself was quoted as wanting to see more charitable donations and did not want to see anything impact negatively.  In addition, various charity groups came forward voicing their concerns that charities and good causes will suffer.

On 16 April, a No. 10 Downing Street spokesperson announced ‘there will be a formal consultation.  It will be a full consultation’.  This is expected in the summer.

Comment

As we have mentioned, the move to introduce a cap may undermine donations by the wealthiest taxpayers.  However, it is only the current uncapped relief loophole used by those looking to significantly reduce their taxable earnings that the Government is attempting to close.  Such a reduction in earnings means a loss of tax revenue to HMRC.  Mr Gauke, Exchequer Secretary to the Treasury described the current system as giving people the option to ‘opt out’ of the tax system.  He further said that the cap, to be included in Finance Bill 2013, would raise between £50 and £100 million per year.

It is worth pointing out that someone on, for example, a salary of £500,000 will still be able to contribute a maximum of £125,000 from their taxable income (i.e. 25%).  Further donations can still be made; however, this will come out of gross income and will not reduce their tax liability.

With benefit capping at the bottom end, it seems likely that some form of capping at the higher end will be recommended to crack down on what is perceived to be abuse of the tax system.  However, the consultation will give us the opportunity to make our comments known – a lifetime allowance, perhaps?  It is going to be a tough one, ensuring that there is the distinction between tax avoidance and philanthropy.

Related posts:

1. Budget 2012 – Other Taxation
2. Pensions tax relief – Budget Update
3. Revised Implementation Proposals for Workplace Pensions Reform, Budget 2012 Other Taxation Issues and Benefits, Finance Bill 2012 Published, 2012/13 Rates and Thresholds, P38(S) for 2012/13, Error in E14

Payroll news | Payroll questions | Employment Law advice from Payroll Help

HMRC have issued a press statement aimed at anyone who was due to complete a SA Tax Return by 31 January 2012 but has not.  The reason for this is that HMRC’s penalty structure allows for an initial fixed penalty in the sum of £100.00 to be imposed for late receipt after 31 January, with the imposition of daily penalties from the end of the third month after this date.  The three months is up on 30 April 2012 and daily penalties will be charged at £10.00 per continuing day of late receipt.

The late filing penalty structure is as follows:

Comment

In what has become a usual statement, HMRC’s Stephen Banyard said ‘We want the returns and not penalties’.

This information is provided simply so that we are kept aware of the penalties should they be queried by an employee.

Further Information

• HMRC – Do I need to complete a Tax Return flowchart
• HMRC  – Tax Return Deadlines and Penalties

Related posts:

1. Meeting the Obligations to File Returns and Pay Tax on Time – HMRC consults further on a new penalty regime
2. Penalties for late filing of construction industry returns
3. HMRC Self-Assessment Tax Return Reminder

Payroll news | Payroll questions | Employment Law advice from Payroll Help

There are many pension schemes that offer pension solutions to its employees via the use of salary sacrifice.  This is where the employee and employer enter into a legally-binding contractual change to the terms and conditions of employment whereby a sum is given up in return for contributions being made to a pension scheme.  Tax and National Insurance Contributions are payable on the revised (lower) salary.

Under current rules, if this method is used by an organisation, an employee is not permitted to cancel the agreement outside of set review periods or in the circumstance of a life-changing event.  However, the advent of Auto-Enrolment (AE) has complicated this issue.  AE allows the option for the employee to Opt Out after they have been automatically enrolled by their employer.  If pension contributions have been taken, the AE legislation requires that the contributions are refunded to the employee if the Opt-out occurs within the Opt-Out Window.

Therefore, there is a conflict.  One the one hand, a salary sacrifice agreement cannot be readily cancelled; however, legislation requires the auto-enrolment process to be reversed, if required.  This means that, where a salary sacrifice is in place, there is the real danger of the entire scheme being put at risk and made invalid by the ‘In / Out’ nature of the new pensions regime.  Further, there is the possibility that contributions made as a result of the salary sacrifice (by reducing taxable and NI’able pay) may not be refunded to the employee.  Again, this is in conflict with the AE pensions’ legislation which requires a complete reversal of the enrolment in the situation where someone Opts Out.

Professional Pensions reported last week that HMRC have agreed to revise their salary sacrifice rules and guidance in light of these conflicts

Comment

Whilst this seems a welcome change for companies that do offer a pension solution through salary sacrifice, we await HMRC’s guidance on this issue.  This does seem to be another fundamental issue which is only being considered at the 11^th hour, though.

Further Information

• Professional Pensions  – HMRC Reveals Salary Sacrifice AE Opt-out Changes

Related posts:

1. VAT and salary sacrifice schemes
2. VAT and salary sacrifice schemes
3. Salary Sacrifice Schemes – HMRC provides answers to employers’ questions

Payroll news | Payroll questions | Employment Law advice from Payroll Help

It is appropriate this week that pool cars are covered in the Newsletter, as they have been the subject of both questions that we have been frequently asked and some recent case law:

FAQ – What are the conditions for treating a car as a pool car?

If a car or van meets the statutory conditions, it is not treated as a company vehicle but can be treated as a pool / pooled car or van.  As a result, the drivers using the vehicle are not liable for the car or van benefit and fuel charges.  Meeting the conditions is therefore critical.  Whilst mentioning pooled car, the following notes, refer equally to a pool van.

The Income Tax (Earnings and Pensions) Act 2003, Section 167 (3), sets the conditions which must be met for the car to be classed as a pool car (Section 169 applies the same conditions for pool vans).  All of the following conditions must be met:

a) The car was available to and was used by two or more employees

b) The car was available by reason of their employment

c) The car was not ordinarily used by one of those employees to the ‘exclusion of the others’

d) Any private use of the car made by each of the employees was ‘merely incidental’ to each employee’s other use of the car in that year, and

e) The car was ‘not normally kept overnight’ at or near any of the employees’ homes (other than at the employer’s premises).

Note that these are tests of whether a car is a pool car, not whether an employee is using it as a pool car.  The starting point is whether the car itself meets the conditions.  If one of the conditions is not met, e.g. the car is regularly kept at one of the employee’s homes, the car cannot be a pool car and, as a result, any private use of the car creates a tax liability, not just for that employee, but for all of the other employees who use the car.  Employers must ensure that, once a car is designated a pool car, that it is used strictly for that purpose and no other.

The following notes explain the implications of the special terms used in the legislation:

‘exclusion of the others’

This term, used in condition 2 means that the car, while it is a pool car, cannot have a principal driver.  The fact that the car may also have been a company car for part of the tax year and, during that time, it had a principal driver does not prevent it from being a pool car, as long as that driver is not one of the drivers now using it as a pool car.

‘merely incidental’

The term ‘merely incidental’ is not defined in legislation and HMRC published Statement of Practice SP2/96 Pooled cars: Incidental private use to provide guidance on whether any private use of a pool car is ‘merely incidental to’ the business use of the car.

This term, in condition 3, imposes a qualitative test.  It refers to the nature of the private use, not the distance covered.  The private use of a pool car can only be “merely incidental” to its business use if the private use follows from the business use, i.e. for there to be private use, the car must be used on the same occasion for business use as well.  Examples are taking the car home on the evening before an early mornig start for a business trip (but see the “not normally kept overnight” rule below) and using the car to go to a nearby restaurant in an evening while away on business.  It would be sensible to keep detailed mileage logs for pool cars, showing separately the business journeys and the “incidental” journeys, and also to record the employee’s manager’s authorisation for the use of the car.

A non-statutory concession also provides that, where the private use of a pool car is not “merely incidental”, such use may also be ignored if it is small in extent and infrequent, and is:

• provided on compassionate grounds to meet the immediate need for transport in an emergency situation, e.g. an employee learns that a family member has been involved in an accident, and/or
• incidental to the provision of another benefit that does not itself give rise to a tax charge, e.g. transporting sports equipment to a sports facility that the employer provides for the workforce in general.

Where a chauffeur takes a pool car home overnight, the private journey does not of itself disqualify the car from treatment as a pool car if the chauffeur’s duties require it in order to collect or deliver passengers from different locations.  However, a car would cease to qualify as a pool car if the chauffeur used it, for example, at weekends or for holidays.

‘not normally kept overnight’

This term, in condition 4, is not defined quantitatively in the legislation. HMRC accepts that a car is “not normally kept overnight” at or near the homes of all the employees who use it if this does not happen for more than 60% of the year, usually taken to be 219 days.  This rule is for guidance only and has no statutory basis.  On the other hand, if the car were kept overnight at the home of one employee for less than 60% of the year, that level of work to home journeys would fail to satisfy the “merely incidental” test.

If a pool car is made available to employees at weekends or for their holidays, the full car benefit and fuel benefit, if appropriate, applies for the period the car was available.  The employee could pay towards the private usage and thus reduce the tax charge to nil, but the benefit would still have to be reported on the P11D as a company car.

A similar caution applies where a pool car is taken home at night because there is inadequate parking or security at the company’s premises, or where an unallocated car is temporarily looked after at night by an employee who is not entitled to a company car.  These situations would fail the “not normally kept overnight” test and the car would thus become a company car with a taxable charge.

Related posts:

1. How do we prevent a pool car or van from being taxed as a company vehicle?
2. Meeting the pool car conditions
3. Time for Group Limited v HMRC February 2012

Payroll news | Payroll questions | Employment Law advice from Payroll Help

An ‘Agreement’ between the UK and Switzerland in respect of taxation was signed in London on 06 October 2011.  A Mutual Agreement has made amendments to this and was signed in Zurich on 18 April 2012.  Both the Agreement and the amending Mutual Agreement are scheduled to be effective 01 January 2013.

Further Information

• Payroll Help 11 December 2011 – UK and Switzerland Tax Agreement
• HMRC  – Mutual Agreement UK and Switzerland

Related posts:

1. Tax Agreement between UK and Switzerland
2. Double Taxation Convention – Protocol to Agreement with Switzerland signed
3. Tax Information Exchange Agreement – Agreement between the UK and Guernsey signed

Payroll news | Payroll questions | Employment Law advice from Payroll Help

Between the tax years 2006/07 and 2009/10, Time for Group Limited (TFG) had a number of company cars, which they claimed as pooled cars.  However, HMRC imposed a Class 1A National Insurance Contributions (NICs) charge in the sum of £6,602.00 on TFG in respect of the NICs due on a benefit charge.  TFG, owned by Mr and Mrs Jeffries appealed against these charges.

As stated in our FAQ on Pooled Cars, all of the following conditions have to be met for a car to be considered a pool car and, therefore, exempt from car and car fuel benefit:

a) The car was available to and was used by two or more employees

b) The car was available by reason of their employment

c) The car was not ordinarily used by one of those employees to the ‘exclusion of the others’

d) Any private use of the car made by each of the employees was ‘merely incidental’ to each employee’s other use of the car in that year, and

e) The car was ‘not normally kept overnight’ at or near any of the employees’ homes (other than at the employer’s premises)

TFG contended that the cars were, indeed, pooled cars and had been used in accordance with the above conditions, outlined in The Income Tax (Earnings and Pensions) Act 2003, Section 167.  HMRC contended that condition d. had not been met by the Jeffries’ use of the car.  Examples of use, in addition to business use, included travel to their children’s sports events, travel to a holiday lodge and travel to a polo event.  These, seemingly personal and social functions were deemed necessary by TFG for networking as part of their business activities.

The judge disagreed with the Jeffries and said that, on occasions, the business use of the car had been merely incidental to the private use, whereas it should have been the other way around for the car to be considered as a pooled car.   Consequently, condition d. was not fulfilled, the car was not a pooled car during those periods and the appeal against the penalties failed.

Comment

This case has implications for all companies that make use of pooled cars (and vans) and, in particular, the importance of all of the five conditions being met.  If they are not, HMRC guidance CA33 (Class 1A National Insurance Contributions on Car and Fuel Benefits) says that ‘if a car fails any of the conditions for being a pooled car, it may be regarded as a shared car’.  In this instance, both car and car fuel benefit applies after the appropriate pro-rata calculations are performed, attributing the use between the employees in the sharing arrangement.  However, no mention of this is made in the ruling from the First Tier Tribunal.

Therefore, a car may be a pool car up until the point it fails one of the five conditions, at which time it is to be considered a shared car.  Therefore, as the tax treatment differs between a pool and a shared car, this case highlights the need for companies to accurately control their car pool fleet, ensuring a pooled car cannot be regarded as a shared car, as this is the time at which benefit calculations have to be made.

Further Information

• HMRC  – CA33 National Insurance Contributions on Car and Fuel Benefits
• Bailii  – Time for Group v HMRC

Related posts:

1. Republic of Ireland: Budget 2009 – Income tax changes limited to tax band thresholds
2. Cycle-to-Work Schemes – Issues raised by HMRC Benefits and Expenses Sub Group
3. Cycle-to-Work Schemes – Issues raised by HMRC Benefits and Expenses Sub Group

Payroll news | Payroll questions | Employment Law advice from Payroll Help