This is my last day!

Today, 25 August 2016, I am retiring from any more work in connection with my blog.

Please note: I will leave the blog still open for two to three more weeks. After that time, the website will be pulled and the blog content lost forever.

I hope you have all benefited from my blog over the last six years and it has been of some practical use. That was always my intention.

Best wishes to all…. Adrian Hobbs

HMRC updates its advisory fuel rates from 1 September 2016

On 25 August 2016, HMRC published updated advisory fuel rates that can be paid tax-free to employees driving employer provided vehicles to cover just their business mileage. The same rates can also be used to charge employees for private mileage costs paid by their employer.

The new rates apply to all business journeys on or after 1 September 2016, although until the end of September employers can continue to use the previous advisory fuel rates, applicable from 1 June 2016.

The new rates per mile are as follows; the figure in parenthesis is the amount between 1 June 2016 and 31 August 2016:

  • Petrol engine cars: 1400cc or less – 11p (10p); 1401-2000cc – 13p (13p); over 2000cc – 20p (20p).
  • Diesel fuelled cars: 1600cc or less – 9p (9p); 1601-2000cc – 11p (10p); over 2000cc – 13p (13p).
  • LPG fuelled cars: 1400cc or less – 7p (7p); 1401-2000cc – 9p (9p); over 2000cc – 13p (13p).

The above rates are part of HMRC’s quarterly review of their advisory fuel rates.

Payrolling employees’ taxable benefits and expenses

Are you planning on payrolling employees’ taxable benefits in kind and expenses from 6 April 2017? If so, you must first register with HMRC before the start of the tax year 2017/18 to do so.

If you miss the registration deadline, you’ll be left with whatever you are able to arrange informally with HMRC about payrolling, but it won’t be as advantageous as if you register officially.

On 22 August 2016, HMRC published updated information on payrolling, and the steps an employer needs to take in preparation for payrolling.

The above information contains a link – ‘Payrolling: tax employees’ benefits and expenses through your payroll’ – with a more detailed explanation concerning payrolling.

New employee coming from abroad to work in the UK

On 18 August 2016, HMRC published updated information to help an employer get things right when someone comes from abroad to work in the UK.

The first question has to be – before they start working here in the UK – do they have the right to work in the UK? The first paragraph of the guidance contains a link to an online tool an employer can use to check a person’s right to work in the UK.

But, you might say, this person has only been seconded to us; we’re not paying their salary; they’ll remain employed by their overseas employer. So we don’t have to worry about them?

Wrong! The HMRC guidance starts from the premise that the UK employer is responsible for any UK PAYE income tax and National Insurance liability. The guidance states:

“For employees coming to work in the UK from abroad you must operate PAYE tax and NICs in the usual way, whether they’re working for you on a temporary or permanent basis.

Even if the employee remains employed by an overseas business and you don’t actually pay them, you’re treated as their employer. You’re responsible for recording and reporting their earnings and PAYE deductions. These are ‘seconded employees’.[Emphasis added]”

There may be exceptions to this rule, but UK employers should not just assume that an exception will apply in their situation:

“There’s more about seconded employees,” states HMRC, “and about exceptions to the rule, later in [the] guide – and these are not always the same exceptions for PAYE tax and NICs.”

The HMRC guide is essential reading for any employer using the services of someone who normally works outside the UK but will be working in the UK for a period.

Benchmark scale rate expenses payments for employees working abroad

HMRC publishes tables of benchmark scale rates that employers can use to reimburse accommodation and subsistence expenses incurred by employees who have to travel outside the UK. The tables cover a wide range of countries and regions.

As long as an employer pays no more than the published scale rates, there is no income tax or NICs liability and the employee does not have to provide receipted expense claims. Of course, the employee should be able to show that they were necessarily outside the UK in the performance of their duties so as to claim travel and subsistence costs.

On 18 August 2016, HMRC announced that the rates published in October 2014 will continue to apply for the year commencing October 2016.

Reduction in HMRC’s late payment interest charge

HMRC charges interest on late payments of, for example, PAYE income tax and National Insurance contributions due. From 23 August 2016, this interest rate reduces from three percent to two and half percent (the rate that has applied since 29 September 2009.

Since 7 January 2009, under the Taxes and Duties (Interest Rate) (Amendment) Regulations 2008, HMRC changed the way it reacts to changes in interest rates by allowing a quicker change in the HMRC rate to be made, i.e. within 13 working days of a meeting of the Bank of England’s Monetary Policy Committee. Previously all rates were changed from the 6th of the month.

With effect from the September 2009 meeting of the Bank of England Monetary Policy Committee, interest rates against late payments of PAYE income tax and NICs, etc., will be set at the “relevant rate” (the Bank of England base rate determined by the latest meeting) plus 2.5%.

Genuine HMRC contact and recognising phishing emails

I’m sure that every one of you has received phishing emails, etc.; all fraudulently trying to get you to part with your personal and bank information (employers get attacked just the same as individuals). Taxpayers are not immune to these ‘attacks’.

Periodically, HMRC publishes information and guidance concerning the latest phishing scams. Fraudsters are becoming ever more accomplished at making themselves look ‘genuine’ and ‘legitimate’.

It is very worthwhile to take the time to review HMRC’s guidance. The latest guidance, dated 15 August 2016, has just been published.

The latest guidance lists all the ways HMRC currently communicate with taxpayers and others and is an aid, helping all users recognise and identify phishing emails and texts. Over and over again HMRC stresses that their genuine emails and texts “will not ask you for any personal or financial information”.

Emails and texts from HMRC will never:

  • Notify you of a tax rebate;
  • Offer you a repayment;
  • Ask you to disclose personal information such as your full address, postcode, Unique Taxpayer Reference, or details of your bank account;
  • Give a non HMRC personal email address to send a response to;
  • Ask for financial information such as specific figures or tax computations, unless you have given HMRC prior consent and you have formally accepted the risks;
  • Have attachments, unless you have given HMRC prior consent and you have formally accepted the risks;
  • Provide a link to a secure log-in page or a form asking for information – instead HMRC will ask you to log on to your online account to check for information.

Consultation on salary sacrifice for the provision of benefits in kind

At Budget 2016, it was announced that HMRC was considering limiting the range of benefits-in-kind (BiK) that attract Income Tax and National Insurance Contribution advantages when provided as part of salary sacrifice arrangements.

On 10 August 2016, HMRC duly published a Consultation on salary sacrifice for the provision of benefits in kind’. Replies are required by 19 October 2016.

HMRC recognise that salary sacrifice arrangements are an important part of employers’ remuneration strategies. Employers wanting to offer BiKs in conjunction with salary sacrifice will still be able to do so; however, the tax and employer NICs advantages for some BiKs will be reduced. BiKs currently offered on top of salary will not be affected by the proposed changes.

HMRC propose to change tax legislation so that where a BiK is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer NICs, even if it is normally exempt from tax and Class 1A NICs, at the greater of:

  • The amount of salary sacrificed; and
  • The cash equivalent set out in statute (if any).

This would mean that where the normal taxable value of the BiK is higher than the amount of salary sacrificed, it would be subject to tax and Class 1A NICs in the normal way.

It is expected that these proposed changes will take place from the beginning of the tax year 2017/18.

At Budget 2016, government stated its intention to exclude a number of BiKs from the above changes because it wishes to encourage employers to provide these to employees.

Therefore, views are not being sought on the following:

  • Employer pension contributions;
  • Employer-provided pension advice based on the recommendations of the Financial Advice Market Review (FAMR);
  • Employer-supported childcare and provision of workplace nurseries; and
  • Cycles and cyclist’s safety equipment which meet the statutory conditions.

Simplification of the tax and National Insurance treatment of termination payments

A year ago, in summer 2015, HMRC consulted on simplifying the income tax and Class 1 NICs of termination payments. On 10 August 2016, HMRC published its response to the consultation and published draft legislation for final consultation. Responses are required by 5 October 2016.

From April 2018, HMRC is proposing to make the following changes.

Pay in lieu of notice payments (PILON)

HMRC consider there has been too much confusion concerning whether a PILON is contractual (taxable) or not (non-taxable as long as it and any other non-taxable payments do not exceed £30,000). Therefore, from 2018 all PILON payments will be subject to PAYE income tax and Class 1 primary and secondary NICs.

Other termination payments

HMRC will tax and subject to Class 1 primary and secondary NICs any payment that the employee would have received if they had worked their notice period, even if the employee is asked to leave employment immediately or part way through their notice period.

Payments relating directly to the termination of the employment (like statutory and enhanced redundancy pay and compensation for loss of office) will have a £30,000 income tax and employer secondary NICs exemption. There will be continue to be an unlimited employee primary NICs exemption on termination payments.

Exempt termination payments

There are various exemptions, reliefs and reductions that currently apply to termination payments in addition to the £30,000 threshold. For these exemptions to apply, the payment must be connected to the termination itself and not be contractual or salary.

If the conditions of the exemption, etc. are met then there is no income tax liability even on payments over £30,000.

Currently exempt termination payments include payments made:

  • Because of the death, disability or injury* of the employee (will remain);
  • Under a tax exempt pensions scheme (will remain);
  • To a registered pension scheme (will remain);
  • For liabilities and indemnity insurance (will remain);
  • To HM Armed Forces (will remain);
  • By a foreign government (will remain);
  • Where the employee has a certain type of foreign service (will be amended); or
  • In respect of certain legal costs.

* As respondents to the consultation pointed out, there is potential for the use of the exemption for injury to grow if it includes injured feelings. Recent divergent judicial decisions on this issue mean that the government has decided to make an amendment to clarify that the exemption does not apply in cases of injured feelings. This reflects what HMRC considers is the correct interpretation of the existing legislation. In order for the exemption to apply there must be an injury or disability of a physical or psychological nature that is sufficient to cause the employee to be unable to perform his or her job properly.

Class 1 NICs changes

When it comes to determining whether a termination payment is taxable or not, employers will need to refer (as they do now) to the employee’s underlying employment contract and other terms and conditions. Any payment that covers part of the existing contractual entitlement, including the notice period even if the employee does not work it, will be taxed and subject to Class 1 primary and secondary NICs as earnings.

Any payment relating directly to the termination of the employment that is non-contractual will be taxed and subject to employer NICs on any amount that exceeds the £30,000 threshold. There will continue to be an unlimited employee NICs exemption on termination payments.

Simplifying the PAYE Settlement Agreement (PSA) process

On 9 August 2016, HMRC published a consultation ‘Simplifying the PAYE Settlement Agreement (PSA) process’. Replies are required by 18 October 2016.

This consultation sets out proposals to reform the PAYE Settlement Agreement (PSA) process, to:

  • Make it simpler for both employers and HMRC to administer PSAs;
  • Provide greater clarity about what can and cannot be included in a PSA.

It is expected that these proposed changes will take place from the beginning of the tax year 2017/18.

Remove the requirement for upfront agreement

Government agrees that removing the need for employers to agree with HMRC which items can be accounted for in a PSA would provide simplification: employers would assess whether items are eligible for inclusion in a PSA return by reference to the legislative rules and guidance.

Removing the requirement for annual agreement between employers and HMRC will make the process simpler for both those employers who routinely apply for and report benefits via a PSA and those who may not have the need for a PSA every year.

Removing the requirement to agree PSAs in advance means that the current difficulties relating to the NICs payable on non-cash vouchers would also be removed.

Considering a digital solution

In line with wider government moves to digitalise processes, government would like to explore whether, and to what extent it would be cost effective, to digitalise the PSA return.

What can be included in a PSA?

HMRC intend to continue with its practicing of not allowing the following to be included in a PSA:

  • Cash payments or cash reimbursement; and
  • Contractual BiKs.

Currently, items that HMRC consider are ‘minor’; provided ‘irregularly’; or that HMRC accept is ‘impracticable’ to quantify and return on individual forms P11D, can be considered in a PSA.

BiKs considered ‘minor’

With the introduction of the exemption for ‘trivial’ BiK*, HMRC is proposing to scrap the ‘minor’ definition.

*From April 2016 there is a statutory exemption for ‘trivial’ BiKs. This exemption covers items where:

  • The cost of providing the benefit does not exceed £50 per tax year;
  • The benefit is not cash or a cash voucher;
  • The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements); and
  • The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services).

BiKs provided ‘irregularly’

To make matters clearer, HMRC is proposing that the expression ‘irregular’ should:

  • Be considered in the context of a tax year;
  • Not be something which occurs in any pattern: every day, week, month, other month, or quarter; and
  • Not include items which employees have a contractual right to (for example bonuses, regardless of how infrequently or at what intervals they are paid or how they are made up).

BIKs considered ‘impracticable’ to quantify/report

To make matters clearer, HMRC wants to change the definition of ‘impracticable’ so that the test is not just because of restrictions due to an employer’s software or because there is presentational awkwardness to taxing the BiK via PAYE or reporting it on form P11D.