Firm proposals on streamlining employment law

On 14 September, the Department for Business, Innovation and Skills announced it has firmed up on its proposals to streamline employment law.

The package of reforms comes in response to calls from business to simplify and speed up the process of ending the employment relationship when it breaks down, for the benefit of both employers and employees.

The package of employment reforms announced today includes:

  • Settlement agreements consultation (the new name for what’s previously been known as ‘compromise agreements’) starting 12 September that will set out how the process will work in practice. The consultation provides a template letter and guidance on how employers and employees would reach agreement. Acas has agreed to provide a new code of practice for settlement agreements.
  • Unfair dismissal claims consultation will also start 12 September and will look at the potential for reducing the compensation cap, currently at £72,300. The proposals are two-fold – a cap of up to 12 months pay and a new, reduced, upper limit.
  • Further streamlining of employment tribunals, following on from Justice Underhill’s review, with a consultation starting 12 September including proposals on how judges could dismiss weak cases more easily and reduce the number of preliminary hearings.
  • A summary of responses to the call for evidence on changes to TUPE with a commitment to consult on issues, raised by business, by the end of 2012.

There are online links to the consultation documents mentioned above.

The Government also responded formally to the call for evidence on proposals for compensated no fault dismissal for micro-firms. Based on the evidence presented by business the Government will not be taking forward the proposal.

Consultation on auto-enrolment thresholds for 2013/14

On 6 September, the Department for Work and Pensions (DWP) published a consultation ‘Automatic enrolment earnings thresholds review and revision 2013/14‘. Comments are invited by 17 October 2012.

Under pensions reform auto-enrolment there are two important earnings thresholds:

  • The ‘earnings trigger’ – where a worker on or after the employer’s ‘staging date’, normally works in the UK, are aged at least 22 and have not yet reached the State Pension age, and have qualifying earnings that exceed an ‘earnings trigger’ for the earnings period in question, the worker is required to be auto-enrolled into a qualifying pension scheme by their employer if they are not already an active member of a qualifying scheme.

For the tax year 2012/13, the ‘earnings trigger’ is set at the PAYE threshold – £8,105 a year, or its weekly/monthly equivalents.

The consultation proposes that this threshold be increased to £9,205 for the tax year 2013/14.

  • The ‘qualifying band of earnings’ – these are the earnings on which auto-enrolment pension contributions are based. The lower limit of the band of qualifying earnings is the amount of earnings under which pension contributions are not required. The upper limit of the band of qualifying earnings is the amount of earnings above which pension contributions are no longer required.

For the tax year 2012/13, the ‘band of qualifying earnings’ is set at the Class 1 NICs thresholds – between £5,564, or its weekly/monthly equivalents, and £42,475, or its weekly/monthly equivalents.

The consultation proposes that the lower limit of the band of qualifying earnings be increased to £5,720 for the tax year 2013/14. The consultation asks for views on whether the upper limit should be left at £42,475, or increased to £42,971 for the tax year 2013/14.

Downloadable factsheets on PAYE compliance checks

HMRC have updated their factsheets to make it clearer how and why they carry out certain activities during a PAYE compliance check.

These factsheets provide an overview of the main stages of a compliance check – who carry out compliance checks; how an employer is chosen; how visits are notified and arranged; what takes place on a compliance check; what the compliance officer will want to inspect; how errors are quantified; penalties and interest calculated; and settlements negotiated.

During a check an HMRC officer may give an employer one or more of these factsheets to help them understand how and why HMRC do things and what the employer’s rights are during a compliance check.

Some of the new factsheets replace previous ones which have been withdrawn from 31 August 2012.

It is good advice for an employer to get to know all about PAYE compliance checks. To be forewarned is to be forearmed. And may save an employer a lot financially in settlement negotiations if they’ve already put right any non-compliance before HMRC ever visit.

Update to HMRC’s PDV software available to download

The PAYE Desktop Viewer (PDV) is an application provided by HMRC that allows an employer or agent to view, search, and sort online PAYE tax codes, notifications, and reminders.

Some minor updates have been made to the PDV software  from 3 September 2012. Before you can receive the latest versions of these  notices you must download and install the new version of PDV on your computer.

Installing this update won’t affect any existing PDV data held on your computer, so there’s no need to backup your data before updating the PDV software.

HMRC has provided links in the ‘Downloading the PDV’ section of its online guide to PDV. All you need to do is select the download link appropriate to your computer/operating system. If you have installed PDV on more than one computer in your organisation, you must update each computer separately.

Tracking when to expect reply from HMRC

If you’re an employee or you pay tax on a company pension through PAYE, you can now use a tracker to check how long it will take HMRC to:

  • pay your Income Tax refund
  • reply to your general Income Tax enquiry
  • provide a copy of individual information, such as your tax code or pay and tax details
  • send you HMRC forms or stationery.

This service can also be used by an agent to check how long it will take HMRC to:

  • register them as an agent to use HMRC Online Services
  • process an application for authority to act on behalf of a client
  • amend their agent details.

The tracker is an online process.

Currently, if the taxpayer’s or agent’s query is not one of the above they cannot use the tracker and should contact HMRC instead by letter/phone.

HMRC is committed to helping its customers by providing response times for their queries and will be adding more subjects to the tracker in due course.

Emailing HMRC to confirm your NI Number

Early in September 2012, HMRC announced a new service whereby an individual can confirm what is their National Insurance Number (NINO) and let HMRC know if they’ve changed their name or address.

Individuals should complete and email a form CA5403 if they:

  • have a National Insurance number and need HMRC to confirm it in writing
  • have recently received notification of their National Insurance number and need to update their personal details.

The form should not be used if the individual has never had a NINO (e.g. they’ve just come to work in the UK) and they need to apply for one. Instead, such individuals should go to the Directgov website for advice on how to apply for a NINO.

How to complete and email form CA5403

Before an individual starts to complete the online form it’s very important that they have the following information to hand:

  • their email address
  • their full name, including any middle name(s)
  • previous full name
  • their date of birth
  • their present full postal address and previous addresses. The individual is asked to try to give UK addresses even if their most recent previous addresses            have been abroad.
  • the names of up to three employers the individual may have worked for in the last  three years.

The individual will be asked to provide other information to help HMRC to confirm          their identity so it’s important that the information they provide is accurate and complete. This information will be:

  • their National Insurance number (if they know it)
  • the date they moved to their current address
  • their contact telephone number
  • if they are married or in a civil partnership, the date of their marriage or civil partnership
  • if they are self employed, the way in which they pay Class 2 National            Insurance contributions, for example, by Direct Debit
  • if they receive Child Benefit or someone receives it for them, the Child Benefit number.

When the individual has got all the information they need to complete the form they can start filling in form CA5403 online.

An employer, taking on a new employee, may find recommending the above process an invaluable way of verifying a new employee’s NINO – something that is of importance under Real Time Information.

 

What is a car, commercial vehicle, or motor home for VAT?

HMRC have updated their guidance on how to distinguish between a car, commercial vehicle, or motor home, when it comes to deciding the VAT liability.

For example, in most cases, VAT-registered businesses can’t reclaim the VAT when    they buy a car.VAT-registered businesses can generally reclaim the VAT when they buy a commercial vehicle, motorcycle, or motor home.

HMRC also tend to follow the VAT definitions of the above when it comes to deciding whether a particular vehicle is a car, and if made available for private use falls under different legislation for income tax purposes than where a commercial vehicle or motorcycle is provided for private use.

Cars

VAT rules say that a car is any motor vehicle of a kind normally used on public roads. It must have three or more wheels and meet one of the following conditions:

  • It must be constructed – or adapted – mainly for carrying passengers.
  • It must have roofed accommodation behind the driver’s seat. This must either be fitted with side windows already or be constructed – or adapted – so that side windows can be fitted.

In addition, the following are not cars for VAT purposes:

  • vehicles capable of accommodating only one person or suitable for carrying twelve or more people including the driver
  • caravans, ambulances, and prison vans
  • vehicles of three tonnes or more unladen weight
  • special purpose vehicles, such as ice cream vans, mobile shops, hearses, bullion vans, and breakdown and recovery vehicles
  • vehicles with a payload of one tonne or more

Commercial vehicles

Any vehicle is a commercial vehicle if it has a payload of one tonne or more, or an unladen weight of three tonnes.

There are possible problems where it is not necessarily clear-cut whether a commercial vehicle is a van or a car. This refers to vehicles that are car-derived vans and vans with rear seats – combination vans, or combi vans.

HMRC consider that a car derived van is a commercial vehicle if it meets all three of the following conditions:

  • The alterations that the manufacturer or vehicle converter makes meet the technical requirements that HMRC specifies in their guidance If a business is not sure if the alterations do meet the requirements it’s advisable to get written confirmation from the vehicle supplier. The business can also contact HMRC if they need more information about the guidance.
  • The adaptations give the vehicle the functionality of a commercial vehicle. For example, it’s not enough to just take out the back seats.
  • It must be quite clear that the space that remains behind the front row of seats is highly unsuitable for carrying passengers.

If it meets these conditions then it’s a commercial vehicle and the business can reclaim the input VAT. Further, such a vehicle will be deemed a van and will be taxed as such for income tax purposes if an employee is allowed unrestricted private use of the vehicle.

HMRC maintain a list of car derived vans and combi vans as to whether they are deemed cars or vans for tax purposes.

Motor homes and motor caravans

Motor homes and motor caravans aren’t considered to be cars for VAT purposes so long as certain features have been incorporated into the vehicle, such as:

  •   a permanently installed sink and cooking facilities
  •   seating arrangements so that diners can sit at the meal table
  •   at least one bed which has a minimum length of 1.82 metres
  •   a permanently installed fresh water tank with a minimum capacity of ten litres.

 

HMRC Payroll Standard Accreditat​ion Scheme Logo

HMRC have taken the opportunity to issue a reminder to all payroll software developers who are either currently claiming to have software products accredited under the HMRC Payroll Standard Accreditation Scheme or are displaying the HMRC logo on their company product and/or website.

The Accreditation Scheme closed on the 5th April 2012 and as a result, use of the Payroll Standard Accreditation logo should have ceased from that date. If a software developer intends to include any reference to the Payroll Standard in their marketing material after this date, HMRC ask them to please make it clear that the scheme has closed from the 5th April 2012 and has been replaced by a new PAYE Recognition scheme.

Any employer currently thinking about, or going through the process of choosing new payroll software needs to be aware of the above so they are not misled.

Provided a software developer’s product can pass HMRC’s tests, it will appear on the  list of ‘recognised’ products on the HMRC web pages. However, as HMRC make clear, the granting of recognition and inclusion of a particular product’s details on the HMRC web pages should not be regarded as HMRC’s endorsement or ‘kitemarking’ of that product.

HMRC updates its advisory fuel rates from 1 September

On 29 August, 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 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 2012, although until the end of September employers can continue to use the previous advisory fuel rates, applicable from 1 June 2012.

Note: It is only the LPG mileage rates that have changed.

The new rates per mile are as follows (the changed rates are shown in red; the figure in parenthesis is the amount between 1 June 2012 and 31 August 2012):

+ Petrol engine cars: 1400cc or less – 15p; 1401-2000cc – 18p; over 2000cc – 26p; based on 135.7p/litre (135.8p/litre from 1 June).

+ Diesel fuelled cars: 1600cc or less – 12p; 1601-2000cc – 15p; over 2000cc – 18p; based on 140.8p/litre (141.7p/litre from 1 June).

+ LPG fuelled cars: 1400cc or less – 10p (11p); 1401-2000cc – 12p (13p); over 2000cc – 17p (19p); based on 71p/litre (78.7p/litre from 1 June).

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

Pay Day by Pay Day Tax Relief Models and Dispensations

On 30 August, HMRC confirmed that dispensation agreements cannot apply to ‘payments of expenses’ made using ‘Pay Day by Pay Day Tax Relief Models’.

HMRC issued a statement in July 2011 about these models which tend to be used by a a number of umbrella companies, employment businesses and labour providers. Under such a scheme, for example, employees are paid a wage of £250. During the pay period covered by the wages the employee has paid £100 in expenses incurred in the performance of their duties. Therefore, the employer deducts £100 from the £250 in wages and taxes/NICs the balance of £150.

HMRC made clear that information obtained by them had thus far indicated that the model described above “does not comply with the Taxes Acts or Social Security         Acts and associated Regulations.”

Therefore, HMRC’s instruction to employers, using the above illustration, is:

  • Where a dispensation is in place:
    • Pay the £250 as wages subject to PAYE income tax and Class 1 NICs in the normal way.
    • Make a distinct and separate payment to cover the £100 of necessarily incurred expenses.
    • The payment of expenses does not need to be returned on forms P11D as long as the expenses are covered by a valid dispensation.
  • Where a dispensation is not in place:
    • Pay the £250 as wages subject to PAYE income tax and Class 1 NICs in the normal way.
    • Make a distinct and separate payment to cover the £100 of necessarily incurred expenses.
    • The payment of expenses must be returned on forms P11D and the employee left to make their own business deduction claim.

The 30 August 2012 statement by HMRC makes clear that: “Expenses that are not made to or provided for any employee by the employer [using a Pay Day by Pay Day Tax Relief Model] cannot be included in, or afforded the protection of a Dispensation.”

The only way the payment of expenses can be protected by a Dispensation is by following the first bullet point above.

Where a dispensation cannot apply, the only way an employee can claim tax relief against any genuine business expenses incurred by them in the performance of their duties is to make a separate claim to HMRC claim “by letter, form P87, or their Self      Assessment Tax Return. The fact that HMRC has granted a Dispensation to the employer does not negate the need for an employee or their authorised representative to make a claim where the employer has not made a payment of expenses [emphasis added].”