HMRC updates its advisory fuel rates from 1 March

On 28 February, 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 March 2012, although until the end of March employers can continue to use the previous advisory fuel rates, applicable from 1 December 2011.

The new rates per mile are as follows (the changed rates are shown in red; the figure in parenthesis is the amount between 1 December 2011 and 29 February 2012):

+ Petrol engine cars: 1400cc or less – 15p; 1401-2000cc – 18p; over 2000cc – 26p; based on 135.2p/litre (133.4p/litre from 1 December).

+ Diesel fuelled cars: 1600cc or less – 13p (12p); 1601-2000cc – 15p; over 2000cc – 19p (18p); based on 143.2p/litre (141.1p/litre from 1 December).

+ LPG fuelled cars: 1400cc or less – 10p (12p); 1401-2000cc – 12p (15p); over 2000cc – 18p; based on 74.1p/litre (73.9p/litre from 1 December).

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

When does an employee have the right to be paid overtime?

A recent EAT judgement, in Blair & Ors v Hotel Solutions Ltd [2012] UKEAT/0412/11, reminds employers once again of the importance of expressly making clear in terms and conditions just what are an employee's rights and obligations.

In this case, a certain group of employees working cleaning hotel rooms were required to work a seven-hour day and were entitled to an hour's break during the working day. The employees found that their requirement to clean 15 rooms each during the working day was more than they could cope with in the time allotted and stated that they often had to lose part of their break to finish their cleaning work. The employees claimed they should be paid for their missed break time as overtime, and the employer's failure to do this amounted to an unlawful deduction from wages.

The employee's terms and conditions, on the subject of overtime stated, “Overtime is voluntary, but due to the nature of the business, employees may be required to work overtime at short notice and their co-operation in this matter is necessary.”

What would you take to be the meaning of this term? Clearly, the employer wanted the option to require employees to work overtime, possibly at short-notice. But what about the expression “overtime is voluntary”? Did that mean employees could choose if they worked overtime or not? The problem with an ambiguous statement like that, is it can be taken different ways. Therefore, the tribunal had to fall back on what the employer said was the case, and how they'd applied the term in practice.

In practice, employees were not normally required to work longer than seven hours; they were free to go home at the end of their their seven-hour working day, even if they'd not been able to complete all their cleaning work. If the employer considered an employee had not worked hard enough, the employer retained the option to raise disciplinary or capability proceedings against the employee. It was certainly the case that the employer had never sought to compel the employees to work overtime.

The employer's take on the overtime term was that they hoped that if and when there was a need for overtime working the employees would co-operate, but it was totally up to them as to whether they actually worked overtime. Although this is not necessarily clear from the wording of the term, nevertheless the employees were not expressly required to work overtime hours. Therefore, the EAT agreed that the employee's claim of an unlawful deduction because they'd voluntarily decided to forgo part of their break-time had to be dismissed.

However, it would have been much better if the overtime term had been written thus: “No overtime will be paid unless expressly required or approved in writing by the employer. Due to the nature of the business, employees may be required to work overtime at short notice and their co-operation in this matter is necessary.”

Working at home needn't be taxing!

On 24 February, HMRC published updated information concerning the tax liabilities of employers paying a homeworking employee's expenses of working at home.

For example, the tax-free allowance an employee can be paid towards covering their additional costs incurred when working at home (e.g. heat and light) has been increased from £3 a week, up to 5 April 2012, to £4 a week from the tax year 2012/13 onwards (£18 a month equivalent). This maximum allowance can be paid without any supporting evidence of an employee's actual additional household expenses.

If an employer wants to pay the actual additional costs, or an allowance in excess of £4 a week, supporting evidence will be required to prove the employer hasn't paid more than was actually incurred. Where no such evidence is available then only the first £4 a week will be tax-free; the excess must be added to an employee's taxable pay and PAYE income tax and Class 1 NICs paid through the payroll.

However, HMRC state that this tax-free allowance only applies where an employee “has  to work from home”. This is because either (a) “the facilities they need for their work aren't available at the employee's workplace”, or (b) the employee's “work requires them to live too far from the workplace for it to be reasonable for them to travel there on a daily basis”. Therefore, this tax-free allowance wouldn't apply where an employee chooses to work at home, or occasionally works at home out of convenience, or catches up on their work at home, for example, in the evening or at weekends.

This means an employer is strongly advised to include the payment of any homeworking allowance as part of a dispensation agreement with HMRC. The  employer should ensure that when applying for such a dispensation they fully discloses the arrangements under which employees work at home.

I say this, because the above homeworking 'conditions' seem stricter than HMRC's guidance to its own inspectors (Employment Income Manual) when dealing with the payment of a homeworking allowance. This guidance states that the allowance can be paid where “homeworking arrangements” exist, i.e. where two tests are met – firstly, there must be an arrangement (usually in writing, although not necessarily so) between the employer and employee about the employee working at home, and secondly, the employee must work at home regularly under those arrangements (e.g. three days a week in the office, two at home).

Nothing is mentioned in the EIM about an employee having to work at home, only that “an employee works at home by arrangement with the employer instead of working on the employer's premises.”  Agreed the guidance does state the homeworking allowance exemption doesn't apply where the employee works at home “informally”, and not by arrangement with the employer; neither if they take work home of an evening. But the EIM guidance doesn't mention anything about an employee having to work at home because facilities an employee needs for their work are not available at the employer's workplace, or that the employee lives too far away from the employer's workplace for them to reasonably travel to each work day.

This seeming conflict in the circumstances HMRC will accept as giving rise to a tax-free homeworking allowance means there may well be different interpretations of the rules by different tax offices. So do make sure your tax office accepts your policy about paying any allowance. It's possible that working at home may be taxing after all!

DWP consults on pension auto-enrolment and European Employers

On 20 February, the Department for Work and Pensions published a consultation (Workplace Pension Reform – Automatic Enrolment and European Employers) on proposals to exempt certain employers from having to auto-enrol persons into pension saving when they work both in the UK and in other EEA (European Economic Area) Member States. Replies to the consultation are required by 2 April 2012.

Under auto-enrolment legislation, an employer has a duty to automatically enrol 'jobholders' into a qualifying pension scheme if they are not already a member of a qualifying scheme. A 'jobholder' is defined as an individual who ordinarily works in Great Britain under a worker's contract. However, some employers move their workers regularly between countries as part of their employment to the extent that whether the worker ordinarily works in Great Britain is debatable. Whether the worker is based in Great Britain will depend on what their contract of employment says and also how that contract is operated in practice.

Therefore, the auto-enrolment legislation is set to introduce a new type of employer - 'European Employers'. These are employers who employ a 'qualifying person', i.e. an individual employed under a contract of service and whose place of work under that contract is sufficiently located in an EEA Member State other than Great Britain so that their relationship with their employer is subject to the social and labour law relevant to membership of an occupational pension scheme of the other EEA state. In other words, such individuals end up working in another EEA state to the extent that they become subject to that state's occupational pension requirements. There will not be a duty for an employer to auto-enrol a 'qualifying person' into a pension scheme here in Great Britain.

However, DWP have identified a small number of individuals who might possibly end up with 'dual-status', i.e. they're not only a 'jobholder' in Great Britain, because this is where they are based, but they are also a 'qualifying person' due to the nature of the work they carry out in another EEA state.

Therefore, in such cases of 'dual-status', although an employer has a duty to auto-enrol the individual into pension saving the employer will hit an immediate snag. Any occupational pension scheme used for auto-enrolment purposes will need to be not only approved by The Pensions Regulator in Great Britain but also approved by the (pensions) Regulator of the other EEA Member State. When it comes to auto-enrolling a 'dual-status' individual, any pension scheme must be able to comply with the social and labour law relevant to occupational pension schemes of both Great Britain and the other EEA state. DWP acknowledge that there are very few pension schemes that currently offer the necessary cross-border provisions.

So you can see the problem – although the employer has a duty to auto-enrol the worker, they genuinely may not be able to comply because there is no pension scheme willing or able to provide a workplace pension for such workers. As DWP states: “The employer could therefore be in breach of the duty without any practical means of remedying the situation.”

Therefore, the consultation document includes draft regulations that will exempt 'European Employers' from automatically having to auto-enrol 'dual-status' workers.

Note: Mention is only made above to Great Britain (England, Wales & Scotland) as Northern Ireland will be introducing its own legislation.

Employer Bulletin No. 40 ready to download from HMRC website

HMRC Employer Bulletin No. 40 is available to download from the HMRC website. It contains a lot of 'must know' information. Perhaps the key items are:

+ Tax and NICs rates and thresholds for 2012/13, including the new Statutory Payment rates.

+ Reminder that the annual student loan threshold increases to £15,795 from 6 April 2012. This means any employee liable to repay a student loan whose earnings for Class 1 NICs purposes exceed £1316.25 a month, or £303.75 a week, must pay a flat 9% of their earnings as a deduction (always round down to the nearest whole pound).

+ Reminder that tax code 0T should be used against all payments of post-termination share-related income paid on or after 6 April 2012.

+ Preparing for Real Time Information.

+ Reminders about the Employer Annual Return (forms P14/P35) for tax year 2011/12.

+ How to download and use the 2012 version of the Basic PAYE Tools. Employers with nine or fewer employees can use the Tools to submit their Annual Return for 2011/12.

+ Reminder about the limitations on employers using the orderline to obtain paper copies of forms and guidance. HMRC state, “many products are no longer available to order via the online order form.” Also, HMRC is requesting that “those employers who have access to online versions consider carefully if they really need to order paper copies.” HMRC expect “most employers and agents to use electronic means to self-service from [the HMRC] website.” The Basic PAYE Tools include PDF files of many HMRC forms, which can be completed on-screen, printed, and even saved in some cases.

+ Reminders about making sure that electronic payments to HMRC are submitted with sufficient and correct payment information.

+ Reminders about the end of contracting-out of the State Second Pension using a Defined Contribution (money purchase) pension scheme from 6 April 2012 onwards.

+ How changes in women's State Pension age affect the payment of primary Class 1 NICs contributions during 2012/13.

+ Reminders about preparing for workplace pension reforms (auto-enrolment) due to start coming into effect from July 2012 onwards.

HMRC changes its mind over 'smartphones'

On 20 February, HMRC published its Revenue & Customs Brief 02/12: Employment income – definition of mobile phone (treatment of smartphones). HMRC now accept that smartphones satisfy the conditions to qualify as 'mobile phones'.

Before we look at why HMRC have changed their mind, it's necessary to mention the following tax exemptions found in the Income Tax (Earnings and Pensions) Act 2003:

+ Section 319: This gives an exemption against the provision to an employee of a single mobile phone without any transfer of the property to the employee. Any further provisions of a mobile phone are not covered, and the cash equivalent value for tax purposes is the costs to the employer in the provision.

+ Section 316: This gives an exemption against the provision to an employee of accommodation, supplies or services used by the employee in performing the duties of their employment. The exemption applies as long as the sole purpose behind the employer making the provision is to enable the employee to perform the duties of their employment, and any private use is “not significant”.

Most employers providing employees with smartphones, if they couldn't claim exemption under section 319 they claimed it under section 316. However, some employers have claimed neither exemption and have included the costs of providing an employee with one smartphone on forms P11D at tax year-end and paid the resultant Class 1A NICs liability. It's this latter group of employers who have the most to gain by HMRC's change of viewpoint.

HMRC's original view of smartphones was that such were more like personal digital assistants with telephony capabilities. Because they were not solely designed for use as a mobile phone, they didn't satisfy the exemption under section 319. Where this was the case, then most employers tended to fall back on the exemption under section 316 instead.

As HMRC now accept that smartphones satisfy the requirements to be classed as mobile phones, an employer previously claiming exemption under section 316, could now claim it under section 319 instead. This section does not contain any restriction on any private use of the phone and is probably the best exemption to claim.

However, look out – HMRC make clear that the section 319 definition of a 'mobile phone' does not include satellite navigation devices (that may also have telephony capabilities), devices that are solely PDAs, and tablet and laptop computers. In general, they state, devices that use Voice Over Internet Protocol (VOIP) systems to make and receive calls will not satisfy the primary purpose test of section 319. Further, HMRC points out that with rapidly changing technology, they cannot be certain about the application of the definition of 'mobile phones' to new forms of smartphone coming onto the market.  Whether the provision of any piece of equipment that doesn't satisfy the definition of 'mobile phone' would satisfy the exemption under section 316 will be up to the employer to decide.

But what about that latter group of employers who've been returning smartphone provisions on forms P11D?  These employers may have grounds to claim a repayment of the Class 1A NICs they've paid, back to the tax year 2007/08, and Brief 02/12 tells them how to do this. This repayment situation will also affect employees who've paid income tax on a taxable provision that may not now be treated that way.



How far geographically does UK employment protection extend?

When an individual employee is working outside Great Britain are they still covered by employment protection that would allow them, for example, to claim unfair dismissal? Clearly they can if they normally work in Great Britain, and their overseas duties are merely incidental to the duties here in Great Britain. But what about the situation when the employee performs all their duties abroad? This was the issue in the Supreme Court judgement in the case of Ravat v Halliburton Manufacturing and Services Ltd [2012] UKSC1.

In this case, Mr Ravat claimed unfair dismissal. Ravat worked overseas in Libya, 28 days on, 28 days back at his home in England. When he was back home on leave his only work duties were checking his emails. Although he had been employed by a company in Scotland (a subsidiary of an American parent), Ravat carried out his duties in Libya for the benefit of a German subsidiary in the same group.

The difficulty in establishing whether employment protection covers those working outside Great Britain is because of the way the relevant legislation is drawn.

Section 94(1) of the Employment Rights 1996 provides: “An employee has the right not to be unfairly dismissed.” Section 230(1) of that Act defines “employee” as “an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.” Neither of these provisions contains any geographical limitation. The Act does extend to England, Wales, and Scotland, but not to Northern Ireland (section 244(1) of the Act), which has its own legislation. Therefore, an individual working under contract in Great Britain is covered; those working under contract abroad would appear not to be covered.

This means the Courts must decide what must have been in the minds of Parliament when the Employment Rights Act 1996 was enacted? Are there occasions when the way an overseas worker's duties are performed could be deemed to be as if they were working under contract in Great Britain? The Supreme Court reviewed the principles contained in the House of Lords (as then was) judgement in a major test case on this matter – Lawson v Serco [2006] UKHL 3, and commented on in Duncombe v Secretary of State for Children, Schools and Families (No.2) [2011] UKSC 14. 

The Lawson case involved three employees: (1) Mr Lawson, employed as a security adviser at the British RAF base on Ascension Island; (2) Mr Botham, employed as a youth worker at various MOD establishments in Germany; and (3) Mr Crofts, employed as a pilot by a Hong Kong airline, but based at Heathrow. The Duncombe case concerned teachers employed by the British Government to work in European schools.

The principle that arose out of these cases is that where it appears to be that the employment has a much stronger
connection both with Great Britain and with British employment law than with
any other system of law, the employee is still covered by domestic employment law. In other words, the employment relationship must have a closer connection with Great Britain than with the
foreign country where the employee works.

Therefore, if an employee lives and works abroad, and is based abroad, their connection with domestic employment protection provisions is decidedly weakened. Of course, by the same reasoning, in the case of Mr Croft, because he lived in Great Britain, worked out of Heathrow, which was also his base, he had a very strong connection with domestic employment law.

In the cases of Messrs Lawson and Botham, although they worked abroad and were based there, nevertheless it was like they were still working in Great Britain because of the nature of the site(s) where they worked, and therefore, they were still protected by the employment law of Great Britain.

However, in the case of Mr Ravat, the question remained as to whether the connection between the circumstances of the employment in Great Britain and with British employment law was sufficiently strong to enable it to be said that it would be appropriate for Ravat to have a claim for unfair dismissal in Great Britain?

The Supreme Court set out its steps to reaching a conclusion. The company that employed Ravat was based in Great Britain. It was this company that sent Ravat to Libya, even though the actual work itself was in the furtherance of the business of another Halliburton subsidiary or associate company. It was the company in Great Britain that chose to treat Ravat as a commuter for this purpose, with a rotational working pattern familiar to workers elsewhere in the oil industry which enables them to spend an equivalent amount of time at home in Great Britain as that spent offshore or overseas. Therefore, in Ravat's case, this meant that all the benefits for which he would have been eligible had he been working in Great Britain were preserved for him.

The Court did acknowledge that  deciding whether section 94(1) (right not to be unfairly dismissed) applies to an overseas workers is not straightforward. Of course, the answer is obvious where an overseas worker has no connection at all with Great Britain. Allowing an overseas worker the benefit of British employment protection “will be the exception”.

“The connection between Great Britain and the employment relationship must be sufficiently strong enough,” stated the Supreme Court, “to enable it to be presumed that, although the individual is working abroad, Parliament must have intended that section 94(1) should apply to them. In the case of those employees who are truly expatriate, because they not only work but also live outside Great Britain requires an especially strong connection with Great Britain and British employment law before an exception can be made for them.”

Unless there is a change in the legislation, this argument as to the connection of an overseas employment with the law of Great Britain is not going to go away. It will all depend, not only on what is stated in terms and conditions of employment, but also in how those terms and conditions are actually exercised.

2012 version of Basic PAYE Tools available to download

The 2012 version of the Basic PAYE Tools is now available to download from the HMRC website. Why could these Tools be useful to your payroll function?

If you have nine or fewer employees in a PAYE scheme, the Tools can be used to maintain simple payroll records throughout the tax year, and at tax year-end, use the Tools to submit forms P14/P35 to HMRC online via the Internet. The Tools can also be used to send Part 1 of form P45 (leavers), Part 3 of form P45 (joiners), and forms P46 (joiners without a form P45) online to HMRC.

Even if you have more than nine employees in a PAYE scheme, the Tools are also useful for two other reasons:

+ The Tools contain a selection of useful calculators to help employers check PAYE income tax and NICs calculations; check a new employee's P45 pay and tax details; work out student loan deductions; calculate how much, for example, SSP or SMP an employee is due; and the cash equivalent value of car and fuel benefits in kind.

+ The Tools contain a number of PDF versions of HMRC forms which can be completed on-screen. Some of these forms, like forms P11D (including the Working Sheets), P11D(b), P38(S), and P38A, can not only be completed on-screen they can also be saved to allow the user to come back to their completion at a later time.

HMRC have also stated that the Tools will be developed to allow small employers (no definitive definition of what is meant yet by “small”) to use them to submit RTI data to HMRC. As the RTI pilot is supposed to include very small employers as well, it's disappointing that the current 2012 version of the Tools contains no information about their use for RTI purposes.

Special NICs treatment of self-employed lecturers, teachers, instructors to be scrapped

On 7 October 2011, HMRC published a consultation 'Lecturers, teachers, instructors or those in a similar
capacity'. Comments were requested by 6 January 2012.

This consultation dealt with the application of the Social Security
(Categorisation of Earners) Regulations 1978 in relation to lecturers, teachers,
instructors, or those in a similar capacity. The Regulations currently treat such genuinely
self-employed individuals, providing their services in
an educational establishment, as employed earners notwithstanding that the
employment is not under a contract of service. This has the result of providing
contributory benefit entitlements for earners who might not otherwise have
received them whilst paying self-employed NICs.

However, HMRC have concluded that given the changes in the way instruction is delivered and has
evolved since 1978, the Regulations relating to lecturers, teachers, instructors,
or those in a similar capacity, are no longer necessary and should be repealed.
The consultation invited views from all interested parties regarding the
positive or otherwise consequences of doing so, particularly whether there are
any potential negative consequences for individuals.

In February, HMRC published a summary of responses and, as a result, have concluded that the 1978 Regulations should be repealed on the basis that there was no evidence that the Regulations are, to any significant extent, protecting the earnings-related contributory benefit entitlement of genuinely self-employed lecturers, teachers, and instructors in the traditional education sector. In fact, the summary of responses did nothing to dispel the very real practical difficulties, highlighted in the consultation document, concerning the application of the Regulations to such individuals.

Note: The 1978 Regulations have no affect on those lecturers, teachers, instructors, etc. who are engaged under employment contracts and who have always been categorised as employed earners and who receive contributory benefit entitlement by virtue of that status. 

HMRC were pleased with the positive support of those responding to the consultation and have, as a result, decided to repeal the 1978 Regulations (including their Northern Ireland counterpart) with effect from 6 April 2012. This means that all lecturers, teachers, and instructors, working in a genuine self-employed capacity will no longer be treated as employed earners for Class 1 NICs purposes.

Given that the Statutory Instrument giving effect to the repeal will be short and straightforward, HMRC do not propose to publish draft SI's before they are laid before Parliament.


Updated guidance on auto-enrolment

The Pensions Regulator website has published updated guides dealing with all the various legislation surrounding the requirement for employers to auto-enrol eligible workers into pension saving if they are not already a member of a qualifying scheme. Auto-enrolment starts to affect the largest employers from October this year.

The guidance has been updated to reflect legislative changes included in the Pensions Act 2011. The updated guidance deal with the following:

+ Postponement of auto-enrolment – the circumstances under which employers can delay the date from which they must auto-enrol eligible employees, to better “dovetail” pension administration and contribution deductions into the employer's pay cycles. 'Postponement' can also be used to avoid having to auto-enrol an employee when, for example, they have a “spike” in their wages.

+ As auto-enrolment applies to workers who are “ordinarily working” in the UK – the guidance now includes further examples of the types of worker involved.

+ Updated guidance is also given concerning the use of salary sacrifice and flexible benefit arrangements to pay for pension contributions.

+ As there have been recent amendments to the auto-enrolment timetable, information is given on how this affects particularly employers with fewer than 250 employees in a PAYE scheme.