Www.horwathcw.com Issue 32 October 2009

www.horwathcw.com Issue 32 October 2009

HM Revenue & Customs (HMRC) launches fresh attack on subbies

In this issue: HM Revenue & Customs (HMRC) launches fresh attack on subbies Fuel benefits – HMRC go fishing Advisory fuel rates from 1 July 2009 Day subsistence rates – HMRC change their policy Family and friends allowance National Minimum Wage (NMW)

For many years the Inland Revenue, and latterly HMRC, tried to find ways of getting the majority of one-man subcontractors in the construction industry out of the Construction Industry Scheme (CIS) and on to PAYE. The most recent attempt was as part of the re-vamp of CIS in 2007. This brought in a requirement for main contractors to verify each subbie’s tax status either online or by phoning a central number at HMRC. As part of that process, contractors now have to make a declaration that the subcontractor is not an employee. Evidently this procedure has not had the desired effect and HMRC are considering more stringent measures. Their latest proposal is that in future all individual subcontractors in the construction industry should be automatically deemed to be PAYE employees unless they can escape under one of three headings: 1) the person provides the plant and equipment needed for the job they have been engaged to carry out (and not simply small tools) 2) the person provides all materials needed to complete a job

Approaching deadlines

3) the person engages other workers to assist with the job and is responsible for paying them. These proposals are contained in a consultation paper entitled ‘False self-employment in construction’ which instantly tells you where HMRC are coming from! The consultation started on 20 July 2009 and closes on 12 October 2009. HMRC have indicated that they will postpone the introduction of any changes until the economy is stronger. Fuel benefits – HMRC go fishing We have become aware of a number of employers receiving letters from HMRC that ask about fuel benefits. They are being sent to employers who submitted P11D returns for 2007/08 that reported car benefits but no fuel benefits. The letters come from different ‘Employer Support Teams’ (a misnomer if ever there was!) but are all identically worded, which clearly suggests that this is a co-ordinated national campaign. The letters set out the rules on fuel benefits and then invite the employer to provide details of their procedures. The intention is clearly to catch employers out on technicalities and then hit them with a bill for arrears of tax (grossed up, naturally) and Class 1A NICs, plus interest and penalties. Employers who don’t respond to the letter are threatened with a full-scale Employer Compliance Review. If you have received one of these letters, we strongly recommend that you seek professional guidance before you reply. If you haven’t received a letter but you report car benefits on your P11Ds without corresponding fuel benefits, we recommend you review your fuel procedures to make sure they don’t give rise to a fuel benefit where none was intended.

www.horwathcw.com Issue 32 October 2009

Advisory fuel rates from 1 July 2009 HMRC has revised its advisory fuel rates for company cars to take account of changing fuel prices. The new rates per mile are effective from 1 July 2009. Details are as follows: Engine size 1400cc or less 1401 to 2000cc Over 2000cc

Petrol 10p 12p 18p

Diesel 10p 10p 13p

LPG 7p 8p 12p

Remember that although the rates are termed ‘advisory’, HMRC regard any excess over these amounts as liable to tax and NICs. Equally, if employees reimburse their private journeys at lower rates, HMRC may conclude that the employer has paid for some of the employee’s private fuel and impose a fuel benefit scale charge. Day subsistence rates – HMRC change their policy In recent years it has become increasingly difficult for employers to obtain a formal HMRC dispensation that allows them to pay fixed rate subsistence allowances. HMRC have been insisting that employers must first carry out an exercise for a month or more on a representative group of employees to determine what their actual levels of expenditure are. HMRC have now softened their stance just a little and have introduced what they call ‘benchmark rates’ that employers can pay. A dispensation is still required – employers will have to apply using form P11DX – but the requirement for the sampling exercise has been waived. The allowances and the conditions attached are these: Allowance Breakfast rate – up to £5.00 One meal rate (five hour rate) – up to £5.00 Two meal rate (ten hour rate) – up to £10.00 Late evening meal rate – up to £15.00

Condition For irregular early starters only. The employee must leave home earlier than usual and before 6am on a business journey. The employee must be away from home and his normal workplace for at least five hours. He must incur the cost of a meal. The employee must be away from home and his normal workplace for at least ten hours. He must incur the cost of two meals. For irregular late finishers only. The employee must finish work later than usual and after 8pm. He must incur the cost of a meal that would normally be taken at home.

An essential qualifying condition for all the allowances is that the employee must be travelling on a necessary business journey. Employers wishing to pay rates in excess of the benchmark rates will have to carry out the sampling exercise as before. Family and friends allowance Quite a number of existing HMRC dispensations include a fixed rate allowance for employees who stay overnight with family or friends instead of in a hotel when travelling on business. The amount most frequently encountered is £25.00. HMRC have now decided that this relief has no legal basis and no further dispensations of this kind will be issued. Existing dispensations will be allowed to continue, but relief for this item will be withdrawn when the dispensation eventually comes up for review.

www.horwathcw.com Issue 32 October 2009

National Minimum Wage (NMW) The rates of NMW and the accommodation offset rates are increasing for pay reference periods starting on or after 1 October 2009. The new rates will be: Main rate for workers aged 22 and above

£5.80/hour

18-21 year old

£4.83/hour

16-17 year old

£3.57/hour

Accommodation offset

£4.51/day (maximum of £31.57 per week)

Two other important changes are being introduced at the same time: ƒ

tips, gratuities, service charges and cover charges will not count towards NMW pay in any circumstances

ƒ

two new classes of persons will not qualify for the NMW. These are workers participating on the European Community Erasmus and Comenius Programmes, part of the European Union action programme in the field of lifelong learning.

Note too that the government intend to change the age band for the main rate of NMW to include 21 year olds from October 2010. Approaching deadlines Date For further information: If you would like any further information on the contents of this newsletter or any other employment related issues, contact Tom Elliott or Steve Livingston: Horwath Clark Whitehill LLP Arkwright House Parsonage Gardens Manchester M3 2HP

19 October 2009

Action Pay PAYE deductions, National Insurance Contributions, Student Loan Deductions and subcontractor deductions for Month six (unless paying electronically). Submit paper CIS300 subcontractor returns for Month ten. Pay tax and Class 1B NICs in respect of your PAYE Settlement Agreement for 2008/09.

22 October 2009

Make electronic payments of Month six deductions. Make electronic submission of form CIS300 for Month six. Pay your PSA tax and Class 1B NICs electronically.

Tel: 0161 214 7500 Fax: 0161 214 7501 [email protected] [email protected]

This information is published without responsibility on our part for loss occasioned to any person acting or refraining from acting as a result of any information published herein. © Horwath Clark Whitehill LLP October 2009