Payroll News Update - January 2002

The Commission of the European Union Commission V Kingdom of the Netherlands Case Ref c-338/98 has just ruled on the claiming of VAT input tax on petrol mileage.
In the UK, the Inland Revenue publishes mileage rate figures and HM Customs & Excise allows VAT to be claimed on the petrol element of the allowance.
However, the court extended the issue to include any expenses incurred by the employee on behalf of the employer.
The court held that where an employee used his/her own car for the employer's business and purchased petrol for that car, that petrol was not being supplied by the service station to the employer, and therefore no input tax could be claimed.

The judgement stated:

"Even if the employee had obtained a VAT invoice from the service station, as opposed to claiming a mileage allowance, the petrol would still have not been supplied to the employer and therefore the input tax should not be claimed."
The first implication of the decision is that UK businesses will not be able to claim VAT input tax on petrol allowances paid to employees. This change is expected to be announced shortly, prior to the March budget.
The wider implications may mean that any instance where an employee incurs expenditure on behalf of the employer will not be deductible.
This will have a marked increase in the costs for many businesses. Top

The Inland Revenue has announced that with effect from 6th January 2002, the official rate of interest for employer provided beneficial loans is 5%.
Whilst the Inland Revenue had said the rate would be fixed for a whole year, at the time they reserved the right to amend it during the year if there was a significant change in interest rates, to ensure employees were not over taxed.
For this reason, the rate was 6.25% up to and including 5th January and 5% thereafter, until a further review is necessary. Top

When government consulted about 'Work and Parents' in December 2000, flexibility was the single biggest issue raised by both parents and businesses.
The government set up a 'Work and Parents Taskforce', whose remit was to "look at how to meet parents" desire for more flexible work patterns in a way which is compatible with business efficiency".
The Taskforce reported its findings and recommendations, which have been accepted by the Government, at the end of November 2001. Legislation is expected to enable the 'family friendly' reforms to come into effect in April 2003.
The recommendations that have been accepted by the Government, are:

• Parents of children under the age of 6 (or up to the age of 18 in the case of a child with disabilities) who have six months' service with their employer should have the right to make a formal request for flexible working to their employer.
  The request must be made in writing and must set out both the working pattern the parent wants and how it could be made to work.
• The employer must make a practical business assessment on how the flexible working can be arranged, or, if the employer feels this is not possible to put the business case for refusing the request.
• There should be a meeting within 4 weeks of the request being made. The parent should have the right to be accompanied. The meeting should be an opportunity for the discussion of the request, the issues it raises for the business, and any compromises required.
• If the employer does not respond to the employee, or does not hold a meeting to consider the request the employee should use the internal grievance procedure.
• The employer should write to the parent within two weeks either:
  
  • a) Accepting the request, setting out any action on which the agreement is dependent, and establishing a start date (the taskforce advises at least two months to allow the arrangements to be set up); or
  • b) Confirming the compromise offered in the meeting and setting a date for a response; or
  • c) Rejecting the request and giving a short explanation of the business reasons for doing so; and
  • d) Setting out the appeals procedure.
• If a request cannot be agreed to, the employer must fully explain the business reasons in writing. The business reasons may include:
  
  • Burden of additional costs to the business.
  • Inability to meet customer demand.
  • Inability to organise work within available staffing.
  • Detrimental impact on quality.
  • Detrimental impact on performance.
  • Inability to find extra staff.
  • Other reasons that the employer will need to specify.
• The employee can appeal a negative response and should put in writing, within two weeks, stating the grounds on which the appeal is being made. The appeal should also be part of an internal procedure such as the grievance procedure. The employer should respond in writing to the points raised at the appeal within two weeks.
• Only if all internal discussions fail to resolve the issue, will the employee have the right to go to an employment tribunal.

Where cases cannot be resolved in the workplace, binding mediation and arbitration, including through the Advisory Conciliation and Arbitration Service, (ACAS) should be available. Where cases go to employment tribunals, they should test whether the procedure has been properly carried out; whether, if the parent has challenged any facts, these are true. They should send cases back to the employer to be reconsidered if they find incorrect procedures or factual defects, giving if they wish directions as to what has to be remedied. Where a case is sent back, tribunals will be able to award compensation to the parent making the request. The Government is intending to limit the number of requests a parent can make by putting a bar on a new request within one year of a refusal by the employer.
The Taskforce also recommends that the Government formally reviews the working of these arrangements after three years.
For the payroll department, the immediate challenge will be to ensure that it is notified in good time of all changes to hours and working patterns.
Where employees are coming off shifts, working term time only, or have made other flexible arrangements, this will have an immediate impact on their pay and this needs to be reflected as soon as it happens. Top

The Inland Revenue are currently working on the development of new tax credits. These are needed to implement the newer far reaching reforms than the current Working Family Tax Credits. (WFTC).
The two new credits have had their titles tweaked in true government fashion and are now called the Child Credit and the Working Credit. The Child Credit will bring together all child related payments and will be paid to the main carer with no requirements to be in work.
The Working Credit will be extended to the childless as long as they are working over 30 hours per week.
The new tax credits are designed to be responsive to changes in the employee's income, be based on last years' P60 and paid for a whole tax year, unless personal circumstances change.
The key improvements for employers are:

• There will be no earnings enquiries.
• There will be no certificates of payment.
• It will be on a rolling basis for payment.
• There will be in year funding for SME's.

There is a possibility of three different amounts to be paid in the same period using the newly introduced Amendment Notice. Funding Applications are to be simplified, although feedback from the public as to the chosen date of 6th April for funding to be paid over, does in our opinion suggests more consultation is required. Top

This is due to come into operation from 6th April 2002. Top

Employers should ensure that any salary advance or staff loan should always be signed for, and the document the employee signs should also state the amount(s) and date(s) and the employees authorisation for the deduction to be made from salary. It is illegal to deduct any money whatsoever from an employee without their specific authorisation. Top

• Cars & Fuel

Two consultation proposals were put forward. The 'Powering Future Road Vehicles' consultation will look at further incentives to use new low carbon vehicle technologies, such as hydrogen fuel cells.
The Inland Revenue will also consult on the various options for replacing the current fuel scale charge from April 2003. One consideration is to base the scale charge on the CO2 emissions of the car.

• Enterprise Management Initiatives (EMI)

EMI's are share options that employers can grant to employees, primarily as a means of aiding recruitment and retention in new businesses. One qualifying criterion was that the gross assets of the company could not exceed £15 million. This criterion has now been doubled to £30 million from 1st January 2002.

• Tax Credits

Details of New Tax Credits and The Pension Credit will follow in our end of year newsletter and schedule. There has been an assurance that the Pension Credit will not be paid by the employer; however, this has not been confirmed in writing yet.

• Review of Payroll Services

Businessman Patrick Carter has carried out a review of Payroll Services for the Government and has made various recommendations, which have been opened up for comment. The review concentrated on issues of simplification, electronic strategy, use of intermediaries, support and compliance.
The main proposal is a recommendation that all employers with 50 or more employees should be required to submit information electronically (not including magnetic media), by 2004. He also recommends defined quality thresholds for returns.
A further recommendation was the introduction of an on-line validation service to trace and verify NINOS, (National Insurance Numbers)and has suggested that EDI be upgraded to include NINO tracing and verification. One of the ways suggested for improving quality of year end returns is for the Revenue to work more closely with the payroll industry such as payroll software providers and bureaus to embed more of their validation into payroll systems.
For employers with less than 50 employees the deadline would be extended to 2007. In addition there will be financial incentives to small companies to use intermediaries such as accountants to process their payroll if they do not wish to invest in their own technology, and for this intermediary to receive financial incentives.
There has been much criticism of employer compliance visits as being too narrow and technical, and appearing to focus on catching out employers in relation to small details. Patrick Carter is encouraging a climate where PAYE audits focus on payroll processes and where changes would assist in compliance, and focus less on previous years and more on putting things right for the future.
The dispensation system is ripe for review and Patrick Carter recommends that the application process is streamlined and that some dispensations should be able to be automatically updated in line with inflation without the resubmission of the whole application.

• Large Business Review

The Inland Revenue has carried out a review of its links with business. The summary of responses has identified areas in which large business would like to see changes in the way it deals with the Inland Revenue, for example, a 'one-stop shop' for all Revenue enquires. In fact the Carter report goes further than this, recommending that the Government look at this approach for all areas that affect employers'.

• Income Tax Allowances and National Insurance Changes.

Married Couples for people born after 6th April 1935 continues to attract relief at 10%.

Bus Subsidies

When an employer subsidises a public transport bus service in order that all its employees can use the service for travelling between home and work or workplaces, then the benefit is exempt from income tax and the associated class 1A National Insurance liability. The current tax exemption only applies if the terms on which the employee use the service are not more favourable than the terms on which the general public use it. In other words, employees pay the same price for tickets as other passengers. There is no seating requirement size for the vehicle used for providing the service but the service must be a public one, that is open to anyone, who wishes to use it.
However, a review is being undertaken to consider whether the tax exemption can be widened to allow employees to be carried free or at a reduced price, in order that employees see some real benefit, without at the same time creating a benefit in kind for the employee. The aim being to encourage the retention and development of local bus services, whilst reducing car journeys and employer costs e.g. the provision of parking spaces.

Form P9D

For tax year 2002-2003 Form P9D will be revised, Employers that make payments in respect of expenses of business travel to its employees that exceed the approved mileage allowance rates will need to report to the Inland Revenue the excess paid over the prescribed rates. There will be nothing to report where payments are within the statutory rates.

Christmas

Christmas presents paid in cash to employees by employers are almost invariably subject to income tax and national insurance in full. Christmas presents in cash from persons other than the employer are also taxable where:

• It is a widespread custom for such presents to be given, and
• The expectation that presents will be received attaches to the employment

All directors and employees who earn at a rate of £8,500 per year or more (P11D employees) are taxed under PAYE on any cash gifts, which they may receive from their employer. However, Inland Revenue officers are advised not to contend that any liability arises on small gifts in kind given to employees who earn at a rate of less than £8,500 per year (P9D employees).
The main concession that applies to Christmas is for an annual event (staff party) and expenditure on the total cost is modest, that is no more than £75 per head. If the £75 per head is exceeded then the whole amount is subject to tax, and not just the difference between the £75 and the excess. Top

Returns and claims which are due on a weekend or Bank Holiday/Public Holiday count as late if they are not received by the last working day before the weekend or Bank Holiday/Public Holiday.
The Trade & Industry Secretary has announced that the Government no longer intends to implement the proposals to charge employees a fee of up to £100, where they bring a claim against their employer before an employment tribunal. Top

A preliminary judgement from the European Court of Justice on 4th October 2001 ruled that all workers employed in the road transport sector, including office staff, were excluded from the scope of the EC Working Time Directive, which incorporates the right to be paid annual leave.
The regulations do not apply to workers who are employed in the 'air, rail, sea, inland waterway and lake transport' sectors, indicating that the legislature was taking into account those sectors of activity as a whole.
The normal length of notice for annual leave is now normally recognised as the minimum duration of the holiday required. For example if an employee wishes to take two weeks holiday, at least two weeks notice should be given. This does not resrict the employer refusing that holiday if it clashes with a colleague, or if the intended leave dates cause a problem of cover. Top

• Establish the list price of the car for tax purposes. The price should include VAT, delivery charges and, in the case of qualifying accessories the cost of fitting them.
• Deduct any capital contribution of up to £5,000 made by the employee for the purchase of the car and/or qualifying accessories.
• Find the approved CO2 emissions figure for the car, if the car was first registered on or after 1st January 1998 (some personal imports from outside the EC may not have a CO2 emissions figure). The CO2 figure should appear on the vehicle registration document from 1st March 2001.
• Use the look up table to find the CO2 emissions band for the relevant year to work out the percentage of the car's price to be taxed. Round down the figure to the nearest 5g/km, if the figure is not an exact multiple of five. If the figure is below the minimum qualifying level, use the figure shown for the relevant tax year.
• Add the diesel supplement if the EC standard for cleaner cars is not met, or apply any discount for alternatively fuelled vehicles, to the percentage charge when appropriate;
• To calculate the basic car benefit charge, multiply the car's list price by the percentage charge.
• If the car has been available for part of the tax year only, reduce the car benefit proportionately by a fraction of 365.
• Deduct any payments made specifically by the employee for private use of the car.

The business mileage and age related discounts cease to apply for the tax year 2002-2003 and for future years.
For cars with no approved CO2 emissions figure, the percentage of the car's list price to be taxed will be determined using the car's engine size - different scales apply dependent on whether the car was first registered before the 1st Jan 1998. Top

Directors Under Threat May Keep Home Addresses Private

Company directors who are under threat of violence or intimidation will not be required to disclose their home details on publicly available documents under draft regulations which amend the Companies Act 1985 by implementing provisions introduced in the Criminal Justice and Police Act 2001.
The regulations will allow company directors, company secretaries and permanent representatives of overseas companies, who consider disclosure a serious risk, to apply for a Confidentiality order. This allows a service address to be used on public records and, although they will still have to disclose their residential address to Companies House, it will be held on a separate, secure register with access limited to designated authorities.
'Directors' Home Addresses - a consultative document' can be obtained online at http://www.dti.gov.uk/cld/dha_condoc.pdf or by telephone from 020 7215 0409. Top

The current limit of 20 partners in a partnership or limited partnership will be removed by the first Regulatory Reform Order to be placed before parliament by the DTI under the Regulatory Reform Act 2001. Top

As you are probably aware the Irish Tax Year end on 31/12/01, and we are currently preparing the end of year documents.
With effect 1st January all payments both gross and net will be stated in the euro and all electronic transmissions to the banks will be transmitted in the euro.
We will continue to show the punt equivalent and the exchange rate on the payslip.
The exchange rate used is .787564.
Effective 1st January the annual employees earnings ceiling has been increased from Euro 35,870 to Euro 38,740.
PRSI rate changes will apply from 1st March as announced in the December 2001 Budget.

We wish you, your colleagues and family A Happy New Year. Top