News Items – at 3rd December 2007

Advisory fuel rates for company cars

New rates apply from 1 January 2008

HMRC’s advisory fuel rates are used by employers to negotiate dispensations for mileage payments for business travel in company cars.  The rates only apply where employers:

• reimburse employees for business travel in their company cars, or
• require employees to repay the cost of fuel used for private travel.

The rates are intended to reflect average fuel costs and, as a result, if an employer uses the rates for the appropriate combination of fuel and engine size, HMRC accepts that,

• where employees are reimbursed for fuel used for business travel, no liabilities for tax or NICs arise.  Employers may use lower rates if the cars involved are fuel efficient or higher rates if they are less efficient.  However, in the latter situation, the employer would have to demonstrate the need for higher rates.  If higher rates cannot be justified, the excess is earnings for tax and NICs.  Employees can obtain tax relief if they incur expenses that are not reimbursed.
• where employees repay the cost of fuel for private use, there is no fuel benefit charge or Class 1A liability.  A benefit charge arises if lower rates are reimbursed, unless the employer can demonstrate that lower rates fully cover the cost of fuel for private mileage in the vehicles concerned. In the case of cars which are more expensive to run, HMRC will not argue that a benefit charge arises if the advisory rates are, in fact, less than the actual fuel costs, unless they are used for cars with engine sizes of more than 3 litres. 

The rates are based on the fuel cost per mile for the most popular fleet cars.  They were introduced from January 2002 and were last adjusted in August 2007.

As a result of the recent general increases in car fuel prices, HMRC has reviewed the advisory fuel rates again and the changes from 1 January 2008 are shown in the following table:

HMRC documents the way in which the rates are calculated.  They are based on average miles per gallon for the different engine sizes, reduced by 10% to give more realistic fuel consumption figures.  The fuel prices used are

• petrol – 102.1p per litre (464.3p per gallon)
• diesel – 106.3p per litre (483.0p per gallon)
• LPG – 50.2 p per litre (228.2p per gallon).

Further information:
Company Cars - Advisory Fuel Rates for Company Cars  http://www.hmrc.gov.uk/cars/fuel_company_cars.htm
Company Cars - Advisory Fuel Rates for Company Cars from 1 January 2008
  http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
Company Cars - Advisory Fuel Rates for Company Cars – earlier rates
http://www.hmrc.gov.uk/cars/advisory_fuel_archive.htm

Developers’ Corner

Payroll test data for 2008/09 published

HMRC has published tax calculation tests for 2008/09, based on the new 20% rate up to £34,600 taxable earnings, and 40% above £34,600.  They have been included in the latest issue of the Additional Payroll Test Data document.
Further information:

Payroll deadlines during the next month

December 5 – This is the final day of tax month 8.  Tax and NICs etc.  for payments made in the tax month to December 5 are due for payment to the Accounts Office by December 19, or by December 22 if paid electronically.

December 19 – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.

December 21 – (December 22 is a Saturday) – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account.  Payments through BACS must be initiated by December 19 at the latest.

January 5 – This is the final day of tax month 9.  Tax and NICs etc. for payments made in the tax month to January 5, or in the tax quarter to January 5, are due for payment to the Accounts Office by January 19, or by January 22 if paid electronically.

Payroll FAQ's

Childcare Benefits

What are the rules for tax and NICs relief on workplace nurseries?

The statutory provisions affecting the tax liabilities on the provision of childcare are set out in sections 270A and 318-318D of the Income Tax (Earnings and Pensions) Act 2003.  The special Class 1 NICs rules covering the provision of childcare vouchers are to be found in Schedule 3 of the Social Security (Contributions) Regulations 2001.

The legislation draws a distinction between three different ways in which childcare benefits may be provided, namely

• childcare provided by the employer on the employer’s premises
• childcare provided by the employer through external childcare providers
• childcare vouchers for employees to redeem at nurseries of their choice.

Each of these provisions has it own, somewhat complex, statutory rules.  This article will consider the rules for the first of these ways of providing childcare, i.e. in workplace nurseries, crèches and play schemes.  This approach is likely to be the mostly costly option for employers but it has the most beneficial tax and NICs relief.
A number of conditions must all be met if the benefit is to enjoy tax and NICs relief, namely:

• the child must be a child or stepchild of the employee, resident with the employee and maintained wholly or partly at the employee’s expense
• the employee must have parental responsibility for the child
• the scheme must be open to the scheme employer’s employees generally (even if there is a waiting list), and
• the employees receiving the benefit must be employees of the scheme employer or employees working at the same location.
• the premises in which the care is provided must not be used wholly or mainly as a private dwelling
• the premises must be correctly registered for the provision of childcare
• the premises must be made available either
• solely by the scheme employer, (not necessarily the employer of the employee), or
• by a person, or one of a number of persons, with whom the scheme employer is in partnership, under arrangements that make the scheme employer wholly or partly responsible for financing and managing the provision of the care.

The last of these conditions, the manner in which the premises are made available, requires special consideration.  There are three ways in which workplace nursery facilities are generally provided:

1. Childcare provided on the employer’s premises

This approach involves the employer setting up childcare facilities on his own premises, which may be existing premises or premises purchased or rented for the purpose.  Because the premises are provided by the employer alone, the statutory conditions do not require that the employer be involved in the running of the facilities.  Therefore, the provision of the childcare can be subcontracted to a specialist childcare provider, such as Buffer Bear.

2. Childcare provided on other premises

Under this arrangement, two or more local employers club together to finance and manage childcare facilities.  The premises may be existing premises, or premises purchased or rented for the purpose, that are provided by one of the employers or by some other person involved in setting up the arrangement.  One of the employers, the “scheme employer”, is responsible, wholly or partly, for financing and managing the provision of the care.
The requirement for the “scheme employer” to be “wholly or partly responsible for financing and managing the provision of the care” is critical.

The “responsibility for finance” test requires real and substantial commitment to funding the facility or providing it with capital, e.g. an agreement to meet a set proportion of the overall cost of providing the care, or a guarantee to indemnify against losses a primary care provider who would otherwise be at real risk of losses, or a long term undertaking to pay a fixed periodical contribution.

The “responsibility for management” test does not necessarily mean day-to-day management or direct responsibility for the care of the children but it does mean more than occasionally being consulted about operational policy.  It requires close involvement in such matters as:

• appointing and monitoring the performance of those engaged to look after the children
• the extent of the care provided
• the conditions under which that care is provided,
• the allocation of places, and
• the financial management.

3. Childcare provided through commercial schemes

In this arrangement, the employer agrees to provide childcare places through a commercial scheme promoter.  Depending on the scheme, the employer’s payment is made to the scheme promoter or to an independent nursery.  The employer also pays an annual fee to the nursery, typically £400 per annum per place.  The employer appoints the scheme promoter to act as a representative “agent” at meetings of the nursery management committee.

The exemption for workplace nurseries was introduced to encourage employers to provide nursery places for employees, either by opening a nursery on their own premises or by combining with other employers to jointly finance and run a nursery.  The exemption was not intended to apply, and in HMRC’s opinion does not apply, to the third of the schemes described above, where the employer really does no more than to buy in places at a commercially run nursery.  The exemption is not met because

• the additional monetary contribution that the employer is required to make does not satisfy the “financing” requirement, and
• the appointment of the scheme promoter to act as the company’s agent does not satisfy the “management” requirement.

Employers thinking of participating in such a scheme that is operated by a childcare scheme promoter should consider carefully the explanation of “financing” and “managing” in Appendix 11 of Booklet 480 Expenses and Benefits – A Tax Guide.

It should be noted that these questionable schemes are not the same as nursery operators that are subcontracted to run a workplace nursery that operates on the employer’s premises, the first of the schemes described above.

ISLE OF MAN

Written Statement of Terms and Conditions

Employee’s rights strengthened

The existing right of employees to receive a written statement from their employer setting out their terms and conditions has been strengthened from 1 December 2007.

Employers already have a legal duty to provide employees (including part-time employees) with a written statement within 4 weeks of their commencing employment and to inform them of any changes in the relevant terms, also within 4 weeks.  From 1 December employees who have not been issued with particulars and who have made a written request to their employer for the missing particulars which the employer has not dealt with within 2 weeks, stand to be awarded between 2 and 4 weeks’ pay by the Employment Tribunal.

In addition, the Tribunal will also order the employer to pay the same amount where an employee makes a complaint to the Employment Tribunal about some other matter, such as an unlawful deduction from wages or unfair dismissal, where the employer was in breach of his duty to have issued a written statement at the time the Tribunal proceedings were begun.

An employer who has not issued a statement may also be prosecuted by the DTI, the maximum fine being £2,500.
Further information:

DTI strengthens employees’ right to receive details of their terms and conditions  http://www.gov.im/dti/ViewNews.gov?page=lib/news/dti/employmentRights/dtistren
gthensem.xml&menuid=11570

REPUBLIC OF IRELAND

New Service for Employers

Single point of contact for all queries

Starting 30 November 2007, Revenue has launched a new telephone service providing a single point of contact dealing exclusively with all employer enquiries -  LoCall : 1890 25 45 65.  The new service is based in the Collector-General's Division, Nenagh, Co. Tipperary.

Further information:

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