News Items – at 4th June 2008

Cycle-to-Work Schemes

Issues raised by HMRC Benefits and Expenses Sub Group

Employers operating or planning to introduce a “cycle-to-work” scheme may be interested in the following points made in the minutes of a recent meeting of HMRC’s Benefits and Expenses Sub Group:

1. The value of the benefit-in-kind for used cycles: HMRC only provides guidelines on the reasonable steps an employer should take to establish the second hand value of a cycle.  HMRC has never indicated that it would accept 40% of the value when new as reasonable, or any other fixed percentage or figure.  HMRC simply expects employers to take reasonable steps to establish the value by consulting, for example, the small ads in the local papers or enquiring at a local cycle shop.
   
   
2. Salary sacrifice and the potential benefit-in-kind: The tax and NICs exemption applies where the cycles are available generally to all employees on similar terms and where the ownership of the asset does not pass on to the employee and the cycle is mainly used for commuting journeys.  The guidance is clear on this and each arrangement would be looked at on its own merits to see if the exemption applies. If the scheme arrangements were such that 16 and 17 year olds were precluded from participation because the scheme requires completion of a hire agreement (a requirement of the Consumer Credit Act) then the tax and NICs exemption would not apply for anyone as the scheme would not meet the “available generally to all employees” criteria.  The issue is not one that HMRC can resolve but an approach to OFT might help to clarify the circumstances under which a hire agreement is required under the Consumer Credit Act.

The minutes also show that this second point raises a general issue about salary sacrifice schemes that place restrictions of any kind on who may participate.  For example, employees with low hourly rates of pay may be precluded from making a salary sacrifice if, by so doing, their rate of pay falls below the National Minimum Wage.  However, HMRC does not strictly apply the “generally available” rule to the provision of childcare voucher schemes.  HMRC undertook to investigate this matter and report back at the next Sub Group meeting on 17 July.

Further information:
Benefits and Expenses Sub Group - Minutes of Meeting 17 April 2008  http://www.hmrc.gov.uk/consultations/ben-exp-mins170408.htm

Company Cars – Advisory Fuel Rates

New rates effective 1 July 2008

HMRC has given one month’s notice of new advisory fuel rates that apply from 1 July 2008.  However, as the recent increase in fuel rates has happened very quickly and car drivers are already incurring higher costs, HMRC has stated that the new rates may be applied from 1 June 2008 if employers are able to do so.

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 – 114.8p per litre (521.8p per gallon)
• diesel – 127.2p per litre (578.3p per gallon)
• LPG – 57.1 p per litre (259.6p per gallon).

Further information:
Company cars - advisory fuel rates from 1 July 2008  http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

Payroll deadlines during the next month

June 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.

June 20 - (June 22 is a Sunday) – 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 June 18 at the latest.

July 5 – This is the final day of tax month 3.  Tax and NICs etc for payments made in the tax month to July 5, or in the tax quarter to July 5, are due for payment to the Accounts Office by July 19, or by July 22 if paid electronically.

July 6 – This is the deadline date for filing, in paper form or electronically,

• form P9D Expenses payments and income from which tax cannot be deducted
• form P11D Expenses and Benefits
• form P11D(b) Return of Class 1A National Insurance contributions due and Return of expenses and benefits – Employer’s declaration

Copies of forms P9D and P11D must also be given to the employees concerned by this date.

Payroll FAQ's

Statutory Holiday Entitlements

Is a contractor in the construction industry required to pay holiday pay to a subcontractor?

Although this question is set in the context of the construction industry, it is equally relevant to employers that engage contractors to work on a project. 

The answer to the question depends on the nature of the contractual relationship between the contractor and the subcontractor. 

If the subcontractor is a limited company, the contract for the services provided cannot in any circumstances be a contract under which holiday pay would be due.  The subcontractor, however, would have to consider the IR35 issues raised in connection with the services provided to the contractor.

If the subcontractor is an individual, the contractor must consider whether the subcontractor is an employee, a worker or self-employed.

Employed or self-employed?
The first issue is whether the subcontractor must be treated as an employee or self-employed.  Every contractor must address this issue when engaging a new worker, using the recognised employment status indicators, and must indicate on the monthly CIS300 Return that none of the payments listed relate to contracts of employment.  The fact that an individual is a registered under the Construction Industry Scheme, whether for gross payment or for payment under deduction, does not, in itself, indicate that the contractor is entitled to treat the worker as being self-employed.

In general, a contract to perform a specific task within a short period of time is likely to be self-employment.  If the contract is to perform on-going work over a long period of time, it is likely to be employment.  That is not a rule, however, and there are other factors to consider.  HMRC’s booklet CIS349 Are your workers employed or self-employed? - Advice for contractors, available at www.hmrc.gov.uk/manuals/cisrmanual/Pdfs/cis349.pdf, considers these issues in the context of the construction industry and indicates the kinds of workers that are likely to be employees and self-employed.

If the contractor decides that the nature of the contract with the subcontractor is such that it is employment, the person must be put on the payroll and PAYE tax and Class 1 NICs must be calculated as for any other employee.  The employee is entitled to holiday pay - at least the 4.8 weeks per year (rising to 5.6 weeks from April 2009) required by the Working Time Regulations 1998 (WTR), but more if the employment contract specifies it.
If the contractor decides that the subcontractor is not an employee, there is a further issue to consider.

Worker or self-employed?
The WTR provides statutory rights for “workers”, the definition of which includes employees.  Having decided that a subcontractor is not an employee, the second issue for the contractor is whether the subcontractor is a “worker”.

A subcontractor who runs a business and does work for a variety of customers and clients of that business is not a “worker”.  It would be expected that such a subcontractor would have business premises, equipment and stock, would not necessarily be required to perform work under the contract personally, and be able to work for more than one customer or client at a time.  Such a self-employed subcontractor is not entitled to any of the WTR rights, including paid holiday leave. A subcontractor registered for gross payment has had to demonstrate an established business structure and is very unlikely to be a “worker”.

On the other hand, a subcontractor registered for payment under deduction who is not set up as a business, who is engaged for the duration of a project and who is required to perform the work under the contract personally, is a “worker”.  As such, the contractor is entitled to all of the WTR rights, including the right to paid holiday leave and to holiday pay on termination.

There have been a number of tribunal cases that have considered the employment status of subcontractors and their entitlement to holiday pay.  A notable decision is that of an Employment Appeal Tribunal, subsequently confirmed by the Court of Appeal, in the case Redrow Homes (Yorkshire) Ltd v Wright, Roberts and others, where a gang of bricklayers were found to be “workers” because they were required to perform work personally for the duration of the construction project and were not set up as a business.  The particular factors in this case that indicated that they were “workers” were:

• the bricklayers worked exclusively for Redrow during the relevant period
• they could be ordered to rectify defective work
• the payment method was a fixed hourly rate or piece rate
• there was no opportunity to profit and there was no risk of loss
• payments were subject to tax on account.

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