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News Items – at 5th April 2007
The right of employees with caring responsibilities to seek a contractual change is extended, from 6 April 2007, to carers of adults. The guidance booklet and leaflet published by Acas have been updated to explain this new employment right.
In addition, a new Employers Pack is available from Carers UK, prepared in conjunction with DTI, ACAS, British Chamber of Commerce and British Gas.
Advisory booklet - Flexible working and work-life balance http://www.acas.org.uk/media/pdf/i/t/B20_1.pdf
Advice leaflet - The right to apply for flexible working, A short guide for employers, working parents and carers http://www.acas.org.uk/index.aspx?articleid=803
Employers Pack 2007 http://www.carersuk.org/Employersforcarers/EmployersPack2007
When employees are provided with “notional payments”, such as employment-related securities and securities options, the tax and NICs liabilities arise on the “relevant date”. The “relevant date” is the time when the payment is made, or treated as being made. Two procedures are involved:
- the employer must pay the full tax and NICs liabilities to the Accounts Office by the normal payment date following the tax month in which the relevant date falls (even if all of the tax and NICs due cannot be deducted from the employee’s earnings in that tax month), and
- if, as a result, the employee owes tax and NICs to the employer, the employee must pay the full outstanding amount within 90 days, counting from the relevant date.
The Finance Act 2006 redefined the meaning of “securities” in order to close down a number of tax avoidance schemes involving employment-related securities and securities options and the change was applied retrospectively to
- options acquired on or after 2 December 2004, and
- options acquired before that date where something is done on or after that date as part of the arrangements under which it was made available.
To ensure that the tax liabilities arising under such retrospective measures can be collected using the notional payments rules, the Finance Act 2006 also amended the definition of “relevant date” so that, where retrospective payments are involved, it is the date on which the each year’s Finance Act is passed. In principle, therefore, the “relevant date” for those retrospective notional payments should have been 19 July 2006, the date on which the Finance Act 2006 was passed.
However, at that time, the Government was in the process of extending the retrospective application of measures to close tax avoidance schemes to National Insurance contributions by means of provisions in the National Insurance Contributions Act 2006. The decision was taken, therefore, to delay the application of the retrospective notional payments rules until the necessary NICs regulations came into force. The Social Security (Contributions) (Amendment No. 2) Regulations 2007, which have this effect, come into force on 6 April 2007.
As all of the necessary tax and NICs retrospective notional payments rules are in place from 6 April 2007, the “relevant date” for the liabilities arising on tax avoidance measures in the Finance Act 2006 (and some measures in the Finance (No. 2) Act 2005) has been fixed as 6 April 2007.
Employers who are now required to treat the provision of the employment-related securities and securities options specified in the Finance Acts as employment income must
- add their value, as defined in legislation, to the gross pay of the employees concerned in the tax month starting 6 April 2007 and pay over all of the tax and NICs (both primary and secondary) arising by 19/22 May 2007, and
- if the full amount of the tax and primary NICs cannot be deducted from the employee’s April earnings, the shortfall must be paid to the employer by the employee by Wednesday, 4 July 2007, at the latest.
If the shortfall is not repaid by that date, the employee is treated as having received a further benefit to the value of the amount owed, which is subject to Class 1 NICs in the June tax month and subject to tax by being reported on the employee’s P11D at the end of the 2007/08 tax year.
Where the notional payments procedures cannot be applied because the employee involved has left the employment, entirely new PAYE procedures are being introduced which involve a new form P35(RL). These special procedures will be explained in next week’s newsletter.
Further information
The Finance Act 2006 (Section 94(5)) (PAYE: Retrospective Notional Payments - Appointment of Substituted Date) Order 2007 http://www.hmrc.gov.uk/si/2007-1081.pdf
HMRC’s online Library now includes detailed analyses of the various types of benefits in kind and expenses payments that were provided for employees in the 2004/05 tax year. The Tables also look at the period 2001/02 to 2004/05 so that trends can be identified, such as the reduction in employees provided with company cars.
The figures show, for example, that
- 1.2 million employees had company cars, with average tax and NICs liabilities of £1,190 and £460 respectively
- the most popular benefit is private medical and dental benefit, with an average reportable value of £550.
Further information
Taxable Benefits in Kind and Expenses Payments http://www.hmrc.gov.uk/stats/taxable_benefits/menu.htm
HMRC has sent the fourth and final issue of New CIS Update to all registered contractors. It reviews all of the actions that must be taken around the start of the scheme and includes a timetable covering March, April and May 2007.
With reference to penalties for late filing of the new monthly returns, it confirms that HMRC will not issue penalties in the first six months of the scheme. The first automatic late-filing penalties will be issued starting with the October 2007 returns.
Further information:
New CIS Update March 2007 http://www.hmrc.gov.uk/new-cis/update-march07.pdf
Under provisions in the Debt Arrangement Scheme (Scotland) Amendment Regulations 2007, which come into force on 30 June 2007, charges that accrue while a debt payment programme is in force, such as interest, fees and penalties, will be cancelled when the programme completes.
The supporting documents explain that the take-up of the Debt Arrangement Scheme (DAS) by both money advisers and debtors has been lower than expected. There are currently 90 approved advisers and 202 debt programmes in operation. Coverage is not uniform across Scotland, with some parts of the country seeing significantly greater use of the Scheme than other comparable areas. There is a general concern that DAS offers too small a reward for the efforts made by the debtor, and a particular concern about the effect of interest and charges continuing to accrue during the period of a debt payment programme.
For example, the debtor in a programme is given more time to pay and may not therefore be making the full payment due under a contract. The creditor may then be entitled to apply charges, including penalty interest and administration fees. The payments agreed at the start of the programme will not take account of these additional charges, with the result that the debtor may complete a programme and still have debts to pay.
The Amendment Regulations deal with the effect of interest and charges continuing to accrue during a programme. It does so by providing that interest and debt charges (fees, penalties or other charges) are suspended on approval of a debt payment programme, and cancelled on completion of a programme. The effect is that debtors entering into a debt payment programme know that they will be clear of their debts when the programme is completed.
Further information:
The Debt Arrangement Scheme (Scotland) Amendment Regulations 2007 http://www.opsi.gov.uk/legislation/scotland/ssi2007/ssi_20070262_en.pdf
Executive Note http://www.opsi.gov.uk/legislation/scotland/sen2007/ssien_20070262_en.pdf
Payroll deadlines during the next month
April 19 – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 12 by employers who pay monthly, for tax months 10 to 12 by employers who pay quarterly, unless they make their payments electronically. This is also the latest date for paying any outstanding tax and NICs to the Accounts Office in respect of the 2006/07 tax year.
April 20 – (April 22 is a Sunday) – For employers who pay their tax and NICs to the Accounts Office electronically, this is the deadline for electronic payments to be cleared into the HMRC bank account. Payments through BACS must be initiated by April 18 at the latest.
May 3 – This is the date by which any changes to the provision of company cars in the three months to April 5 must be reported using form P46(Car).
May 5 – This is the final day of tax month 1. Tax and NICs etc for payments made in the tax month to May 5 are due for payment to the Accounts Office by May 19, or by May 22 if paid electronically.
Payroll FAQ's
Replacement Cars
The Income Tax (Earnings and Pensions) Act 2003 (s.143) requires an employer-provided car to be unavailable for 30 days or more if the car benefit charge is to be reduced proportionately.
- A car is considered to be “unavailable” if it is incapable of being used by the employee because it has broken down or because the employee has no possible access to the keys.
- However, a car is not considered to be “unavailable” if
- the car continues to be available but the employee is unavailable to use it, for example, while the employee is abroad, in hospital or banned from driving, or
- the only reason it cannot be used is because there is no current road tax, MOT certificate or car insurance.
If an employee is given a replacement car while the normal car is unavailable, there are two possible situations:
- If the normal car is unavailable for 30 days or more and a replacement car is provided, a car benefit charge arises on both cars. The reportable charge for the normal car is reduced in proportion to the number of days it was unavailable; the charge for the replacement car is based on the number of days it was available.
- If the normal car is unavailable for less than 30 days and a replacement car is provided, there is, in principle, a full charge on both cars. As the normal car is still treated as being available, the employee has two cars at the same time.
Although the second of these two situations sounds unreasonable, it ensures that a charge is raised on both cars where, for example, the employer withdraws a small company car during the employee’s holidays and, as a benefit, gives the employee use of a larger, luxurious car. The reportable charge for the normal car cannot be reduced, and the larger car would have to be reported separately.
However, the legislation makes specific provisions to cover the common arrangement where an employee is given the use of a hire car or a pool car while the normal car is off the road. The situation is covered by section 145 of the Income Tax (Earnings and Pensions) Act 2003.
For the special provisions to apply, all of the following circumstances must exist:
- the normal car is unavailable for a period of less than 30 days,
- a replacement car is provided for some or all of the period in order to replace the normal car,
- both cars would otherwise be chargeable to tax, and
- the replacement car meets one of two specific conditions.
The two specific conditions are
- the replacement car is not materially better than the normal car, or the replacement car is not provided, in whole or in part, to give the employee the benefit of a car which is materially better than the normal car, e.g. where the only courtesy car available is a better quality car.
A replacement car is treated as being “materially better” than the normal car if it is
- materially better in quality, or
- the taxable value of the replacement car, if it were to be reported, would be materially higher than the taxable value of the normal car for the same period.
If one or other of the two conditions is met in full, the replacement car is treated as being unavailable during the period that it replaces the normal car, with the effect that a car benefit charge does not have to be reported for the replacement car. Therefore, in terms of reporting the car benefit charge, the normal car is treated as if it had continued to be available throughout the period that the replacement car was provided.
However, if one or other of the two conditions is not met, for example where an employer provides a large car in place of the employee’s normal small car for the two weeks of a family holiday, the availability of the small car would not be reduced and an additional tax charge would arise for the period that the large car was available.
When providing a replacement car in such a situation, employers are advised to keep sufficient records to show that the replacement was not “materially better” than the normal car.
Readers Newsletter Forum
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