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News Items – at 10th January 2008
Section 248 of the Income Tax (Earnings and Pensions) Act 2003 sets out two situations in which no tax liability arises when an employer pays an employee’s commuting expenses at the end of the workday. The two situations are where:
the employee exceptionally works late in the evening and goes home by taxi, and
exceptional circumstances prevent the employee from using car sharing arrangements to go home.
For the tax exemption to apply, a number of specific statutory conditions must be met in each case.
Apparently in response to abuses of the first of these two exemptions, HMRC has published new detailed guidance in the Employment Income Manual. This manual is written for the use of tax inspectors but is published openly on the HMRC website.
In summary, the guidance emphasises that, for the exemption to apply for any particular commuting journey, all four of the statutory conditions must apply. The legislation, in addition, allows the exemption to be used no more than 60 times in a tax year. This limit does not mean that employees can have paid taxi rides home 60 times a year. It is not an annual allowance. In the case of each journey, all four statutory conditions must be met.
A detailed explanation of the conditions and how HMRC believes they should be applied is provided in this week’s Employer FAQ.
Further information:
Late night taxis – general overview http://www.hmrc.gov.uk/manuals/eimanual/EIM21831.htm
The Payroll Standard sets out the standards that must be met by software developers seeking official HMRC accreditation for their payroll systems. Version 8 of the Standard has been published. The current version of the Standard defines a set of “core” requirements that all accredited payroll systems must provide. However, functionality such as 2-weekly and 4-weekly pay frequencies, directors’ NICs and contracted-out pension deductions (i.e. table letters D, E, L, F, G and S) are optional and are not required to be present in all accredited payroll systems.
Version 1 of a new Pensioner Payroll Standard has also been published, defining functionality that is necessary for payrolls that only pay pensioners. The Standard does not, for example, require the system to be capable of processing NICs, pension deductions and statutory payments.
Further information:
Online Services: Payroll Standard and Pensioner Payroll Standard
http://www.hmrc.gov.uk/ebu/payroll.htm
Interest is charged by HMRC when income tax and NICs are paid late, and credited when they are overpaid. New interest rate have been announced and take effect from 6 January 2008.
The rate of interest charged on income tax and NICs paid late decreases from 8½% to 7½%. The rate paid on overpaid tax and NICs reduces from 4% to 3%.
The rates have therefore reverted to their levels before the last increase on 6 August 2007.
Further information:
HM Revenue & Customs interest rates http://www.gnn.gov.uk/Content/Detail.asp?ReleaseID=342649&NewsAreaID=2
Payroll software developers are viewing with some concern HMRC’s latest improvements to its annual Employer CD-ROM.
The 2006 edition of the CD-ROM introduced the “P11 Calculator”, a database facility designed to help small employers maintain a computerised record of the tax and NICs calculations for their employees throughout a full tax year. The objective was to reduce the potential for errors in the use of the paper P11 Deductions Working Sheet. The program is able to provide in-year information for completing P45s for leavers and year-end summaries for completing individual P14s.
The 2007 edition had further improvements, including the electronic equivalent of a P32 Employer Payment Record, providing much of the information needed to complete the year-end P35 Employer Annual Return.
On 7 January, HMRC’s Software Developers Support Team announced that the 2008 edition of the CD-ROM (available February 2008) will also provide the facility of filing the P14s and P35 online. As a result, the CD-ROM will provide small employers (up to 9 employees) with the means to set up their employees in a database, calculate their tax and NICs each week, produce year-end summaries and file year-end returns. Although by no means a full payroll system (for example, it does not produce payslips and there are no facilities for handling statutory payments or deducting student loans), many small employers will have everything they need to manage their payrolls on computer, without resorting to paper tax and NICs tables and completing paper returns - and without investing in HMRC-accredited payroll software.
Developers have been told that this “extension in functionality is aimed firmly at the small employer and is not intended for use by agents and other professional bodies” and that it “is being introduced on an experimental basis for one year”.
Starting in January 2008 and continuing until September 2008, HMRC will be consulting further “to establish a clearer view of the relative volumes and segments of employers using payroll software or online services; which employer segments would most benefit from the CD-ROM; how the scope and content of the CD-ROM should be limited; and the possibilities of free software being provided by the software market.”
HMRC’s explanation to developers of the reasoning behind this controversial move is as follows:
“These innovations have been widely welcomed by small employers as an aid to accurate calculations and record-keeping, and HMRC believes that they will also help to demonstrate the advantages of a technological payroll solution to the more "IT-hesitant" small employer who may thereby be encouraged to invest in a payroll software product which could address their needs more comprehensively. The Department has also received ever more strident calls from small employers to provide them with a simple way of transmitting their saved CD-ROM generated data to HMRC online. As things currently stand, if the employer wishes to send in their returns online they would need to print off the P11 and P32 summaries from the CD-ROM and key the figures in when submitting P14s (along with their P35) to HMRC Online Services. This process does not seem in anyone's interests. Forcing employers to interpose an unfriendly paper task between two electronic tasks damages the customer experience and increases the scope for error, while diluting the key message that technology can help small employers manage their complex payroll tasks more conveniently.”
Payroll deadlines during the next month
January 18 – (January 19 is a Saturday) – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 9 by employers who pay monthly, for tax months 7 to 9 by employers who pay quarterly, unless they make their payments electronically.
January 22 – 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 January 17 at the latest.
February 2 – This is the date by which any changes to the provision of company cars in the three months to January 5 must be reported using form P46(Car).
February 5 – This is the final day of tax month 10. Tax and NICs etc. for payments made in the tax month to February 5 are due for payment to the Accounts Office by February 19, or by February 22 if paid electronically.
Payroll FAQ's
Transport home after late night working
Section 248 of the Income Tax (Earnings and Pensions) Act 2003 provides a statutory exemption from income tax for the provision of transport home after late night working. Five very specific conditions must be met for the exemption to apply.
Employers wishing to make use of the exemption must also understand that there is also a direct link between this exemption and the exemption that covers payment for journeys home when car-sharing arrangements break down. The number of journeys for which any combination of the two exemptions can apply is limited to 60.
The exemption for transport home after late night working is defined as follows in the Act:
No liability to income tax arises in respect of the provision of transport or the payment or reimbursement of expenses incurred on transport if the transport is for a journey from the employee’s workplace to the employee’s home, and
- the journey is made on an occasion when the employee is required to work later than usual and until at least 9 p.m.,
- such occasions occur irregularly,
- by the time when the employee ceases work,
(i) public transport has ceased to be available for the journey, or
(ii) it would not be reasonable to expect the employee to use it,
- the transport is by taxi or similar private road transport, and
- the number of previous occasions in the tax year on which the provision of transport within this section or the payment or reimbursement of expenses within this section has occurred is lower than 60.
HMRC’s guidance on the application of these conditions is published in the Employment Income Manual, starting at www.hmrc.gov.uk/manuals/eimanual/EIM21831.htm. The following notes are only a summary of the guidance. Employers should bear in mind that HMRC’s guidance has no statutory authority and that, where a tax inspector takes the view that the exemption does not apply in a particular situation, it would not be inappropriate for an employer, who has taken a different view of the overall situation, to challenge the inspector’s decision. It is, in fact, very difficult to imagine how the 60-journey limit could possibly be reached on the basis of HMRC’s interpretation of the conditions, particularly condition (b).
Nevertheless, all of the conditions must apply in full to each journey if that journey is to benefit from the tax exemption.
Condition (a) effectively sets a double condition – it expects that the employee will be required to work (1) later than usual and (2) until at least 9 p.m. The exemption, therefore, is intended to apply to an employee who normally finishes work before 9 p.m. and is required to work later than usual and until at least 9 p.m. An example of a valid situation is a secretary who works 9 to 5 each day but is required to work late one evening to finish a job. She works until 10 and a taxi is arranged to take her home. The exemption applies if all of the other conditions are also met.
However, the condition is not satisfied, for example, where
- the secretary in the example decides herself to work late – she must be “required” to work late
- restaurant or pub staff are normally required to work late most nights – it is “usual” for them to work late and until at least 9 p.m.
- an employee’s contractual hours are 12 a.m. to 8 p.m. but he normally works until 10 p.m. or later – he is not working later than usual, even when required to work until 10 p.m.
Condition (b) requires the occasions when an employee works late to be “irregular”. The journey must result from a requirement to work late that is different from the employee’s established pattern of working. An acceptable situation would be an employee who works late for a week in order to complete a project but, looking at the overall pattern of the employee’s work during the year, there is otherwise rarely a requirement to work late.
The condition would not be met, for example, where
- an employee works late on one day a week – late working is a regular occurrence, even if the day varies each week
- a payroll officer works late one day each month in order to complete payroll processing – there is a pattern of late-night working that is a regular part of the job.
Condition (c) presents two alternative situations involving the public transport.
The first, whether public transport is still available, is a matter of fact. However, HMRC accepts that, if an employee uses different types of public transport to travel home and one of those means is no longer available, public transport is treated as not available for the whole journey.
The second, whether it would be reasonable for the employee to use the available means of public transport, has no statutory test. It is for the employer to decide, taking all factors into consideration. HMRC does not accept that it would be reasonable to provide a taxi home simply because the employee
- has to travel home from work in the dark, or
- has had a long working day and is tired, or
- has a heavy briefcase or bag to carry home, or
- travels by public transport to a station that is unmanned, or
- because the frequency of public transport is reduced.
A combination of these factors may make the use of public transport unreasonable but HMRC does not accept that one factor by itself would be sufficient. The employer should consider whether the journey home after 9 p.m. is significantly different from the same journey earlier in the day. For example, HMRC would accept that it would not be reasonable to use public transport if the journey would take significantly longer to complete, i.e. an hour or more. The employer may also take the employee’s perception of personal safety into consideration.
For example, an acceptable situation would be an employee whose journey would be a half hour longer if undertaken by public transport after 9 p.m. Although that is not significantly longer than normal, the employer also takes into consideration that the employee lives in the countryside and the train station and roads to her home will be deserted. The journey home by taxi would n
ot be taxable if the other conditions are met.
Condition (d) is not considered by HMRC to be at issue. The tax exemption applies whether the employer pays for the taxi or the employee pays with money provided by the employer, either before or after the journey.
Condition (e) restricts the total number of occasions on which commuting journeys enjoy this tax exemption to 60. Other non-exempt journeys are not counted. As already mentioned, the limit applies collectively to tax-exempt journeys prompted by late-night working or because of a breakdown in car-sharing arrangements.
Record keeping
HMRC expects employers to have the necessary management checks in place and keep sufficient records to be able to show that the late-night working conditions set out in the legislation are satisfied in all cases. HMRC will not accept that an arrangement whereby a taxi service is available on call after 9 p.m. meets the conditions for exemption. Neither is it enough to publish a set of rules for employees to follow if nothing is done to ensure that the rules are followed. Although it is not necessary to have a procedure that requires the use of a taxi to be approved in advance, any checking system employed should be capable of being audited.
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