News Items – at 11th July 2007

Agency Workers and Statutory Sick Pay

Court of Appeal confirms no entitlement for short-term agency workers

The Court of Appeal, in a decision published on 27 June 2007, has agreed with earlier decisions of the General Commissioners and the High Court that the statutory sick pay (SSP) legislation excludes agency workers from entitlement to SSP if they have less than three months’ continuous employment.

Schedule 11 to the Social Security Contributions and Benefits Act 1992 provides a list of situations where entitlement to SSP does not arise.  As originally enacted, employees whose “contract of service was entered into for a specified period of not more than 3 months” were not entitled to SSP.  The exclusion was subsequently removed by the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002, when it became unlawful to discriminate in employment between permanent and temporary employees.  However, those Regulations state specifically that “these Regulations shall not have effect in relation to”

• fixed term employees on government training schemes,
• agency workers engaged under a fixed term contract, and
• a fixed term contract of apprenticeship.

In the case under consideration by the Court of Appeal, Commissioners for HMRC v Thorn Baker Limited and Others, two agency workers were refused SSP on this basis by Thorn Baker, the agency that had placed them in their jobs.  HMRC appears to have taken the view throughout its series of appeals that the changes made by the 2002 Regulations were not intended to prevent any agency workers from qualifying for SSP.  All of the arguments presented by HMRC were rejected by the judges.  The court held that “the Regulations maintained the restriction on entitlement to statutory sick pay in relation to agency workers on short term assignments.”

The decision does not mean that, in all situations, short-term agency workers are not entitled to SSP.  They can become entitled to Statutory Sick Pay if in a single contract:

• they work longer than the original period specified and the total period actually worked exceeds three months, or
• the contract is extended for more than three months, from the time at which the extension is agreed.

Agency workers whose contracts are for three months or less can also become entitled to SSP if two or more such contracts with the same agency are separated by eight weeks (56 days) or less, and

• the total length of the contracts is more than 13 weeks
• the total period actually worked becomes more than 13 weeks or
• the contracts are extended so that together they can run for more than 13 weeks.

The Court of Appeal ruling applies to agency workers only.  Other short-term contract workers are unaffected and remain entitled to SSP.

Further information:
Commissioners for HMRC v Thorn Baker Limited and Others  http://www.bailii.org/ew/cases/EWCA/Civ/2007/626.html
Judgement in the case of Commissioners for HMRC v Thorn Baker and others  http://www.hmrc.gov.uk/employers/thornbaker.htm

Double Taxation Agreement

Agreement on the avoidance of double taxation with the Faroes

The Double Taxation Agreement between the United Kingdom and the Faroes was signed in London on 20 June 2007.  It will enter into force once both countries have completed their legislative procedures.  In the United Kingdom the provisions will take effect from 6 April (for income tax purposes) in the calendar year following the date of entry into force.  In the Faroes, the provisions will take effect from 1 January in the calendar year following the date of entry into force.

Further information:
Double taxation conventions: Faroes and Switzerland  http://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=295300&NewsAreaID=2

Double Taxation Agreement

Agreement on the avoidance of double taxation with Switzerland

A Protocol to the Double Taxation Agreement between the United Kingdom and Switzerland was signed in London on 26 June 2007.  It will enter into force once both countries have completed their legislative procedures.  In the United Kingdom the provisions will take effect from 6 April (for income tax purposes) in the calendar year following the date of entry into force.  In Switzerland, the provisions will take effect from 1 January in the calendar year following the date of entry into force.

Further information:
Double taxation conventions: Faroes and Switzerland  http://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=295300&NewsAreaID=2

Advisory fuel rates for company cars

New rates apply from 1 August 2007

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 based on the fuel cost per mile for the most popular fleet cars.  They were introduced from January 2002 and were last adjusted in February 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 August 2007 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 – 96.6 p per litre (439.2p per gallon)
• diesel – 97.2p per litre (441.9p per gallon)
• LPG – 46.2 p per litre (210.0p 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 August 2007
  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

Deduction from Earnings Orders

External debt collection agencies

Payroll deadlines during the next month

July 19 – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 3 by employers who pay monthly, for tax months 1 to 3 by employers who pay quarterly, unless they make their payments electronically.

July 19 – This is the deadline for payment of Class 1A NICs to the Accounts Office in respect of benefits in kind reported by employers on forms P11D for the 2006/07 tax year, unless they make their payments electronically.

July 20 – (July 22 is a Sunday) – For employers who pay their tax and NICs to the Accounts Office electronically, this is the deadline for electronic payments, including payments of Class 1A NICs to be cleared into the HMRC bank account.  Payments through BACS must be initiated by July 18 at the latest.

August 2 – This is the date by which any changes to the provision of company cars in the three months to July 5 must be reported using form P46(Car).

Payroll FAQ's

Taxation of Computers

How is the taxable value of a computer provided for an employee’s use calculated and reported?

There are two statutory tax exemptions that may, if the conditions are satisfied, apply to the provision of a computer for the use an employee.  The exemptions, as set out in the Income Tax (Earnings and Pensions) Act 2003, are

• the “workplace” exemption, in section 316, and
• the “work-related training” exemption, in sections 250 to 254.

The “workplace” exemption
This exemption applies broadly to “accommodation, supplies and services” provided by an employer for the use of employees, including computers and related computer equipment.  Where computer equipment is provided for use away from the employer’s premises, the exemption only applies if the sole purpose in providing it is to perform the duties of the employment.  There may not, therefore, be any element of reward in the provision.  However, the exemption acknowledges that there will inevitably be some private use made of computer equipment and the exemption is not lost as long as any private use by the employee, or by members of the employee’s family or household, is “not significant”.

The term “not significant” is not defined in the legislation.  Employers are not required to log private use in order for the exemption to be satisfied.  Rather, HMRC suggests that the employer should be able to demonstrate that

• a policy not to recover the costs of  any private use from the employee is a commercial decision on the basis that the administrative costs would be out of proportion to the amounts recovered, and
• the policy on private use has been made clear to employees.

As a result, if the terms on which the computer equipment is provided state that the employee is permitted to use the equipment privately, there will be a tax charge.  If the terms state that private use is not permitted and that any private use that is made of it is subject to the employer’s internal arrangements to monitor, control and minimise the cost of any private use, a tax charge does not arise.

However, whether private use is or is not significant should not be an absolute measure of the length of time an asset is used for business and private purposes.  Rather, it should be considered in the context of the employment duties and the need for the employee to have the equipment to do the job.  In fact, private use could exceed business use without compromising the exemption.

HMRC’s guidance states: “Where a computer is provided by an employer because it is necessary for an employee to be able to carry out the duties of the employment either at home, or whilst travelling or at work, it is highly unlikely that any private use made of that equipment will be significant when compared with the business need for providing the computer in the first place.”

The “work-related training” exemption
The costs incurred by employers in providing training for employees is not a taxable benefit if it is “work-related”.  The definition of “work-related” is very broad and covers almost any kind of training that is likely to help the employee in the current job or in any likely future job with the employer.

If the employer identifies a training course that is provided by means of “e-learning”, it may be necessary to provide a computer so that the employee can study at home.  The computer equipment is also exempt from a tax charge if it is a “training-related asset”.  To qualify for the exemption, the computer must be provided for use only

• in the course of training, or
• in the course of training and in performance of the employment duties.

Consequently, if the computer has any private use, the exemption is lost.  There is no “insignificant” concession as there is with the “workplace” exemption.

HMRC guidance specifically states that the exemption applies to “a computer used during the training period, which is not used for personal purposes”.  However, it would be very difficult for an employer to demonstrate that a computer provided for such training purposes was never used privately.  In practice, both employer and employee are likely to accept that the computer will have private use and, as a result, is liable for a tax charge.

Reporting the benefit
If one or other of the exemptions does not apply, the cash equivalent of the computer equipment is reported in Section L Assets placed at the employee’s disposal, on form P11D.  There is no equivalent reporting requirement for lower-paid employees (i.e. those with an annual earnings rate of less than £8,500) on form P9D.

The cash equivalent is the “cost of the benefit”, less any part of that cost made good by the employee.  The “cost of the benefit” is the higher of

• the “annual value of the use of the asset”, and
• the annual amount paid by way of rent or hire charge for the asset,

plus the amount of any “additional expense”.

If the employer has bought the computer equipment, the “annual value of the use” of the computer equipment is 20% of its “market value” when it was first provided as a benefit.  In general, the market value in this context is what the employer originally paid for it. 

Example: The reportable value of a computer with an initial market value of £500 is £100 for each whole tax year that it is made available (plus any additional expenses incurred).

If, on the other hand, the employer leases the computer equipment, the reportable value is the rental or hire cost incurred by the employer.

Example: The reportable value of a computer with a lease cost of £250 per annum is £250 for each whole tax year that it is made available (plus any additional expenses incurred).

Any “additional expense” covers, for example, the costs of enhancements, repairs and maintenance contracts.  However, it is limited to the additional costs that the employer has incurred only because of providing it for the employee, i.e. the expense that would have been saved if the employer had not provided the benefit.

The employer may apportion the cash equivalent in a “fair and reasonable” manner if the computer and other equipment

• is shared between two or more employees
• is shared between a number of employees and lower-paid employees
• is also used by the employer
• is also hired out to third parties
• is provided only for part of a tax year.

Example: A computer with an annual reportable value of £100 is first made available on 1 January.  The employer reports a value for the part tax year of £26, i.e. £100 ÷ 365 × 95.

However, apportionment is not permitted in respect of the mix of private and business use made by the employee.  The employer may not report a lower value by estimating the proportion of business and private use of the computer equipment.  The full cash equivalent must be reported, even if no private use is ever made of it.  It is up to the employee to claim tax relief on the grounds that a proportion of the asset’s use was “incurred wholly, exclusively and necessarily in the performance of the duties of the employment”.  The employer must also pay Class 1A NICs on the total amount reported, unless the employer knows that the equipment has had no private use at all and the employee can successfully claim full tax relief.

Example: An employer provides a computer with a reportable value of £100 for a full tax year.  The employer anticipates that the employee’s use in the tax year is 20% business and 80% private.  Nevertheless, the employer must report £100 on form P11D and pay Class 1A NICs on the full £100.  The employee may independently claim tax relief by demonstrating the actual proportion of business use to HMRC’s satisfaction.

Further information:
Workplace exemption  http://www.hmrc.gov.uk/manuals/eimanual/eim21611.htm
Work-related training  http://www.hmrc.gov.uk/manuals/eimanual/eim01210.htm
Cash equivalent of assets placed at the disposal of a director or employee  http://www.hmrc.gov.uk/manuals/eimanual/eim21631.htm
Apportionment  http://www.hmrc.gov.uk/manuals/eimanual/eim21200.htm
Asset used partly for private purposes and partly for work purposes  http://www.hmrc.gov.uk/manuals/eimanual/eim21637.htm

ISLE OF MAN

Minimum Wage

Proposal to increase by 3.7% from October 2007

Tynwald is to be asked at its July sitting to approve increases in the Island’s minimum wage rates. If the regulations are approved then the new rates for both adults and young workers will come into effect on 1 October this year.  The new rate has been recommended by the Minimum Wage Committee.

It is proposed to increase the adult rate for workers over 18 from £5.40 per hour to £5.60 per hour (3.7% increase).  By comparison, the UK adult rate only applies to workers over the age of 22, and is set to rise by 3.1% to £5.52 in October this year.

The Minimum Wage Committee’s recommendations for increases in the minimum wage for workers under 18 years of age and certain trainees have also been accepted.  The proposed new rates are £4.67 per hour for 16 year olds and £5.24 per hour for 17 year olds and certain trainees (both 3.8% increases).

Current earnings data analysed by The Treasury show that approximately 4.6% of the workforce earn below £5.60 or per hour, so around 1,600 workers of the Island’s employed workforce of approximately 40,700 stand to benefit from the proposals.

Further information:

Click Here if you wish to unsubscribe