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News Items – at 15th May 2007

“Taxes in Europe” Database

EC provides comparative information on key taxes across Europe

The European Commission has launched a new on-line database which provides information on the main taxes in force in the Member States.  It provides information on around 500 taxes, including personal income taxes and social security contributions.

Taxation in Europe: the European Commission launches a new online information tool on the taxes in the Member States  http://europa.eu/rapid/pressReleasesAction.do?reference=IP/07/662&format=
HTML&aged=0&language=EN&guiLanguage=en
'Taxes in Europe' Database  http://ec.europa.eu/taxation_customs/taxation/gen_info
/info_docs/tax_inventory/index_en.htm

Approved Mileage Allowance Payments

Consultation on proposals to set rates that provide environmental incentives

As part of HMRC’s continuing review of Employee Car Ownership schemes (ECOS) and the interaction with company car tax (CCT) and mileage payments, HMRC is inviting interested parties to comment on three possible approaches that would

• encourage drivers to be more environmentally aware
• set rates and thresholds that reflect more effectively the different costs that drivers incur when using their own cars for business
• align the tax and NICs rules for mileage payments.

The rates and thresholds for approved mileage allowance payments (AMAPs) used in the three proposed scenarios are illustrative only.  Comments on the rates and thresholds are welcomed but HMRC is particularly interested in views on the administrative burdens that may arise from such changes.

1. Linking AMAPs to CO2 emissions
The aim of this scenario is to explore how AMAPs could be tied to more environmental incentives to reduce CO2  emissions.  Given the interaction between company cars, ECOS and mileage payments highlighted by the review so far, a possible approach would be to link the AMAP limits to the CCT lower threshold.  One example of how this could work would be:

• 50p per mile for cars within the 15% company car tax band or lower (currently 135g/km) up to 10,000 mile threshold
• 40p per mile for cars within 16% - 25% band (currently 140-185g/km) up to 10,000 mile threshold
• 25p per mile for cars over the 25% band; all cars with no CO2 emissions and all cars over 10,000 miles.

2. Amending the rates and thresholds
Another option is to amend the rates and thresholds so that they relate more closely to the differing needs and costs of drivers using their own cars for business mileage and reflect, in particular, the high initial costs of drivers using their own car for business purposes.  For example:

• 50p per mile for 1,000 miles
• 40p per mile for the next 5,000 miles
• 25p per mile thereafter.

Another example:

• 50p per mile for 2,000 miles
• 40p per mile for the next 4,000 miles
• 20p per mile thereafter.

3. Combining these two approaches
A further possibility would be to combine both a CO2  emission based approach with a change to both rates and thresholds, the aim being to provide an environmental incentive, whilst recognising the higher initial costs. For example:

• 55p per mile for cars within the 15% band or lower up to 5,000 miles
• 40p per mile for cars within 16%-25% band up to 5,000 miles
• 25p per mile for cars over the 25% band; cars with no CO2 emissions and all cars over 5,000 miles.

Comments on these ideas are sought from all representatives from industry and business with an interest in company cars, employee car ownership schemes and mileage allowances.  They should be sent to pa.harris@hmrc.gsi.gov.uk by 31 July 2007.

Further information:
Further Discussions On Approved Mileage Allowance Payments  http://www.hmrc.gov.uk/cars/amap-ecos.pdf

Payroll deadlines during the next month

May 18 – (May 19 is a Saturday) – 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.

May 18 – (May 19 is a Saturday) – This is the deadline date for filing, in paper form or electronically,

• form P14 End of Year Summary
• form P35 Employer Annual Return
• form 38A Supplementary Return

May 22 – 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 May 18 at the latest.

May 28 – The date after which non-receipt by the HMRC of year-end returns P14s, P35 and P38A will result in late-filing penalties.

May 31 – This is the deadline for issuing P60s to qualifying employees.

June 5 – This is the final day of tax month 2.  Tax and NICs etc for payments made in the tax month to June 5 are due for payment to the Accounts Office by June 19, or by June 22 if paid electronically.

Payroll FAQ's

Holiday Pay during Maternity and Adoption Leave

What holiday pay entitlement does an employee have during maternity or adoption leave?

Paid maternity and adoption leave (referred to as “family leave” in this article) is not a replacement for paid holiday leave.  They are separate entitlements and employers must treat them as such.  Holiday pay may not be paid to an employee who is absent on family leave.

Paid holiday leave is a statutory entitlement.  It is in two parts:

1. 4 weeks’ annual paid leave, and
2. 1.6 weeks’ additional paid leave.

Entitlement to additional paid leave is being introduced in two stages:

1. 0.8 weeks from 1 October 2007, and
2. a further 0.8 weeks from 1 October 2008.

However, how much of each additional 0.8 weeks applies in any particular holiday year depends on when the holiday year starts, as shown in the following chart:

For holiday years starting in October 2008 or later, the combined annual entitlement to statutory paid holiday leave will be 5.6 weeks, equating to 28 days for a five-day worker.  A worker’s entitlement to annual paid leave and additional paid leave cannot be bought out, other than on termination of employment.  Employers must ensure that the full 4 weeks annual leave is taken in each holiday year, but it is permissible for any or all of the 1.6 weeks additional leave to be carried forward to the next holiday year. 

Employers may, of course, agree more generous contractual paid holiday leave arrangements with their workers and any contractual entitlements over and above the statutory provisions may be paid up or carried forward.

Accommodating these statutory and contractual holiday entitlements when employees are absent on statutory family leave is a significant problem for employers and employees.  The maximum period of leave is one year, nine months of which is paid, albeit, in many cases, at a rate that is considerably less than the rate that would be paid for holiday leave.  And the period of paid family leave is increasing to one year, likely from April 2009.

But, why are employees entitled to paid holiday leave if they are away from work for a whole year on statutory family leave?  The rules for statutory holiday leave are set out in the Working Time Regulations 1996.  Employees and agency workers are entitled to paid holiday in respect of any periods during which their work is governed by a contract of employment or a similar contract to provide personal services.  Does such a contract continue in force when an employee or agency worker is absent from work throughout the year period of statutory family leave?  Yes it does. 

• During ordinary family leave, i.e. the first six months’ leave, the full employment contract continues in existence, including contractual holiday provisions but excluding the employer’s obligation to pay remuneration.
• During additional family leave, i.e. the second six months’ leave, the employment contract also continues in existence, although only a limited set of obligations between the parties apply.  These obligations to not include contractual holiday provisions unless the contract specifically indicates that they continue in force during additional leave.

Therefore, as the full period of family leave is governed by the contract of employment, employees and agency workers taking such leave are also entitled to full statutory paid holiday leave, plus any additional contractual provisions that apply during the six months of ordinary leave.

Example: An employee takes statutory maternity leave for a year starting 1 January 2008.  The employer’s holiday year also starts from 1 January 2008.  The statutory entitlement to paid holiday leave during 2008 is 5 weeks, made up of 4 weeks of annual paid leave and 1 week of additional paid leave (see chart above).  However, the employee’s contract provides for 6 weeks’ paid holidays each year.  The employee is entitled, therefore, to 3 weeks’ contractual holiday in respect of the first six months of leave, plus 2½ weeks’ statutory holiday in respect of the second six months of leave.  Between 1 January and 31 December 2008, the employee is entitled to 5½ weeks’ paid holiday leave.

The example illustrates, at its extreme, the problem that employers face in ensuring that employees take their full statutory holiday entitlement.  None of the 4 weeks’ annual paid leave may be carried forward to the next holiday year or paid up.  The extra ½ week of contractual entitlement could be carried forward to the next holiday year or paid up.  The 1 week of additional paid leave may also be carried forward, but not paid up.  At the very least, therefore, the employer must provide 4 paid weeks of holiday leave in a year period, for the whole of which the employee is away on maternity leave.

This is an extreme case as the year of family leave is more likely to straddle two holiday years.  However, that situation may still create problems.  For example, the employee may have a lot of holiday leave left in the first holiday year.  The employee will return to work with a full year’s entitlement to take in the second holiday year.

An employee cannot take holiday leave at the same time as family leave.  So, what options are there to minimise the problem? 

1. As already mentioned, as much leave as is permitted by law could be paid up or carried forward to the next holiday year.
2. When the employee sets a date for starting family leave, the employee could take all of the remaining holiday leave for that holiday year before starting leave.  The only potential problem is that, in the case of maternity leave, the leave would have to start before the employee’s planned date if the baby arrived early.
3. At the end of the period of leave, the employee could give 8 weeks’ notice to return to work early and then take paid holiday leave before actually returning to work.

It is good practice, when confirming all of the details of the family leave to the employee, to take all of the holiday leave issues into consideration and come to an agreement on how the employee will actually take the full paid holiday leave entitlement.

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