News Items – at 20th August 2007

Regulation and Business Advice

The role of government and the role of advisers

The Department for Business, Enterprise and Regulatory Reform (DBERR) has published a report from the Better Regulation Executive (formerly part of the Cabinet Office) on Regulation and Business Advice.

The Report is aimed at government, with a view to reducing the costs incurred by businesses in buying in advice on legislation.  The following is the Executive Summary from the Report.

Every year almost half of businesses seek external advice about how to follow regulations. This advice comes from a range of sources including accountants, solicitors and consultants as well as government sources.  Commercial advice services exist to cover almost every type of regulation affecting business including employment law, health and safety, environmental regulations, and financial regulations.

Businesses spend at least £1.4 billion each year on advice to help them comply with regulation.  Businesses will pay for advice if they feel that this is cheaper or easier than following regulations on their own.  The government can make real reductions in how much businesses need to spend on regulatory advice by tackling the 5 drivers of advice identified in this report, these are:

• Volume and complexity;
• Low awareness of government guidance;
• Regulatory change;
• Poor quality government guidance; and
• Uncertainty, risk and lack of confidence.

By taking action to reduce the effects of these drivers government can reduce the overall costs businesses face in following regulations.  The recommendations in this report would make a real difference to the experience of regulation for businesses.  Actions delivering even a 5% reduction of the lowest estimate of the size of the market for business advice on regulation would give mean a reduction in business spending of more than £72 million.

Even if significant progress is made on tackling the 5 drivers of advice there will still be a role for business advisors in the delivery of regulation.  Economies of scale mean it is often more efficient for a single business advisor to gain a detailed understanding of a complex area of regulation and sell this on to businesses than for each businesses to learn about the regulations for itself.  There are also areas of regulation where we would expect businesses to seek external, expert advice, such as high risk health and safety.
There will therefore always be a role for intermediaries in advising on regulation.  However, this should not obscure the fact that the market for regulatory advice is a market that is the product of the way government designs and implements regulation.  There are areas of  regulation where businesses would need less advice if the design and delivery of regulation were improved.

Among the key recommendations of the Report are:

• All guidance for regulations affecting business should be issued 12 weeks before the regulation comes into force except in exceptional circumstances (such as emergency legislation).  Guidance must still be issued in line with the current Common Commencement Date process, i.e. that regulation affecting business should come into force on either 1 October or 6 April.
• The government should develop ways of contacting business directly, by post or email, to inform them of upcoming changes to regulations, including simplifications.  This communication must be short, risk-based and focused on the most important changes.  It should reach as many businesses as possible that are likely to be affected by the changes, and link back to high quality guidance on the businesslink.gov.uk website.
• Intermediary organisations already provide regular communications to their members and clients in a way that businesses of different types find most appropriate.  Provision of high quality regulatory information to these intermediaries will allow them to add their own value to the content before communicating with businesses. This allows rapid onward communication to many businesses in a format they will find helpful and could link through to other sources of government guidance.
• To help businesses become informed consumers of business advice, an indicator of the average time taken to comply with a regulation should be included prominently on suitable guidance documents.  This will help business to assess whether it makes financial sense to seek external help or not.
• Web forums which allow businesses to share information and advice are an effective way of helping them to become better informed.  Government advice services should consider posting answers to regulatory questions on online forums.
• For inherently complex or high risk areas of regulation where we would expect businesses to seek external advice, departments and regulators should consider developing dedicated sources of information for advisors.  For example, HMRC have developed a range of dedicated information for tax advisers.

(The Department for Business, Enterprise and Regulatory Reform (DBERR) brings together functions of the former Department of Trade and Industry and the Better Regulation Executive (BRE), previously part of the Cabinet Office.)

Further information:
Regulation and Business Advice - A report by the Better Regulation Executive  http://www.cabinetoffice.gov.uk/regulation/documents/next_steps/business/business.pdf

Payments to Employees Attending Full-Time Education Courses

Tax and NICs exemption limit increases for 2007/08 academic year

Under the provisions of HMRC’s Statement of Practice 4/86 Payments Made By Employers To Employees When In Full-Time Attendance At Universities And Technical Colleges, payments made to employees for periods of attendance at  full-time educational courses (including sandwich courses) at a recognised academic establishment are treated as exempt from income tax where certain conditions are met.

One of the conditions is that payments in respect of an academic year, i.e. the period beginning on 1 September and ending on the following 31 August, must not exceed a specified financial limit.  That limit was set at £15,000 for the 2005/06 and 2006/07 academic years.  From the 2007/08 academic year, starting 1 September 2007, the limit is increased to £15,480.  Regulations have been made to increase the limit also for NICs purposes.

Further information:
Increased tax/NICs free limit  http://www.hmrc.gov.uk/legislation/sp4-86-note.htm
The Social Security (Contributions) (Amendment No. 7) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2401.pdf
Explanatory Memorandum to the Social Security (Contributions) (Amendment No. 7) Regulations 2007  http://www.hmrc.gov.uk/si/2007-2401-em.pdf

VAT Incurred on the Provision of Home Computers

HMRC changes its VAT recovery policy

In a new Revenue and Customs Brief, HMRC has explained a significant change of policy with regard to the supply of computers to employees for their use away from the workplace.

From April 1999, a tax exemption allowed employers to loan computers to their employees without a tax charge.  In January 2005, the Home Computer Initiative (HCI) was launched with the objective of encouraging the use of the exemption.  Under normal circumstances, any private use by employees would restrict the rate at which VAT could be recovered.  However, at the time, HMRC considered that the VAT treatment should mirror the approach taken for income tax.  Consequently, as long as there was some business use, any VAT incurred could be deducted in full without any adjustment for private use.

The tax exemption on which HCI was based was withdrawn from 6 April 2006, although employees already in the scheme continue to benefit until the contract period, usually three years, comes to an end.  HMRC has now announced that the VAT concession is also being withdrawn, with effect from 14 August 2007.

The policy now is that businesses may only claim full VAT recovery where the provision of a computer is necessary for an employee to carry out the duties of the employment.  In these circumstances, HMRC’s view is that it is unlikely that any private use will be significant when compared with the business need for providing the computer in the first place.  The rule for VAT, therefore, mirrors HMRC’s interpretation of the income tax exemption for the provision of assets away from the workplace.

However, if it cannot be demonstrated that it is necessary to provide an employee with a computer in order to carry out the duties of the employment, only a portion of the VAT incurred is recoverable as input tax.  HMRC accepts any method of apportioning the VAT incurred as long as the result fairly and reasonably reflects the extent of business use.  To limit administrative burdens, employers may be able to agree a set percentage with HMRC based on a representative period.

Where the former exemption continues to apply to computers loaned before 6 April 2006, full VAT recovery also continues. 

The facility to apportion VAT recovery according to the extent of business and private use only applies where the employer is the recipient of the supply of the computer and, as a result, the computer loaned to the employee is an asset of the business.  If the computer is supplied direct to the employee, the business cannot recover the VAT incurred on the that supply as input tax.

Further information:
Revenue & Customs Brief 55/07  http://www.hmrc.gov.uk/briefs/vat/brief5507.htm

Double Taxation Conventions

Agreement between the UK and Macedonia comes into force

The comprehensive Double Taxation Convention between the United Kingdom and Macedonia, signed in Skopje on 8 November 2006, came into force on 8 August 2007.  The provisions of the Convention take effect in the UK from 6 April 2008 for income tax purposes and, in Macedonia, from 1 January 2008.

The Convention between the Socialist Federal Republic of Yugoslavia and the United Kingdom will cease to be effective with respect to any Macedonian or United Kingdom tax from these effective dates.

Further information

Payroll deadlines during the next month

August 17 – (August 19 is a Sunday) – 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.

August 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 August 20 at the latest.

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

September 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.

September 21 – (September 22 is a Saturday) – 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 September 19 at the latest.

Payroll FAQ's

Private Use Payments for a Company Car

Does a payment to obtain a better car qualify as a private use payment?

Employees who are provided with a company car are liable to pay tax on the car benefit charge reported on form P11D each year. The calculation of the car benefit charge involves a number of specific steps, as defined in the Income Tax (Earnings and Pensions) Act 2003, section 121. After determining the “price” of the car, the employer calculates a percentage of that price, related to the car’s CO2 emissions. The resulting value may then be reduced, first in respect of any periods of unavailability, and then, as set out in section 144, in respect of any “private use” payments.

The total amount paid to the employer as “private use” payments may be offset against the car benefit charge, pound for pound, if the employee is required to make such payments as a condition of a company car being made available for the private use of the employee or members of the employee’s family or household. It does not matter whether the payment is made by deduction from wages or in some other way.

The taxable value of the car from the previous step of the calculation is reduced by the total of the private use payments made by the employee, to give the reportable cash equivalent. If the private use payments equal or exceed the taxable value from the previous step, the cash equivalent is nil. However, no tax relief is available in respect of any excess private use payments.

Care must be taken not to treat payments made by the employee for other purposes as private use payments. Any payments that are made for purposes other than private use do not count and may not be used to reduce the cash equivalent, even if the employee is required to make them as a condition of having the car available for private use. Examples of such payments are:

1. deductions made through the payroll as the employee’s contribution towards the cost of fuel provided by the employer for private use
2. a contribution made by the employee towards the additional cost of insuring the car for private use or towards the maintenance of the car
3. “private choice” payments, i.e. payments made in order to obtain a better car than is normally provided at the employee’s status level
4. capital contributions, which are used to reduce the car benefit charge at an earlier stage of the calculation.

In the case of contributions of a kind listed at 1, 2 and 3 above, there is nothing wrong in the employer taking into consideration such costs as fuel, insurance, road tax, servicing, additional lease costs (in the case of the provision of a better car) or any other relevant factor when deciding how much to charge for private use. But, such payments can only be considered if they are made to the employer or to the person providing the car. They cannot be considered if they are paid direct by the employee to someone else, e.g. the garage that services the car or supplies the fuel.

Therefore, as long as only a single payment is made for private use (even though it may be paid monthly) and the terms and conditions for the provision of the car, as set out in the car policy, make it clear that the payment is

• subject to a requirement in the year to make payments as a condition of the car being available for private use, and
• for that private use,

the payment is a private use payment, even though the factors referred to above, or just one of them, have been used to calculate its value.

However, if two or more payments are made by the employee, an inspector would consider the purpose of each and disqualify any payment that appeared to be for a purpose other than private use.

Consequently, if the only payment made by an employee is made in order to obtain a more expensive car than would otherwise be provided, the payment may be treated as a private use payment and used to reduce the taxable value of the car even if the additional leasing cost is the only factor used to fix the amount that the employee is required to pay for private use. The terms and conditions under which the car is provided should include wording similar to that shown above.

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