Payroll Newsletter 03.06.09

News items at - 3rd June 2009

Introduction

Last week our FAQ looked at the basic taxation principles of  P11 and P9D reporting of benefits-in-kind.  This week we turn our attention to the NICs requirements – a common problem area for employers who forget that a number of benefits have Class 1 NICs liabilities which should be handled through the payroll at the time they are provided.

Our regular news section includes information about the new “fit to work” doctor’s statements that are planned to come into use from next April.  The Government is expecting employers to consider more flexible arrangements in order to make it possible for employees to return to work, even if they are not able to do their regular jobs.  HMRC has also published new advisory mileage rates for company cars – now a six-monthly routine.

Maternity Leave

BERR publishes new guidance booklets for employers and employees

The Department for Business (BERR) has published two complementary booklets explaining the basics of maternity leave rights; one for employers and one for employees.  The guidance includes coverage of the changes to entitlements during additional maternity leave that were introduced in October 2008, including the requirement for employers to make pension contributions during the period of paid leave.

The information provided is practical but superficial.  For example, there is reference in both booklets to entitlement to contractual benefits during the full period of leave, but the only example given of such benefits is gym membership.  There is no mention of the benefit that is causing employers the biggest problem – childcare vouchers.

Further information:
Pregnancy and work: what you need to know as an employer / employee  http://www.berr.gov.uk/files/file51453.pdf

Statutory Sick Pay

New medical statements planned for April 2010

In October 2007, the Department for Work and Pensions (DWP) published a report detailing changes to SSP rules that had been recommended by an SSP Review Working Group.  A number of the recommendations were introduced in October 2008, with the effect that employers are not required to pass SSP-related information to the next employer, and entitlement to SSP in a new job does have to take absences in the previous employment into consideration.

Another of the recommendations is the subject of a new consultation document published by the DWP.  The “sick note” issued by doctors (known as the “Doctor’s Statement” in legislation) is to be redesigned so that the emphasis of the information provided by doctors for employers changes to what is being called a “fit note”.  The new form’s proper name will be “Statement of fitness for work”.  Doctors will be able to indicate, not simply whether a person is or is not fit for work, but also whether the person “may be fit for some work now”, in which case the doctor can also indicate the person, with the employer’s agreement, may benefit from a phased return to work, or altered hours, or amended duties, or workplace adaptations.

There are currently three Doctor’s Statements defined in legislation, namely

• form Med 3, issued by doctors for social security and SSP purposes on the same day as, or on the day following, the examination of the patient
  
• form Med 4, issued under Incapacity Benefit arrangements and now obsolete
  
• form Med 5, the “backdating certificate”, issued when a doctor cannot issue a Med 3 because it relates to an earlier medical examination.

The intention is to replace all three of these statutory forms with a single, new Med 3, which can be issued on the day of the examination, or in respect of an earlier examination, or based on another doctor’s report.  The forms will be made available in paper form but, following a pilot study involving doctors’ surgeries in Wales, the Government has decided to move from a paper-based medical statement to a computer generated format which can be printed in the doctor’s surgery and saved to the patient’s records.

The new form, as included in the draft Regulations, will be set out as follows:

The consultation document is available at the link below and comments from interested parties may be sent to the DWP up to 19 August 2009.

Further information:
Reforming the Medical Statement
http://www.dwp.gov.uk/consultations/2009/Reforming-the-Medical-Statement-consultation-28May2009.pdf

Company Cars – Advisory Fuel Rates

New rates effective 1 July 2009

Following its semi-annual review of fuel prices, HMRC has given one month’s notice of new advisory fuel rates that apply from 1 July 2009.  However, HMRC continues to state that the new rates may be applied immediately if employers are able and wish to do so.

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 – 97.5p per litre (443.4p per gallon)
  
• diesel – 103.4p per litre (469.9p per gallon)
  
• LPG – 52.0 p per litre (236.4p per gallon).

By way of a reminder, the advisory mileage rates are provided by HMRC to help employers negotiate the terms of a dispensation with their tax office.  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 intended to reflect average fuel costs and, as a result, if an employer uses the rates for the appropriate combination of fuel and engine size, HMRC accepts that,

• where employees are reimbursed for fuel used for business travel, no liabilities for tax or NICs arise.  Employers may use lower rates if the cars involved are fuel efficient or higher rates if they are less efficient.  However, in the latter situation, the employer would have to demonstrate the need for higher rates.  If higher rates cannot be justified, the excess is earnings for tax and NICs.  Employees can obtain tax relief if they incur expenses that are not reimbursed.
  
• where employees repay the cost of fuel for private use, there is no fuel benefit charge or Class 1A liability.  A benefit charge arises if lower rates are reimbursed, unless the employer can demonstrate that lower rates fully cover the cost of fuel for private mileage in the vehicles concerned. 

Further information:
Company cars - advisory fuel rates from 1 July  2009  http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

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Payroll deadlines during the next month

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.

June 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.

June 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 June 18 at the latest.

July 5 – This is the final day of tax month 3.  Tax and NICs etc for payments made in the tax month to July 5, or in the tax quarter to July 5, are due for payment to the Accounts Office by July 19, or by July 22 if paid electronically.

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Payroll FAQ's

P11D and P9D Reporting

How are the tax and NICs liabilities on the payment of expenses to employees handled?

The tax and NICs liabilities on expenses payments depend principally on whether or not they relate to business expenditure by the employee, although there are a number of specific situations.  The following notes explain the general principles that apply in each case and the payroll processing and/or P11D reporting requirements.

Any expenses payments for which an employer has obtained a dispensation from HMRC are not reportable of form P11D, not are they liable for Class 1 NICs.  The following notes assume that the employer does not have a dispensation covering any of the situations described.

In the following notes, a “lower-paid employee” is an employee whose earnings rate in a tax year is less than £8,500, including the value of any benefits and expenses payments provided.  Any expenses that are reportable rather than being taxed under PAYE are reported on form P9D.

Note that it is not possible to obtain a dispensation to avoid reporting expenses on form P9D.  However, a dispensation that is issued for P11D reporting purposes may also apply to benefits and payments that would otherwise have to be reported on form P9D, e.g. the provision of business-related vouchers.

Procedure 1. Expenses that are genuinely business-related

If expenses are business-related, incurred “wholly, exclusively and necessarily in the performance of the duties of the employment”, and, where possible, supported by receipts, the payments are reported on form P11D.  Typical examples are the reimbursement of accommodation and subsistence expenses, and entertainment expenses.

The full amount of the payment is reported in Section N Expenses payments made to, or on behalf of, the employee, on the appropriate line, less any amount on which the employee, for whatever reason, has already paid tax under PAYE.  There is no P9D reporting requirement.  There is no Class 1 NICs liability through the payroll if the expenses are “specific and distinct” business expenses or “qualifying travel expenses”.

Reporting in this way enables employees to claim tax relief, called “a deduction from earnings”, by demonstrating to the satisfaction of HMRC that the expenses were genuinely business-related.  This is the normal situation where an employer should obtain a dispensation.

Procedure 2. Expenses that are partly business-related

If the employer is unable to determine how much of the expenses payment is business-related, perhaps because no receipts are provided, the full amount of the payment is reported on form P11D or P9D.  This method of reporting also allows the employee to claim a partial deduction of expenses.  A typical example would be the reimbursement of an employee’s home telephone bill or credit card bill, where the employee has not identified the business and private elements.

The full amount of the payment is reported

• on form P11D, in Section N Expenses payments made to, or on behalf of, the employee, on the appropriate line, less any amount on which the employee, for whatever reason, has already paid tax under PAYE
• on form P9D, in Section A(1) Expenses payments, assuming that the total amount to be reported in that section exceeds £25.

The entire payment is subject to Class 1 NICs through the payroll.  The amount paid by the employer is added to the employee’s gross pay in the earnings period in which the payment was made, but for NICs purposes only.

To avoid the Class 1 NICs liability on such a mixed payment, employees should be expected to identify clearly that part of the payment that is business-related.  The business-related part of the payment may then be handled separately under Procedure 1, above.  The remainder would be handled under Procedure 3, below.

Procedure 3. Expenses that are not business-related

If expenses are not business-related at all, the payment cannot be paid as an expenses payment to the employee, nor is it reportable on form P11D or P9D.  Instead, for both employees and lower-paid employees, it is paid through the payroll and is subject to both PAYE tax and Class 1 NICs.  In order to increase the employee’s net pay by the amount of the reimbursement, the payment must be grossed up for tax and NICs before it is paid.  The grossing up of the payment is similar to the procedures for PAYE Settlement Agreements, where the employer pays the tax and NICs instead of the employee.

Typical examples are reimbursement of the employee’s personal liabilities, e.g. the employee’s rent, or reimbursement of the employee’s commuting costs, e.g. when called-out to attend work.

If a payment appears not to be business-related but the employer is at all aware that the employee intends to claim a deduction for expenses in respect of all of part of the payment, it would be better to handle the payment for tax purposes under Procedure 2, above.  However, the payment is still fully liable to Class 1 NICs through the payroll.

Special situations

Exempt expenses payments - payments that are made in respect of non-business expenditure but that are exempt from a tax and NICs charge under one of the many statutory exemptions do not have to be reported on form P11D or P9D.

Round sum allowances – the total amount of the payment is handled under Procedure 3, above.  If a tax inspector approves an application to pay allowances other than under PAYE, because the allowance is no more than the reimbursement, Procedure 1 or 2 is used as directed by the inspector.

Scale rate payments – where the employer is not using HMRC advisory benchmark scale rates for day subsistence, or in the absence of a dispensation or a Working Rule Agreement, they are handled as round sum allowances.

Expenses floats – advances of expenses are treated as cheap loans if the outstanding balance exceeds £1000 at any time or expenditure against the float is not accounted for regularly.  Otherwise, procedures 1, 2 or 3 are applied as appropriate.

Payment of mileage allowance payments or passenger payments – such payments in respect of the business use of an employee’s own car, van, motorcycle or cycle are not reportable if they do not exceed the statutory maximum payment for the type of vehicle.  If the limit is exceeded, the excess is reported

• on form P11D, in Section E Mileage allowance and passenger payments
• on form P9D, in Section A(1) Expenses payments, assuming that the total amount to be reported in that section exceeds £25.

For Class 1 NICs purposes, the payments are checked for each earnings period and, if the limit is exceeded, the excess is added to gross pay for NICs purposes only.

Qualifying relocation expenses – payments that exceed the statutory limit are reported on form P11D, in Section J Qualifying relocation expenses payments and benefits, and the employer pays Class 1A NICs on the reported value. 

Non-qualifying relocation expenses – payments are handled under Procedure 2, above.

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