Benefits and Expenses Sub Group

Minutes of Meeting 17 April 2008

Attendees:

Mark Groom (MG) CIOT
Barinder Chadha (BC) ACCA
Steve Clarke (SC) CBI
Karen Thompson (KP) IPP
David Reiley (DR) ICAEW
Norman Green (NG) BCS
Shawn Healy (SH) CBI
Sue Walton (SW) HMRC
Guy Westhead (GW) HMRC
Paul Harris (PH) HMRC
Don Macarthur (DM) HMRC
Leonora Robertson (LR) HMRC
Elizabeth O’Donnell (EO) HMRC
Basil Rajamanie (BR) HMRC
Steve Dodd (SD) HMRC
Richard Garth (RG) HMRC
David McDowell (DM) HMRC

1. Welcome and apologies

SW welcomed all attendees and introduced GW, the new head of the expenses and benefits team, to the members. The meeting was chaired by GW.

Apologies had been received from Jackie Petherbridge, Peter Seedhouse, Bob Cope and David Heaton

2. Minutes of last meeting and matters arising.

The minutes of the meeting on 17 January were agreed.

SD had circulated by e-mail on 16 April to all members the text of an announcement on HMRC website reminding employers to file forms P11D and also an extract from Employer Bulletin which gives advice for avoiding common errors in completing P11D.

3. Cycle to Work Scheme

LR explained that this item was on the agenda to clarify some points raised by IPP in a recent e-mail. On the value of the BiK for used cycles, LR explained that HMRC only provided guidelines on the reasonable steps an employer should take to establish the second hand value of a cycle. LR added that HMRC had never indicated that it would accept 40% of the value when new as reasonable, or any other fixed percentage or figure. HMRC simply expects employers to take reasonable steps to establish the value by consulting, for example, the small ads in the local papers or enquiring at a local cycle shop. Guidance on the cycle to work scheme is available on the DFT website.

On the query regarding salary sacrifice and the potential BiK, LR explained that the tax and NIC exemption applies where the cycles are available generally to all employees on similar terms and where the ownership of the asset does not pass on to the employee and the cycle is mainly used for commuting journeys. The guidance is clear on this and each arrangement would be looked at on its own merits to see if the exemption applies. LR confirmed that if the scheme arrangements were such that 16 and 17 year olds were precluded from participation because the scheme requires completion of a hire agreement (a requirement of the Consumer Credit Act) then the tax and NIC exemption would not apply for anyone as the scheme would not meet the “available generally to all employees” criteria. The issue is not one that HMRC can resolve but an approach to OFT might help to clarify the circumstances under which a hire agreement is required under the Consumer Credit Act.

NG pointed out that in strictness the tax and NIC exemption would not be available because the scheme would not be available to everyone if 16 and 17 year olds could not participate. NG added that 18 year olds who are paid at or just above the NMW would also not be able to participate if by sacrificing salary their cash pay was taken below the NMW.

It was suggested that HMRC’s line on allowing tax free childcare which was not strictly available to all might be extended to cycles.

SH observed that almost all Salsac schemes that used tax free benefits had some form of exclusion clause or other, and wondered where this left these schemes

AP - HMRC to investigate and report back at the next meeting.

4. Wardens Sheltered Accommodation

PH explained that this issue was raised earlier this year. It stems from the impact the Working Time Directive (WTD) and the NMW has had on how wardens operate in sheltered housing schemes. PH advised that the WTD and the NMW legislation have meant that some organisations have had to change the way they provide warden services in their sheltered housing schemes. PH said that HMRC have not changed their position and have amended their guidance to reflect this fact so wardens of sheltered housing schemes living on the premises where they are on call outside normal working hours would continue to be exempt.

PH went to say that he had met with Nick Powell, Policy Leader at the National Housing Federation, to discuss this issue earlier this month. At that meeting it was agreed that it would be helpful if HMRC and the NHF worked together to produce guidance for Nick’s members clarifying the current position in respect of wardens in sheltered accommodation. Nick said that he would write to his members to find out what issues were causing them particular concern and what they would like included in the guidance, HMRC would then draft guidance accordingly. PH agreed to circulate the draft guidance to members of the sub-group for comment before publication once it has been agreed between HMRC and NHF.

MG said that he had some comments which he would pass on to PH. NG pointed out that he is aware of quite a few cases where employer compliance officers are looking for settlements under the existing interpretation of the rules and asked if something could be done to put these on hold until the revised guidance is published. PH agreed to look into this. GW said that an update would be provided at the next meeting.

PH went on to advise the meeting of the current position with regard to employer provided medical check-ups. Essentially the current concession not to collect tax that would normally due as a result of the regulations has been extended to cover the 08-09 tax year. In the meantime HMRC would consider the response received on this matter with the intention of making a further announcement at PBR.

5. Business Travel CCT, AMAPs & AFRs

13. EO outlined some of the recent changes to company car tax/ mileage payments and advisory fuel rates. There are some changes to company car tax that were announced in Budget 2006 which as the Government has made a commitment to give sufficient notice, only take effect from 6 April 2008:

  • 2% discount for company cars which are capable of being fuelled by E85.
  • Lower threshold reduced by 5g/km to 135g/km.
  • 10% band for cars with emissions of exactly 120g/km or less.

In Budget 2008 further measures were announced, predominantly around Capital Allowances, but also reduced the lower threshold by a further 5g/km to 130g/km to take effect from April 2010.

The Government decided not to increase mileage allowances (AMAPs) in Budget 2008 and announced that the rates would remain unchanged despite recent increases in fuel. AMAPs are not meant to reflect the actual costs of running a car, as one rate cannot cover all the different aspects of using a private car for business journeys, but are set at a rate that the Government considers a reasonable reimbursement for driving on business.

The process for amending Advisory Fuel Rates was altered last year to give certainty for employers and HMRC committed to review the rates every 1 January and 1 July. The rates will be reviewed in late May so if any changes are necessary they will be posted on the HMRC website on 1 June to take effect from 1 July, to give employers notice of the change. SC advised that the wording on the website suggested that HMRC would review the rates at other times of the year if fuel prices fluctuated by +/- 5%. EO explained that this should be read within the context of reviewing the rates bi-annually but would check the wording and amend if required.

AP – EO to amend wording on the website if necessary.

6. Review of Powers

GW explained that following the 3 separate consultations in January on

  • Payments, Repayments and Debt;
  • A New approach to Compliance Checks; and
  • Penalties Reform

the Government had included legislation on all three in FB 08. As a result of earlier consultation and some further work on payments and repayments, HMRC had proposed four changes in the latest consultation that just ended. They were:

  • Procedures for enforcing tax debts through the courts;
  • Set-off tax repayments against tax owing;
  • Accept credit card payments; and
  • Collect small sums through the PAYE system.

Some concern was expressed that payment of tax by credit card could push people into debt. It was acknowledged that this method of payment was introduced purely for the sake of convenience and a reflection of the world we live in today.

GW added that HMRC was also doing further work on clarifying penalties reform and are also considering extending the regime beyond the five main taxes to also cover environmental taxes, excise duties, stamp duties, errors on end of year returns, IPT, pension schemes, IHT and PRT.

GW explained that there are also plans for a new taxpayer charter which was announced in January. HMRC will begin a consultation with interested parties shortly.

7. Home Working

SC was concerned that the requirements for businesses to prove whether employees worked from home by choice did not fit with modern practices and felt that the rules should be relaxed. EO confirmed that the rate payable to employees without the need to keep receipts had risen from £2 to £3 from 6 April 2008 and the rate was based on the increase in energy costs using RPI since the tax/NICs free guideline rate was introduced in 2003.

HMRC are required to follow the law as it stands and employment income expenses are very tightly drawn. EO was willing to reflect on any changes proposed by the group but amendments to legislation would be dependent on Government agreement. As debated in the separate sub-group on home-working in September 2007 any proposed amendments would need to be submitted as Budget representations which would be considered as part of the Budget process.

8.AOB PAYE Guidance

RG explained that web based guidance on PAYE and the tax and NIC implications on BIKs is being rewritten and the first phase of the guidance would be available on the HMRC website from 28th April. The guidance would be layered, event based and shifting the focus of employer guidance to their own tasks and responsibilities. The guidance would be more practical, clearer and cohesive, and with additional improvements in layout much more user friendly. Unfortunately the new guidance on BIKs will not appear on the website until later in May. In the interim the existing BIKs guidance would be available to employers.

RG confirmed that the ‘Web Convergence’ project was working to migrate all customer facing content to Directgov and all business content to Businesslink. A commitment had been given to move all the guidance onto these websites by 2011.

RG asked members to let him have feedback on the guidance so that the necessary improvements could be made in phase 2. RG pointed out that the although the guidance is being written primarily for those people who have little or no knowledge of PAYE and/or BIK navigation aids have been included to allow more experienced employers and professionals to access the detailed guidance they require without too much difficulty. RG said that the web conversion project will continuously monitor the guidance and update it as required.

Members agreed that this is a good initiative and employers would find it very useful.

9.Canteen exemption

MG explained that with the rapid advance in technology the popularity of using credit card type swipe cards for use in canteens where the employer provides free or subsidised food has also increased. This has given rise to concerns about whether salary sacrifice arrangements are being used to provide employees with free food in exchange for salary.

In recent guidance HMRC has indicated that they were concerned with certain free food arrangements. MG was concerned that HMRC might construe that the swipe card system, which is used purely to make administration simpler and allow monitoring of consumption, is a salary sacrifice arrangement and seek to tax the benefit where previously the free food was exempt on the basis that it was available to all employees.

There was some discussion on subsidised canteens and the use of swipe cards and one or two members drew an analogy with the childcare voucher system, arguing that the systems were identical. Members felt that the legislation concerning subsidised canteens is not clear and the time is right to modernise the legislation. GW agreed to discuss the matter with his technical specialists and report back to members at the next meeting.

10.Publication of overseas subsistence rates

Following a query from MG, EO confirmed that as stated in the EIM (EIM05250) employers do not need to include in a dispensation payments made to employees using the scale rates for overseas allowances. The scale rates are not a dispensation, but an administrative easement and do not meet the administrative conditions for dispensations in s65. Provided payments are made only in appropriate circumstances and are within the benchmark rates, HMRC are happy for employers to exclude them from the P11D even though they do not have a formal, employer-specific dispensation.

GW thanked everyone for their contribution and said that the next meeting would be on 17th July at 10.30am. He welcomed suggestions from non-HMRC attendees for the agenda and how the Benefits and Expenses team, and HMRC colleagues generally working on these areas, could improve customer service.