Elizabeth Ward HMRC
Matthew Brown - CIOT
Karen Thomson - IPP
Ian Holloway - IPP
Norman Green - BCS
Steve Clarke - CBI
George Northall - CBI
Shawn Healy - CBI
Bill Streeter - HMRC
Leonora Robertson - HMRC
Don Macarthur - HMRC
Rhonda Howlader - HMRC
Steve Dodd - HMRC
Ekundayo Salami - HMRC
Bob Cope
David Heaton
Minutes of the last meeting were agreed.
LR advised that HMRC had updated the guidance following the Budget announcement on home computers. LR told representatives that there were at least three different situations, and the tax treatment would depend on the particular circumstances of the case. The first was where an employer provides broadband internet for business use with no intention to reward or provide a benefit in kind to the employee; it will be exempt from tax and NIC– S316 Income Tax (Earnings & Pensions) Act ITEPA 2003. The second was where an employee contracts directly with the broadband provider and there was no private use; the employee could make a claim under S336 ITEPA 2003 for a fully matching deduction. The third one was mixed use. HMRC take the view that where employees cannot identify the split between business and private use, a charge would arise on either the BiK or the pecuniary liability met in the normal way.
The CIOT representative wondered how employees could show that one broadband connection was not for private use in a situation where there were two broadband connections to the house. BS advised that HMRC would take a practical approach to compliance in such cases. However, it was necessary to recognise that there would be situations at the margins where the position was not clear-cut. The CBI representative wondered what HMRC views would be in circumstances where there was a genuine work requirement for the employee to work from home and he already had a broadband connection at home. The CIOT representative also raised the issue of employer reimbursement under s 316A. Rather than examine the technical position in detail for each scenario presented it was suggested that the issue be taken forward as an agenda item at the next meeting of the group.
Action Point: CIOT rep would liaise with other members of the group and provide a list of examples for discussion at the next meeting. LR also agreed to run a query on input tax deduction past VAT colleagues with a view to addressing this issue at the next meeting.
DM advised that this was a follow up to the Budget day statement in which the Government announced that it would take steps to reduce admin burdens. Completion of form P11D was just one area that had been highlighted by employers as a complex and time consuming burden on business. The first part of KPMG’s administrative burden report had been published on 11 April. The report stated that the completion of P11Ds by business cost £131 million.
DM explained that HMRC had organised internal workshops where some ideas were identified and would like to share them with members of the group. Members were also advised that research work was being carried out by IPP around the reporting requirements for expenses and benefits. Members were invited to feed views into that.
The IPP representative advised that an electronic survey would go live on Thursday 26th October. The survey would have 30 questions using radio buttons. IPP had engaged CIOT, ICAEW and BCS in the survey design and would be happy to also engage CBI. IPP were also keen on sharing results of the survey with all members of the group. The survey focussed particularly on current or possible future options for avoiding completion of P11Ds.
DM told members that HMRC stats showed that 108,000 Nil P11Ds were received. There was no detailed breakdown of this figure as yet, and members suggested that, if anything, the figure seemed quite low. By way of possible explanation, members suggested that some employers were submitting P11Ds to notify HMRC of a change in their employees’ circumstances e.g. when they had ceased to receive a particular benefit. Representatives were also concerned that some HMRC offices were actually requesting employers to submit Nil P11Ds for directors. HMRC wondered if employers would prefer a P46 (CAR) equivalent for all benefits that would enable employers to notify HMRC of changes when they happen rather than just at the end of the year. HMRC were researching further with a view to reminding affected employers of the extent of the current obligation and thus alerting those who might wrongly believe they were under an obligation to submit nil P11Ds. Members supported this proposal.
SD said that many employers submitted spreadsheets instead of individual P11Ds. This was perfectly acceptable, provided that the local office had agreed it. However, some employers had concerns about what information should be supplied on the spreadsheet. DM wondered if it would be helpful to devise a template that all employers could use if they wanted to.
LR stressed that this was in no way a relaxation of the statutory requirements to submit P11Ds; Local offices had been instructed by Head Office that they could accept spreadsheets but it is at their discretion. Members were concerned that some local offices were not accepting spreadsheets from employers. It was felt that this might often be because what HMRC offices expected was a single spreadsheet covering all benefits provided, whereas benefit providers’ software tended to facilitate different spreadsheets for different types of benefit – thus perhaps resulting in several spreadsheets for a single employer. LR said that there may be other, case sensitive, reasons why local offices were refusing to accept use of a spreadsheet in a particular instance.
DM asked members if they thought that it would be useful to develop a template. The BCS representative advised that it would be a challenge for the group to come up with a spreadsheet, and took the view that a template would be unworkable and impractical to use. There was some debate about the issue and it was suggested that it should be picked up at the meeting of the group when members would have had the opportunity to have considered it.
Action Point: This issue would be included as an agenda item for the next meeting of the sub-group. There was a suggestion that local offices be reminded that spreadsheets were an acceptable alternative (in suitable situations …) and that there should be some guidance as to when a spreadsheet was acceptable. Alternatively, it was suggested that HMRC include a sentence at each section of the EIM that indicated whether the BIK/expenses concerned was suitable for a dispensation.
DM asked members if there was scope for increasing the number of dispensations to employers from the present level of 68,000 to 100,000. He noted the forthcoming IPP survey would incorporate consultation about dispensations which should clarify issues. DM asked for views about employers’ awareness of the dispensation process.
Members commented on cases of inconsistency by the local offices in processing applications for a dispensation and the lack of guidance on what qualified for a dispensation.
There were also concerns that a request for a dispensation could act as a trigger for an employer compliance review. Members wanted assurances that this was not the case. BS assured members that HMRC could not rule out that such a review might arise but it would be unconnected with the request for dispensation.
Members referred to cases where an employer with perhaps two payrolls - one for local employees and the other for expats - was required to negotiate with two different local offices. This put an extra burden on employers.
It was suggested that there should be a list of categories of expenses & benefits that could easily be dealt with through a dispensation and this should be accessed through the EIM.
Action Point: Members to decide what they would want to include in the list. Representatives would also pick up these issues with their members and provide us with feedback by end of December.
DM advised that there were problems with PSAs on two counts – first, employers were not making use of them when appropriate, and, second, employers were using them when it was not appropriate to do so. Members were concerned that HMRC often refused to grant a PSA for certain types of item. They took the view that if employers wanted a PSA, HMRC should allow it. BS explained that the vires for PSAs made clear that they were not a substitute for employers to operate the normal PAYE/reporting procedures. However HMRC would research the policy rationale for the current criteria and clarify the situation at the next meeting.
Action Point: BS to find out more background information about the policy reasons for the PSA vires in time for the next meeting.
DM advised that talks were under way with HMRC users of P11D data, such as economists and compliance risk managers. The ultimate objective was to reduce burdens on employers and to make sure that they are not being required to submit the same information on more than one occasion.
Members suggested that Form 42 was an example of where employers were submitting information to HMRC twice. This perhaps highlighted the lack of coordination between management of shares related benefits and other non-cash benefits. SD asked members for their views on the level of information sought on the P11D specifically. There was some discussion about this with various ideas and suggestions put forward on the scope for reducing the amount of information for which HMRC make duplicate requests. EW suggested that members should be given time to give this some thought and feed back to the group DM referred to the draft forms of the P11D family which has been supplied with the meeting papers, and suggested that these might assist members to identify options for simplification. SD suggested that suggestions be restricted to the P11D. There were no plans to change the P9D because the number submitted currently stood at 19,000 and was falling annually.
Action Point: HMRC to advise members of the timescale for revising forms generally. Members to send their ideas about the main forms excluding the P9D.
DM advised members that the A-Z list of benefits & expenses had proved to be popular with employers and it was now a regular feature of the CD-ROM and was accessible on the web. The favourable feedback led to a major rethink about our guidance to employers and we are trying to streamline information scattered around different booklets and different places into a more practical and accessible set of guidance products on expenses and benefits.
HMRC would be carrying out a comprehensive review of its guidance with a
view to finding the extent of duplication and overlap, the areas of confusion
and the resource requirement for managing this change. The input of members
would be welcome, albeit with a proviso that the review was not primarily
to reduce the information, but to cut down on duplication.
The feedback from employers was that they would prefer information in one
single place: if it was possible, it would make sense to have a single manual.
HMRC was advised to follow the lead of the Court Services in this area.
Rule based technology, what are employer expectations?
DM asked members for their feedback on rule-based technology. It was noted that employers had been impressed by the demonstration of the company car tool at the Employer Consultation Forum meeting in June. HMRC was keen, subject to resource constraints, to build on that so that the technology may be used in other areas.
Members wanted to know the number of calculators in use at the present moment and suggested that beneficial loans were an area where the technology might be useful, especially for employees that had left the UK.
Action Point: DM/RH to advise on the range of existing or planned calculators on the website or CD-ROM.
The IPP representative asked why employers cannot use actual prices rather than the list price. There was an argument, she suggested, that HMRC should simplify the burdens for employers or operate a scheme similar to the Irish system which allowed employers to use discounted prices in the calculation of company car tax benefit.
EW advised that this was a question of policy underpinning the basis of the charge. Ultimately it was for Ministers but there was an issue of fairness as large employers with huge buying power may be able to obtain considerable discounts which small businesses may not enjoy.
Members suggested that HMRC set up a link with Glass’s guide. However, it was pointed out that some cars, usually imported cars, were not in Glass’s guide
The IPP representative wanted to know when AMAPs rates would be revised as the AFRs had been amended. EW advised that AMAPs and AFRs were two different issues and gave reasons why the rates have not changed since 2002. Essentially, these were:
EW advised that HMRC was always reviewing these issues as a package and not
in isolation.
The IPP representative advised the forum that its members were asking for better guidance on salary sacrifice. She wondered if it would be possible for HMRC to publish an example of an approved salary sacrifice scheme. BS advised that it was not for HMRC to advise employers on how to set up a salary sacrifice arrangement with their employees. This is a question of deciding the structure of a remuneration package and entirely a matter between employees and their employers. HMRC’s interest is only to ensure that the right amount of tax & NICs is paid on the agreed remuneration package in whatever form it takes.
Some members were concerned about the implications of the 12 month rule for the variation of salary; otherwise the rule in Heaton v Bell will kick in. LR advised that the amendment at s 15 of FA 2005 meant that certain benefits such as childcare vouchers and cycles were not affected by the “12 month rule of thumb”. However generally speaking there would still be an expectation of a degree of permanence to any salary sacrifice arrangement in order for it to be effective for tax and national insurance purposes.
The CBI representative said that he was concerned that some employers and employees were entering into salary sacrifice arrangements without thinking about the wider implications. He thought that HMRC could do more to add a word of caution. BS said that HMRC would be happy to consider any form of words that he came up with. The important thing, however, was that HMRC had to be seen to be scrupulously neutral in this sensitive area.
Action Point: CBI representative to provide us with a draft line on salary sacrifice for HMRC to consider.
IPP representative raised an issue where an employer paid an employee an amount of money in return for withdrawing a contractual entitlement. The CBI representative said that there was a recent case that dealt with this issue. The case concerned a LA that had withdrawn a higher grade cash allowance for employees without company cars. The LA was forced to pay damages and the amount was exempt from PAYE because it was compensation for withdrawing a benefit in kind.
The date for the next meeting was agreed as 15th January 2007.
