Employers' Digest March 2012 - Crowe Horwath International


Employers' Digest March 2012 - Crowe Horwath International

March 2012

Issue 53



Inside this issue

Smartphones – HMRC admits it

was wrong

Salary sacrifice and VAT

New HMRC power to prevent

deliberate non-payment of


Case update

Response to HMRC

consultation on teachers,

lecturers and instructors

Smartphones – HMRC admits it was wrong

In a surprise announcement on its website,

HMRC has admitted it was wrong to

exclude smartphones, such as BlackBerry,

from the tax exemption for employerprovided

mobile phones given by section

319, ITEPA 2003.

Until now, HMRC always insisted that,

because of their additional functionality,

smartphones should be treated in the

same way as personal digital assistants

(‘PDAs’ - remember them?); they should

be taxed annually on 20% of their value

in the same way as employers’ assets

placed at the disposal of employees. Now

HMRC accepts that this interpretation was

incorrect and that smartphones do actually

satisfy the conditions to qualify as ‘mobile


This means that every employer who has

reported smartphones as taxable benefits

at any time since 2007, either on P11D

returns or as part of a PAYE Settlement

Agreement, is entitled to a refund, likewise

every employee who has been assessed

to tax on a smartphone. If you are due a

refund for 2007/08, HMRC want to hear

from you no later than 31 July 2012.

It is important to note that HMRC’s change

of heart applies only to smartphones.

There are still other devices capable of

making and receiving phone calls, which

do not qualify for exemption. These include

some satnav devices, tablet and laptop

computers, or anything that uses Voice

over Internet Protocol (VoIP).

Official rate of interest

Home working allowance


Company cars – advisory

fuel rates revised

Forthcoming events

Crowe Clark Whitehill LLP

Salary sacrifice and VAT

In the September 2011 issue of Employers’ Briefing, we dealt at

some length with the effects of the European Court of Justice

(ECJ) ruling last year in the AstraZeneca case. Up to that point

HMRC regarded any reduction in salary under a salary sacrifice

arrangement as not constituting consideration for a supply of

goods or services. As a result of the ruling, that position would

change with effect from 1 January 2012.

The new rules are now in force and employers are reminded

that from now on HMRC will treat the sacrificed salary as

consideration for the goods or services the employee receives

in return. Where the goods or services are VAT-able, such as a

Cycle to Work scheme, the employer must account for VAT. The

value on which VAT must be accounted for will usually be the

amount of salary forgone, but where employers supply benefits

at below cost, the value should be based on the cost to the


This change puts the VAT treatment of a salary sacrifice on

the same footing as a supply of goods or services paid for by

deduction from salary, which HMRC has always treated as a

taxable supply for VAT purposes.

Not all salary sacrifice arrangements will be directly affected

by this, only those where the item or service being supplied

in return is VAT-able, for example retail vouchers (as in the

AstraZeneca case) and Cycle to Work schemes. Salary sacrifice

schemes for school fees or childcare will not attract VAT


There may nevertheless be some minor VAT implications. If

any VAT is charged on related costs, such as an administration

charge from the childcare voucher provider, this will become

irrecoverable because it now relates to the making of an exempt


New HMRC power to

prevent deliberate

non-payment of PAYE

From 6 April 2012, HMRC will have the power to ask employers

to pay a security where there is serious risk that they will default

on paying their PAYE tax deductions or Class 1 NICs. HMRC

can already ask for a security for VAT, Insurance Premium

Tax (IPT) and environmental taxes. Now the power has been

extended for the first time to PAYE and NICs. HMRC claims

this will not affect the vast majority of employers who pay their

tax on time and in full, or employers facing genuine financial


The required security will usually be either a cash deposit from

the business or director – held by HMRC or paid into a joint

HMRC/taxpayer bank account – or a bond from an approved

financial institution which is payable on demand. The amount of

the security will be calculated on a case-by-case

basis – depending on the amount of tax at risk, the previous

behaviour of the employer and other risks. Those being required

to pay a security can appeal against this decision.

HMRC says it will use securities to tackle a small number of

employers who:

deliberately choose not to pay

engage in phoenixism (the evasion of tax by becoming

insolvent and then setting up a new company the next day

to continue trading)

build up large PAYE or NICs debts, including penalties

do not respond to HMRC’s attempts to contact them.

Businesses that fail to provide a security face a fine of up to

£5,000, which will be enforceable by the courts.

(HMRC’s revised policy is set out in detail in Revenue &

Customs Brief 28/11 issued on 28 July 2011 – go to http://www.


Employers’ Digest March 2012

Case update

Hok Ltd v HMRC – UKFTT (TC1286)

The company appealed against a

penalty for late filing of its P35 for

2009/10. Its only employee had ceased

employment during the year and so the

company failed to appreciate that a P35

was nevertheless due. HMRC issued a

penalty notice, but not until four months

after the end of the tax year, by which

time the penalty had grown from £100

to £400. Before the company had a

chance to respond to the penalty notice,

a further £100 penalty accrued.

The judge, Geraint Jones QC, criticised

HMRC, saying: “There can be no logical

reason whatsoever for HMRC to delay

sending out a penalty notice for four

months so that, in effect, a minimum

penalty of £500 will be levied unless the

taxpayer has unilaterally realised that it

has failed to undertake the necessary


The appeal was allowed in part and the

penalty was reduced to £100. (HMRC

may appeal.)

Victor Baldorino v HMRC – UKFTT


This case is an object lesson in the perils

of falling to keep adequate records and

documentation. Mr Baldorino was the

director of a company. The company

leased several cars in succession from a

third party, which were then used by the

director. The leasing costs were debited

to his loan account, so that there was

no net cost to the company. HMRC

contended that the car was a taxable

benefit under Section 114, ITEPA 2003

because it was made available to the

director by reason of his employment.

The director claimed that there was no

benefit in kind because the company

was merely acting as agent and the car

was made available to him by the lessor

and not by his employer.

The court accepted that it was possible

for the company to act as an agent

in such a way that no taxable benefit

arose. However, whether this was

actually the case would depend on

the nature and circumstances of the

agency relationship. There were no

supporting documents or board minutes

to demonstrate that this was actually

the case, so the appeal was dismissed.

The court did however allow the leasing

costs borne by the director to be set

against the benefit charge, describing

this as a ‘generous interpretation of

Section 144’ (deduction for payments for

private use).

The director’s misfortunes did not end

there. The company had paid for fuel

for the car and there were insufficient

records to demonstrate that the fuel was

used only for business travel or that the

director had repaid the cost of fuel used

personally. HMRC was therefore entitled

to impose fuel benefit scale charges for

all the years under consideration.

Mr Baldorino was also denied tax relief

for expenses incurred in using part of his

home as an office. The reason – if you

have not guessed it already! – was the

lack of supporting evidence.

Response to HMRC consultation on teachers, lecturers and instructors

HMRC has published a summary

of the responses received to its

consultation on the proposed repeal of

the Social Security (Categorisation of

Earners) Regulations 1978 in relation

to lecturers, teachers, instructors and

those engaged in a similar capacity.

The regulations as currently constituted

deem such individuals to be ‘employed

earners’ and subject to Class 1 NICs if

they give instruction in an educational

establishment, in the presence of the

learners, and are paid by the ‘education

provider’. The unreported case of

St John’s College School established

that almost anywhere could be an

‘educational establishment’ for the

purposes of the regulations if it was

the setting for a course leading to a

qualification of any sort.

The consultation document considered

four options, which were:

1. do nothing

2. extend the regulations to all

vocational training

3. amend the regulations to apply

only in traditional educational


4. repeal the regulations.

Out of 20 written responses, 18 were

in favour of repealing the regulations

and only one against. HMRC has

confirmed that the relevant section of the

regulations will be repealed with effect

from April 2012. This is welcome news

for the first aid and health safety sectors,

where there has been considerable

uncertainty in the past as to how the

regulations should be applied. This was

due in no small part to the very broad

definition of ‘educational establishment’,

which meant that the same trainer could

fall inside and outside the regulations

in the course of a single contract,

depending on the premises where the

training was being given.

The decision will be particularly welcome

news to schools and colleges who

have wrestled with the complexity

of the regulations in respect of their

peripatetic music teachers, part-time

sports coaches and the like. Despite this,

schools and colleges will still need to

exercise caution before paying part-time

and visiting teachers without deduction.

Many such teachers claim to be selfemployed,

but if in reality they are subject

to management, control by the school,

and are not in business in their own right,

PAYE tax and Class 1 NICs will be due.

Employers’ Digest March 2012

Official rate of


HMRC has announced that its official

rate of interest will remain unchanged

at 4% for the 2012/13 tax year. This rate

is used to calculate the taxable benefit

arising from interest-free or low-interest

loans to employees. It is also used to

calculate the additional tax charge on

employee living accommodation costing

more than £75,000. The interest rate

may be subject to review in the event

of significant changes to the Bank of

England’s base lending rate.

Home working

allowance updated

HMRC has announced an increase

in the home working allowance. This

is a fixed weekly amount that can be

paid to employees who work at home

under arrangements agreed with their

employer. It is intended to compensate

for the additional heating and lighting

costs that the employee will incur. With

effect from 6 April 2012, the weekly

allowance will go up from £3 to £4.

Employees who incur greater costs than

these may be able to claim tax relief

for more than £4, but to do so they will

first have to satisfy HMRC that they are

necessarily working from home (the

allowance can be paid to employees who

voluntarily work at home). They will then

have to produce detailed calculations as

evidence of the actual costs.

Company cars – advisory fuel rates revised

HMRC have revised their advisory fuel rates for company cars once more with effect

from 1 March 2012. The new rates, based on prices of 135.2p, 143.2p and 74.1p per

litre for petrol, diesel and LPG respectively, are set out in the tables below:

Engine size Petrol LPG

1400cc or less 15p 10p

1401 to 2000cc 18p 12p

Over 2000cc 26p 18p

Forthcoming events

Budget 2012 update seminars

Engine size


1600cc or less 13p

1601 to 2000cc 15p

Over 2000cc

Charities and schools

These seminars will include all the important changes announced by the Chancellor

in his Budget on 21 March 2012. They will also bring you up to date with any changes

announced in earlier Budgets but which come into effect on 5 April 2012.

Our speakers will cover matters relating to:

employment tax


direct tax.


Date: Tuesday 27 March 2012


4.30pm – 6.00pm

Venue: Crowe Clark Whitehill LLP

St Bride’s House

10 Salisbury Square

London EC4Y 8EH


Judy Vincent by calling

020 7842 7319 or emailing




Date: Thursday 29 March 2012


4.30pm – 6.00pm

Venue: Crowe Clark Whitehill LLP

St Bride’s House

10 Salisbury Square

London EC4Y 8EH


Judy Vincent by calling

020 7842 7319 or emailing


We hope you find this newsletter of interest. If you have any questions about any of the topics

covered, please call your regular Crowe Clark Whitehill contact or:


David Daly

020 Office 7842 locations



Susan Ball

020 7842 7238


Brian Robson

020 7842 7147



Karen Goodwin

01242 234421



Simon Warne

01622 767676



Paul Edwards

0121 543 1900



Steve Livingston

0161 214 7500


Thames Valley

Stuart Weekes

0118 959 7222


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Isle of Man

01624 627335

The office in the Isle of Man is Crowe Clark

Whitehill LLC. It is a separate, independent

firm and not part of Crowe Clark Whitehill

LLP. Accordingly, neither firm can be held

liable for the acts or omissions of the other.

Crowe Clark Whitehill LLP is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal

entity. Crowe Clark Whitehill LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically

disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member. © 2012 Crowe Clark Whitehill LLP

This information is published without the responsibility on our part for loss occasioned to any person acting or refraining from acting as a result of any information published herein.

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