Employers' Digest March 2012 - Crowe Horwath International

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
filing.”
The appeal was allowed in part and the
penalty was reduced to £100. (HMRC
may appeal.)
Victor Baldorino v HMRC – UKFTT
(TC01766)
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
environments
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.