Inside this issue
Company cars (joint ownership)
Salary sacrifice warning regarding National
Minimum Wage (NMW)
Status, status and more status
Intermediaries legislation (IR35)
A new unit has been set up by
HM Revenue and Customs (HMRC)
in Sheffield specifically to focus on
IR35 compliance. At the same time,
HMRC has issued an additional
guidance document available for
download on their website.
The guidance sets out 12 ‘business
entity’ tests and gives six example
scenarios to see whether IR35
applies. Contractors are encouraged
to apply each test to their business,
with each test carrying a score from
-15 up to +35. The tests include such
as whether the contractor operates
from business premises (20 points),
was previously a PAYE employee
(-15 points), can improve profitability
through efficiency (10 points) or has
engaged the services of a substitute
(20 points). The total score then
determines which of three risk bands
the contractor falls into and the likely
exposure to IR35 – the ‘risk’ being of
coming under close HMRC scrutiny:
low (over 20 points)
medium (10-20 points)
high (below 10 points).
HMRC meanwhile stress that
the bands are ‘on a spectrum,
not set pigeonholes’.
The IR35 Forum helped HMRC to
devise the ‘business entity’ tests and
with example scenarios. Although more
scenarios were agreed and discussed,
only six have been published in total.
Penalties – do not be late
Senior Accounting Officers
Real Time Information (RTI)
continued on next page...
Crowe Clark Whitehill LLP
... from previous page
Given that the main tests of
employment status have not changed
over the years, and therefore remain
significant in determining the nature
of an engagement, it appears that
the pattern of work is a new area
contractor and engagers should
consider. The main message to
contractors is this: if you are going
to be engaged over a long period,
then you must be able to show that
you are working on and engaged
for specific projects in each case.
Despite the new guidance,
the only method, other than
involving HMRC, that can provide
much‐needed certainty for a
contractor unsure about their
employment status, is for the
contract to be professionally drawn
up and/or reviewed. However, as
recent status cases have highlighted,
it is important that the contract is
not hypothetical but reflects the
actual working practices in place.
All contractors should read the
guidance and consider if they are
high, medium or low risk and what
actions they may need to take, if
any. Engagers also need to be aware
of the guidance and recognise that
may find contractors pushing for
employee status or higher payments
in future, where they believe
they are in the high-risk band.
Company cars (joint ownership)
The case of G R Solutions Ltd v HMRC provides another example of an argument
where company car and car fuel scale charges apply as well as unusual car
ownership arrangements. The court looked closely at the expression ‘made
available’. HMRC won the case, by virtue of the legislation that states that
benefit in kind charges apply where:
1. ownership of the car does not pass to the employee
2. the car is available for private use (whether it is actually used or not)
3. the car is made available by reason of the employment.
The case is interesting because the car was jointly purchased. In the tribunal’s view,
the expression ‘made available’ should be considered at the point in time when the
vehicle is used, rather than the point in time when it is purchased, or the point in
time when a partial property title is transferred from the company to the employee
or vice versa. If at the time of use of the car, the company owns 90% of the car and
the employee owns 10%, that is the relevant circumstance to which the expression
‘made available’ must be applied.
Salary sacrifice warning regarding National Minimum Wage (NMW)
The UK’s biggest car dealer, Pendragon, has been hit with fines and compensation
orders totalling £35,000 after HMRC ruled that the company had paid at least 40 of
its staff less than the NMW.
HMRC said Pendragon deducted money for lease car payments and salary
sacrifice schemes, which reduced what some staff received as a basic wage
(without commission, bonuses or other extras) to a level below the statutory
minimum. The NMW is currently set at £6.08 per hour for staff aged over 21
(rising to £6.19 from September, in line with the recent Budget announcements).
Status, status and more status
The last few high profile cases to go before the tax tribunals concerning employment
status have all concluded that the relationship was one of employment. We had
Weight Watchers in December 2011, Philip John Wright in January 2012 and Barney
v. HMRC, also in January 2012. The most recent case is Eric Newman Developments
in February 2012.
It appears HMRC is actively increasing the number of enquiries being opened.
The stakes have never been higher. In some respects, it is surprising that it has taken
HMRC this long, as status is undoubtedly the main area where a large amount of tax
is at stake if an employer gets it wrong.
Eric Newman Developments was the latest victim in HMRC’s crackdown on false
self-employment. Although the liability was only £15,000 (excluding interest and
penalties), this only related to one subcontractor earning just £15,000 a year,
highlighting precisely how costly it can be for a business to get status wrong.
Some interesting points to note from this case are:
the company relied on contracts to add weight to their argument.
The problem with this however was that the contracts were poorly drafted
the contracts were also clearly backdated (the subcontractor did not move
into the address on the contract until some three years after its date)
at a meeting with HMRC, the company had confirmed that substitution
was not possible (they later gave witness evidence that it was)
in addition, the engager argued that the subcontractor was paid on a
‘price work’ basis when actually he was paid the same fixed amount each week.
Employers’ Digest May 2012
Penalties — do not be late
Whilst we still have some 2011/12 reporting deadlines to
comply with, now is a good time to look at the implications
for employers when mistakes are made. To recap, penalties
can be imposed when inadequate or incorrect information is
supplied to HMRC where:
late payments are made
a payment has been incorrectly treated for tax and
National Insurance (NI) purposes
returns are not submitted at all.
The penalty regime has changed over the last few years, with
this in mind a summary is detailed below.
Expenses and benefits — forms P9D and P11D
Late returns – forms P9D and P11D are due by 6 July
following the end of the tax year. The penalty for late filing is
a maximum of £300 per form initially, plus a maximum daily
penalty of £60 per form.
Incorrect returns – the maximum penalty is £3,000 per
incorrect form submitted to HMRC and the same again if
an incorrect form is given to the employee. This technically
also applies in situations where genuine business expenses
have been omitted from forms P11D even though no P11D
dispensation agreement is held.
However, we have rarely seen this penalty levied. It is more
likely that HMRC will ask the employer to settle all tax and
National Insurance Contributions (NICs) on the unreported
benefits on a grossed-up basis instead of the employee
settling the tax through the self-assessment tax return
system and the employer paying the NICs separately. By
doing this, there is a penalty from the gross up calculation.
NICs are also levied on the grossed up tax, in a similar way to
Termination/redundancy payments reporting
A report is due where the termination settlement exceeds
£30,000 and non-cash items have been included in the
settlement. Cash only settlements irrespective of amount
need not be reported.
The due date is 6 July following the end of the tax year in
which the reportable payments were made. You should make
a report to the Employer Technical Team, Employer Office,
BP4009, Benton Park View, Newcastle NE98 1ZZ.
In the event of a late or incorrect return, the penalties are
the same as those that apply for P11Ds for both late filing
and an incorrect return. However, it is not something we have
seen HMRC levy, and there is no set format for the return.
It is more likely that HMRC will collect any tax that they believe
is underpaid on a grossed up basis from the employer if a
See page 68 of HMRC booklet CWG2 for further information.
Share participation arrangements return — form 42
For companies with a number of different share based
arrangements, the number of reportable events in a year
may be high and so the potential penalties for late filing could
amount to a significant sum.
Late return – the due date is 6 July following the end of the tax
year. You should report the grant or exercise of share options.
The penalty for late filing is a maximum of £300 per reportable
event for each ‘responsible person’ (of which there can be
a few) plus a maximum daily penalty of £60 per return per
Incorrect return – the maximum penalty is £3,000 per incorrect
return, HMRC does not usually charge such penalties in
practice where additional tax geared penalties are due on
underpaid Pay As You Earn (PAYE) and National Insurance (NI).
For further information, visit the HMRC website for
employment-related securities and reporting requirements.
Top tip – in summary, you should try to submit information to
HMRC as and when it is required. If a penalty is levied, you
should check the amounts and the reason before accepting
that it is due. You only have to look at the number of tribunal
cases across the taxes in recent years to realise that HMRC
does not always get it right!
Employers’ Digest May 2012
SAOs legislation requires the nominated SAO to ensure that the
company establishes and maintains appropriate tax accounting
arrangements – is this something your business currently has
The new SAO manual has just superseded all the previous
The key points of RTI:
new payroll process
all employers need to be ready by April 2013
new alignment to the process to ensure HMRC and
employers/pension providers have the same information
new penalty provisions from 2013/14
HMRC offer basic free software but only for those with
fewer than nine employees.
How do businesses prepare for RTI
Key points for businesses to consider:
make sure you know what it is and what it means for
review your human resources, finance, reward and payroll
processes including information flow
ensure you can make a full payment submission on time;
whether weekly or monthly
talk to your payroll software provider or bureau
check payment method e.g. BACS or other.
We hope you find this newsletter of interest. If you have any questions about any of the topics
covered, please call your usual Crowe Clark Whitehill contact or:
020 Office 7842 locations
020 7842 7238
020 7842 7147
0121 543 1900
0161 214 7500
0118 959 7222
Associate member of
Crowe Clark Whitehill UK
Isle of Man
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.