Follow the money!
CIS is concerned with the limited company getting paid by its clients. IR35 deals with the engineer getting paid by the limited company that he just happens to own. These are two separate issues that need to be looked at in isolation - as you thought.
Make sure that the contract for the job is definitely between the limited company and the client. Quite often, the individual fails to recognise that the limited company is a separate legal person and not simply a bank account and it turns out that the contract is between the individual and the client. If a status issue does arise, the client might not be happy as they might be on the hook for any PAYE and Class 1 NICs if they contracted with the individual and he turned out to be an employee in HMRC's eyes.
Rember the Contributions Agency?
I don't even want to think about how many years' experience I have, but I do recall the Contributions Agency arguing that dividends to a single shareholder/manager were effectively earnings for Contributions purposes. If motive were the sole test, then they were probably right. Since the shareholder concerned had got his paperwork in order to evidence validly declared and paid distributions, we got the problem to go away. As the CA was merged over by the Revenue in 1999, it's not a recent challenge and not one I have seen run since then. Interim dividends at frequent intervals increase the chances of getting the paperwork wrong or ending up with a distributable reserves problem if the financial year has a disastrous second half, so as usual with tax and NICs, it's worth getting the details right. I doubt that Mr and Mrs Jones of Arctic Systems fame expected to be a test case when they simply did the same as so many other businesses, so here's hoping your client is not The One.
Approved mileage payments do not go on P11D
Box E on the 2004-05 tax return reads: 'Amount of car and mileage allowances paid to employees for business travel in employee's own vehicle, and passenger payments, in excess of maximum exempt amounts'. In other words, if your client is paying up to 40p per mile for the first 10,000 business miles in the tax year and no more than 25p per mile after that, there is no need for a P11D entry for the mileage allowance. The P11D Guide - available on the HMRC website and on the employer's CD - gives the motorcyle and cycle rates. HMRC booklet 490 (available from the same sources) sets out what is business mileage.
All the subsistence needs to appear (Box N) if there is no dispensation in force.
Yes and yes - see the form
See the form P11D(b)(2005)Man that covers both your points. Section 2 provides a box to tick to confirm 'No expenses payments or benefits of the type to be returned on form p11D have been or will be provided for the year ended 5 April 2005. For this reason no forms P11D are attached.' Section 3 tells you (in bold) to 'Please note if you have already indicated on form P35 that no P11D(b) is due, there is no need to send this form.
It's in the regulations
Regs 30 and 31 of the Social Security (Contributions) Regulations 2001 (SI 2001/1004) address this under the headings: 'Abnormal Pay Practices' and 'Practices Avoiding or Reducing Liability for Contributions'. The former enables the officer to make a decision that 'shall not apply to contributions based on payments made more than one year before the beginning of the year in which that decision is given' and the latter enables the giving of a direction that 'shall specify the date from which it is to have effect, which shall not be earlier than tha on which it is given.' So your adviser is right. Yes, I've seen the equivalent regulation in the 1979 Regs used. (See www.legislation.hmso.gov.uk/ for the text of the SI).
Remember ITEPA has replaced ESC A22
Section 323 ITEPA has replaced ESC A22 wef 5 April 2003 and the £50 pa applies from June 2003. S/s (3) provides that the gift must be either a) tangible moveable property; or b) shares in a company which is, or belongs to the same group as the employer; or c) any other benefit EXCEPT a payment/a cash voucher/a credit-token/securities/shares not in b)/an interest in or rights over securities or shares. So high street vouchers should be OK as long as they are not directly exchangeable for cash.
You need a ten year gap, minimum, between tax-free long service awards (although the way the legislation is written it does look as though a taxed award in that ten years messes this up) and whilst it is not explicit in the section, it certainly appears that if you award at 25 years, and again at 40, you get 40 x £50 on the second occasion.
A few favoured categories can be found, but they are exceptions
I am not sure what your casuals do but the following links to the Inland Revenue's own staff instruction manuals on various occupations may be of use as there are some, very limited exceptions to the general rule of 'if in doubt, payroll it'.
Agricultural workers: http://www.inlandrevenue.gov.uk/manuals/echmanual/ech13000/ech13020.htm
Students: http://www.inlandrevenue.gov.uk/pdfs/ir60.htm (see particularly the section about working during the holidays and the use of form P38(S)to avoid the need for PAYE to be operated).
In other cases, I can only echo the words of other contributors and point out the Revenue's own guidance for its staff (in its Employer Compliance Manual at para 13256) that reads: 'Employers often describe workers as 'casuals' to justify opting out of their tax and other obligations. ...PAYE applies to casual employees in the same way as it does to other employees.'
(Effective) tax-free lumps sums on retirement are rare
SP13/91 sets out the IR's view on lump sum payments on retirement or death and states that they WILL be regarded as 'otherwise chargeable' in relation to section 148. Section 148 only comes into effect, bringing its £30,000 exemption with it, if the payment or other benefit is 'NOT otherwise chargeable to tax.' I think you would have difficulty getting an inspector to ignore the provisions of SP13/91.
Possible ways of getting a tax-free amount to an employee on retirement include:
- redundancy (but this needs to be genuine, statutory redundancy)
- when it is not retirement at all (best demonstrated by hindsight when the sprightly individual has embarked on a new, successful career, or at least has another full-time job)
- using paras 6-8 of SP13/91
- employer's pension contribution
Using terms the Revenue will understand
Whilst accountancy may rely on principles, taxation (and the incidence of NICs) is based on legislation, as expanded by case law and Inland Revenue concessions and practice. The Revenue administers the tax law that Parliament makes, so blaming the IR auditor who is only following instructions and has no control over their fairness and reasonableness (or not) won't make any difference. Instead, replying in terms that he/she can relate to and is empowered to accept may settle the matter quickly.
Meeting employees' personal liabilities (such as home phone bills addressed to them) brings Class 1 NICs through the payroll, that's why it has no Class 1A flag on the P11D, it should have been dealt with in the month the bill was reimbursed, not on the P11D after the tax year end. See IR leaflet CWG 2 Employer's Further Guide to PAYE and NICs, pages 77 and 82. (Go to www.inlandrevenue.gov.uk for on-line access to such guidance) or more specifically: http://www.inlandrevenue.gov.uk/pdfs/emp2002/cwg2_merged.pdf
But watch that you only settle NICs on the rental and private calls, and NOT on the business calls that he made.
As far as the flowers go (and on a more positive note), you need to look in the Revenue's published manuals on the topic: the Schedule E manual, at SE22900-22920 is often overlooked by Revenue staff and deals with 'Trivial Benefits'. In summary, staff are told to leave these alone. http://www.inlandrevenue.gov.uk/manuals/senew/se22900.htm. (or go to the IR homepage and look under 'publications' and then select 'manuals')
Alternatively, ask your tax adviser (or get another one?)
Company ceases to provide the car?
Isn't the employer ceasing to provide the car if the HP agreement is being transferred to the individual - so the fuel benefit SHOULD be pro-rated? It doesn't matter that he happens to be driving the same car - it's how it's made available that matters. (From 6 April 2003, when free fuel is withdrawn partway through the year, but the car remains available from the employer, then the fuel benefit will be apportionable).