IR35: more government departments facing significant tax bills

It has recently been revealed that the Ministry of Justice and the Department for Environment, Food and Rural Affairs are facing combined tax bills of at least £121m. This is due to incorrectly determining the deemed employment status of workers who provide their services via an intermediary, typically a personal service company. Both government departments are likely to incur penalties, but the critical question is whether the engager has taken reasonable care?

This is a significant challenge which both private and public sector engagers must consider, especially as HM Revenue & Customs have stated the light-touch approach that is currently being applied will come to an end on 5 April 2022. Where any business engages contractors, they should review their current policies and procedures to ensure they will withstand any HMRC challenge.

For further information please speak with Nick Bustin, Employment Tax Director, or your usual haysmacintyre contact.

 

£1bn in support for businesses impacted by Omicron

The Chancellor of the Exchequer announced on 21 December 2021 a series of measures to help businesses most affected by the Omicron variant:

  • Businesses in the hospitality and leisure sectors in England will be eligible for one-off grants of up to £6,000 per premises, plus more than £100m discretionary funding will be made available for local authorities to support other businesses
  • The Government will also cover the cost of Statutory Sick Pay for COVID-19 related absences for small and medium-sized employers across the UK
  • A further £30m will be made available through the Culture Recovery Fund, enabling more cultural organisations in England to apply for support during the winter

These measures will come into effect immediately and we will closely monitor whether any further support packages will be provided by the Government.

For further guidance please speak with your normal haysmacintyre contact.

HMRC One To Many Letters

Over the last couple of years HM Revenue & Customs (HMRC) have issued a number ‘One to Many’ communications, commonly known as ‘nudge letters’.  Nudge letters are used to encourage taxpayers to review their tax affairs. The nudge letters issued to date have covered a wide range of topics including:

  • Overseas income and gains
  • CJRS,
  • Research & Development,
  • Annual Tax on Enveloped Dwellings (ATED),
  • CGT on property disposals,
  • CGT on deferred consideration on business disposals,
  • Disposal of Unlisted Shares and
  • Partnership Discrepancies.

HMRC receives data from a vast number of sources and believe that the use of nudge letters provides it with a cost-effective approach to communicate with a large number of taxpayers. Nudge letters are a standard communication on a specific topic from HMRC to a large group of taxpayers. The letters to date relate either to where HMRC have identified a potential loss of tax or, more broadly, are an educational exercise. The communication can be delivered by letter or even digital means including Personal Tax Accounts, emails or SMS texting.  It is worth noting that agents do not always receive a copy of these communications from HMRC. The communications are aimed at encouraging taxpayers to review their own tax affairs and voluntarily correct any errors or omissions.

It is important to note that a nudge letter is not a statutory enquiry into a taxpayer’s affairs. However, these letters should not be ignored and appropriate action must be taken. This does not mean signing and sending the requested certificate to HMRC, there is no statutory requirement to do so.  If HMRC subsequently open an enquiry and find an error, failure to take action following receipt of a nudge letter could lead to higher penalties being charged.  Our experience has shown that there can be inaccuracies with some of the information held by HMRC, or it has been interpreted incorrectly.

Penalties

If you have found a mistake in your filings to HMRC, disclosing the error or omission before HMRC send a nudge letter or open an enquiry will reduce the penalty charges.   Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes.  Prompted penalty rates are higher than those that apply to unprompted penalties.  The maximum prompted penalty for an offshore omission is 200%.

A professional tax adviser can guide a taxpayer through the disclosure process and advise where applicable the penalty mitigation available.  We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.

Should you require any professional advice please contact our head of tax disputes and resolutions, Danielle Ford.

Hybrid working arrangements

Working from home allowance

Employers are currently (tax year 2021-22) able to pay employees who are required to work from home £6 per week tax free towards increased costs due to working from home, for example gas and electricity costs.  No records need to be kept of the additional costs incurred providing the £6 payment is not exceeded.  However, the current arrangement will come to an end and the statutory provisions will apply from 6 April 2022.

Purchase of equipment to use at home

There is currently (tax year 2021-22) a temporary tax exemption and National Insurance disregard put into effect to allow employers to reimburse employees who need to buy home office equipment as a result of the COVID-19 outbreak. Similarly, to the working from home allowance this change will come to an end from 6 April 2022.

Travel to the office

The pandemic caused a reduction in the number of employees traveling to the office for the entire working week.  Instead, many employers have introduced new hybrid working arrangements where employees work from a mix of home and the office during the week which raises the question as to where an employee’s permanent workplace is and if an employee reimbursed travel cost is taxable. The following is a high-level summary of the points an employer needs to consider.

However, with this brings the considerations of where an employee’s permanent workplace is and if an employee reimbursed travel cost is taxable.

Travel expenses and permanent v temporary workplace

Travel from home to a permanent workplace is considered as ordinary commuting which is a taxable expense or benefit.

A permanent workplace is a place an employee attends regularly in the performance of their duties which is not a temporary workplace.

A temporary workplace is one which the employee attends for a limited duration or for a temporary purpose. However, if an employee attends somewhere for more than 24 months of continuous work, this place will be a permanent workplace.  Continuous work is deemed by HMRC as an employee undertaking 40% or more of their work at that place.

Working in the office

Where an employee is required to work from the employer’s premises, this will be considered as the employees’ permanent workplace. Consequently, where the employee travels from their home to the office this is ordinary commuting. In these circumstances even if the employee choses to work from home from time to time or has to work at the office outside their normal working hours the office, the employer’s office will still be regarded as the employees’ permanent workplace.  Any payment made by the employer for travel from home to the office will be a taxable expense or benefit.

Formal homeworking arrangement

Where there is a formal homeworking arrangement the application is different. The employee will be contracted to work from home full time which can be considered as the employee’s permanent place of work. Care needs to be taken when looking into any homeworking arrangements which includes:

  • Does the employee work from home occasionally?
  • Does the employee work from home full-time?
  • Do they have a dedicated workspace at home?
  • What is the regularity of any visits to client premises?
  • Finally, who initiated the home working arrangements?

For the employee to obtain tax favourable treatment, the employer must initiate homeworking arrangements and no dedicated workspace can be available to the employee at the employer’s office (now or in the future).

Hybrid working arrangement

The pandemic has accelerated many employers to rethink their position regarding flexible, or hybrid working arrangements. Employers are now offering employees the opportunity to split their working days between home and the office. Under formal homeworking arrangements an employee will always have a desk available to them and their contractual workplace is stated as the office, but the employer is also agreeable to the employee working from home should they wish to do so. As the employee will be attending the office regularly in the performance of their duties, not on a temporary basis. However, the employee will need to consider a wide range of issues, including:

  • What over-arching policies are in place?
  • What changes need to be made to the HR procedure manuals?
  • Whether an changes need to be made to employee expense claim procedures
  • The provision of any workplace benefits

Furthermore, employers need to consider making changes to employment contracts as well.

Cycle to work

Many employers will have made available a cycle to work scheme, helping to encourage employees with the commute between home and the office. Under the scheme there was an expectation that the employee will use the cycle for at least 50% of their journeys to work.

During the pandemic period there was an easement to this requirement so long as the employee had joined the scheme on or before 20 December 2020, in which case they were not required to meet the 50% commuting condition until 5 April 2022.

HMRC do not expect employees to keep detailed records of the use of the cycles. However, employers are required to undertake an annual assessment, ensuring that the cycles are being used for qualify journeys.

Summary

As you can see from the above, care needs to be taken where employers are considering paying for or reimbursing an employee’s expenses for home to office travel. The distinction between an employee’s permanent v temporary workplace is an important consideration as well as the reasons for the attendance and HMRC have traditionally applied a very strict approach to ordinary commuting.

Employers should also consider the impact of any benefits which are made available to employees, such as the cycle to work scheme, to ensure all compliance obligations are being met.

For further advice concerning workplace arrangements please contact Nick Bustin, Employment Tax Director.