Taxation of Employment Income - New HMRC guidance on various matters

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10 April 2008

Detailed technical guidance on the taxation of employment income is provided for HMRC inspectors in the Employment Income Manual. The information is published on HMRC's website and is a valuable source of information on all aspects of PAYE taxation and P11D reporting.

New guidance has recently been published on a variety of different subjects and those areas that have not already been covered in this newsletter are summarised in the sections below.

Homeworkers - reimbursement of household expenses

Instead of calculating the costs of a homeworker's exactly, employers may make a regular modest payment without having to justify the amount paid. From 6 April 2008, the rate that may be paid in this way is increased from £2 to £3 per week. Employers may, alternatively, reimburse the employee's actual additional costs of working at home or agree a scale rate payment with HMRC.
(http://www.hmrc.gov.uk/manuals/eimanual/EIM01476.htm)

Homeworkers - reimbursement of broadband internet costs

Employers may only reimburse additional household expenses if a tax charge is to be avoided. If an employee already pays for a broadband service before starting to work at home, the expense is not "additional" and is therefore taxable and NICable if reimbursed. If, however, a new broadband service is required when the employee becomes a homeworker, the cost is additional and may be reimbursed tax free. (http://www.hmrc.gov.uk/manuals/eimanual/EIM01475.htm)

Salary sacrifice - free or subsidised meals

Some commercially marketed schemes endeavour to use the tax exemption for "free and subsidised meals" in conjunction with a salary sacrifice. Schemes which provide an "account" for each employee, which is used to purchase food and drink in the workplace and is topped-up regularly by the employer, do not meet the statutory exemption because they place funds at the disposal of employees rather than providing "free or subsidised meals". The money or value provided in this way is taxable and NICable and cannot, therefore, be used in conjunction with a salary sacrifice.
(http://www.hmrc.gov.uk/manuals/eimanual/EIM21675.htm)

Salary sacrifice - nursery schemes

Some commercially marketed salary sacrifice schemes endeavour to take advantage of the workplace nursery exemption. Employers may provide nursery places without a tax charge where they combine with other employers to jointly finance and manage a nursery. HMRC's view is that the additional monetary contribution made by employers to a nursery does not satisfy the "financing" requirement and the appointment of the scheme promoter to act as the company's agent does not meet the "management" requirement. In such an arrangement, the salary sacrifice may be effective but the provision of the nursery place becomes a P11D reportable benefit and is subject to Class 1A NICs. (http://www.hmrc.gov.uk/manuals/eimanual/EIM21970.htm)

Car benefit charge - carbon offset charges

If the manufacturer or importer of a car shows its list price as inclusive of a carbon offset charge and there is an option for the customer to opt out of paying it, the inclusive price is still the list price for tax purposes. If the customer decides not to pay it, it is a discount and does not serve to reduce the list price. If, conversely, the carbon offset charge is not included in the list price and the customer chooses to pay it, it does not serve to increase the list price as it is not an accessory. (http://www.hmrc.gov.uk/manuals/eimanual/EIM23124.htm)

Petrol/electric hybrid cars

Company cars that are powered by a petrol engine and a battery electric traction system have a 3% reduction in the percentage used to calculate the car benefit charge. Although not currently available, cars that are powered by a diesel engine and an electric traction system would not enjoy the discount as the legislation refers specifically to "cars capable of being propelled by electricity and petrol". (http://www.hmrc.gov.uk/manuals/eimanual/EIM23440.htm)

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Further information:
Recent updates to the Employment Income Manual

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