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17/02/2015

Critical Updates, Issue 68, February 2015

Pay as you Earn (PAYE)

Completing the End of Year Checklist is no longer mandatory

It will no longer be mandatory for employers to complete the final report checklist data items 111 to 117 on their last Full Payment Submission (FPS) for a tax year.

This change takes effect for PAYE reports made from 6 March 2015. Some payroll software providers will not be able to change their products in time to take advantage of this.

This change means that, from 6 March 2015, HMRC will accept a final FPS or EPS for a period from 6 April 2014 to 5 April 2016 without a completed checklist. In cases where employers do have to complete the checklist to enable their software to actually make their final submission, they should ensure that they complete it accurately.

The removal of the checklist does not affect an employer's obligation to report on time all expenses and benefits provided on forms P11D and P9D, and the amount of Class 1A National Insurance due on all the expenses and benefits provided on form P11D(b).

Student Loan threshold to increase

From 6 April 2015 the student loan threshold will rise by 2.5% to £17,335. This figure will apply to all current borrowers for whom employers make Student Loan deductions.

New rules to fund medical treatment to help an employee to return to work

A new exemption from tax and National Insurance contributions (NICs) came into force on 1 January 2015. It applies when an employer funds medical treatment to help an employee return to work, provided certain conditions are satisfied.

The exemption covers medical treatment up to a maximum cost of £500 in a tax year per employee. Any costs for medical treatment in excess of this amount are subject to tax and NICs in the normal way.

Trivial benefit in kind changes

A new tax exemption for trivial benefits in kind (BiK) becomes effective from 6 April 2015.

If you currently have an agreement with HMRC allowing you to treat certain BiKs as trivial you need to be aware of these changes as your agreement will no longer be valid.

From 6 April 2015 you will need to ensure that any BiK you treat as trivial meets the new £50 definition and criteria. Further details about the new trivial BiKs exemption will be in a subsequent Critical Update - HMRC haven't released the final details yet.

Employees under the age of 21

From 6 April 2015 employers with employees under 21 years old will no longer have to pay Class 1 secondary National Insurance contributions on earnings up to the Upper Secondary Threshold (UST) for those employees. Be prepared to change the NI category letters for those employees under 21 to ensure you're paying the correct amount of NI contributions.

Statutory payments: adoption leave and pay

The Government is removing the qualifying period for statutory adoption leave. From April 2015 eligible employees will be able to take statutory adoption leave from the first day of their employment (ie it will become a 'day 1 right' like maternity leave).

Adopters who qualify for statutory adoption pay will be paid at the earnings related rate in the first six weeks. The remaining 33 weeks will be paid at the lower of the earnings related rate or the flat rate (currently £138.18 a week) - mirroring the arrangements for statutory maternity leave and pay. The earnings related rate is calculated as 90% of the adopter's normal weekly earnings in the 8-week period leading up to the date the adopter is notified of a match with a child.

From 5 April 2015 eligible employees and agency workers with 12 weeks' service will be entitled to time off to attend adoption appointments in the period between being notified of a match and the child being placed with the family.

Single adopters are entitled to paid time off to attend up to five doption appointments. In the case of joint adopters (ie a couple who have been jointly matched to adopt the child) one of the adopters will be entitled to paid time off to attend up to five adoption appointments. The other adopter may be entitled to unpaid time off work to attend up to two adoption appointments.

Where there are joint adopters, the adopter who took paid time off to attend adoption appointments cannot claim paternity leave and pay.

'Payrolling' benefits optional from April 2016

In the 2014 Autumn statement, the Government announced that employers will have the option to deal with the tax on a limited range of benefits in kind through the payroll from 6 April 2016. Note the originally proposed effective date of 6 April 2015 has been postponed for a year! The taxable value of a benefit in kind is treated in the same way as additional salary or wages for payroll purposes and subject to PAYE.

The option to payroll benefits in kind will initially be limited to car and fuel benefits, private medical insurance and subscriptions such as gym membership. Once payrolling has been established in relation to these benefits, the Government will look at extending it to other benefits in kind. The payrolling process is optional and employers will be able to opt in and opt out of the process. Where a benefit is dealt with through the payroll, the employer will be relieved of the need to report that benefit to HMRC on form P11D.

Recovering input VAT without a VAT invoice

When claiming input VAT on a purchase, a taxpayer is normally expected to retain a qualifying VAT invoice. Without it, HMRC will reject the taxpayer's claim.

In the recent case of Xpress Telecom Ltd HMRC said the till receipts were not valid VAT purchase invoices for the taxpayer's claim and therefore rejected the taxpayer's claims for input VAT.

Eventually HMRC had agreed to accept those till receipts which related to purchases by an employee or director of the taxpayer and to pay the taxpayer's claim in respect of these purchases.

When a taxpayer suffers input VAT but does not hold a full VAT invoice, it is important to appreciate that HMRC is empowered by Regulation 29 of the VAT Regulations 1995 to accept alternative evidence to justify paying a VAT claim. The argument to persuade HMRC can be protracted and technical, but they must act reasonably when reviewing other credible evidence. However, this is not an excuse for not getting a proper VAT invoice or receipt in every possible circumstance!

(Xpress Telecom Ltd v Revenue and Customs Commissioners)

Revenue and Customs Brief 2 (2015): VAT grouping rules and the Skandia judgment

The implication of the Skandia judgment is that an overseas establishment of a UK-established entity is part of a separate taxable person if the overseas establishment is VAT-grouped in a member state that operates similar 'establishment only' grouping provisions to Sweden. This will be the case whether or not the entity in the UK is part of a UK VAT group. Businesses must treat intra-entity services provided to or by such establishments as supplies made to or by another taxable person and account for VAT accordingly.

Services provided by the overseas VAT-grouped establishment to the UK establishment will normally be treated as supplies made in the UK under the place of supply rules, and subject to the reverse charge if taxable.

Services provided by the UK establishment to the overseas VAT-grouped establishment will normally be treated as supplies made outside the UK under the place of supply rules. Therefore they will need to be taken into account in ascertaining input tax credit for the UK establishment. If the supplies are reverse charge services, they should be reported on the trader's European Sales List.

If the UK entity is in a UK VAT group, the same applies to supplies between the overseas establishment and other UK VAT group members in the UK.

HMRC will confirm which other member states will operate Swedish-style 'establishment only' VAT grouping following the Skandia decision as soon as possible, and update guidance accordingly. [Haysden comment: In the meantime a safe fall-back position is to treat all overseas branches as affected by this judgement.]

This change in treatment must be applied to services performed on or after 1 January 2016. Businesses may choose to apply the changes to services performed earlier than this date, provided they do so consistently for all services and establishments affected. 

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