Expenses and Benefits Information provided by The Institute of Payroll and Pensions Management

Extra Statutory Concessions An extra-statutory concession (ESC) is a relaxation of the rules to give relief from tax on items that, under the letter of the law, would otherwise be taxable. ESCs are designed to address minor or trivial anomalies under the legislation and to meet cases of hardship where a statutory remedy would be inappropriate. Examples are: Long service awards- gifts to the value of 20 per year of service, subject to a minimum of twenty years of service in the first instance and ten year intervals thereafter Travelling and subsistence when public transport is disrupted External training courses expenses borne by the employer Christmas party of alternative functions where cost per head does not exceed 75

Exception of benefits Certain benefits have been exempted for both tax and NICs from the 6th April 2000 and need not be reported Work related benefits The exemption of items provided for employees and used solely in the workplace for work purposes is extended to cover small amounts of private use in the workplace or elsewhere Mobile Telephones - The taxable benefit of mobile phones, which are provided primarily for business use, was removed with effect from 6th April 1999. Welfare counselling benefits The exemption will be given provided the counselling service is available to employees generally and covers an area where the assessable benefit is small and tax may not be charged. Private medical treatment and insurance will not be included in this exemption

Pecuniary Liability It is not always obvious whether a payment is an expense or benefit. Employers often assume that if they make the payment direct to the supplier it will be a benefit rather than an expense, but this is not always the case. The distinction is important because whilst benefits are taxable and subject to Class 1 NICs, expenses (unless wholly business related) are taxable and subject to Class 1NICs via the payroll. The determining factor will always be who was liable to pay the bill? For example, an employee brings in his home gas bill and the employer pays it directly for him. Liability for payment was clearly the employees and the employer making payment does not alter that. This is referred to as the employees pecuniary liability. Where an employer meets the employees liability this way, it is treated as an expense payment and (unless it meets the criteria above) will be subject to both tax and class 1 NICs. Accommodation The provision of living accommodation will give rise to a taxable benefit unless: It is necessary for the proper performance of the employees duties, e.g. a caretaker who is required to live on-site; It is for the better performance of the employees duties and it is customary to the employment, e.g. tied cottages for agricultural workers; There is a threat to the security of the employee and the accommodation is part of the security arrangements

Value of accommodation

The taxable benefit will be the annual value of the property (this will be the rateable value used before the introduction of the Community Charge or for new properties, an estimate of this amount), or the rent paid by the employer, whichever is the greater. Any rent or contribution made towards the provision of the property made by the employee may be subtracted from the taxable benefit. Additional charge If the property cost over 75,000 then there is an additional taxable benefit charge, being the excess of the cost (or if owned by the employer for 6 years or more, the current market value) over 75,000 multiplied by the official interest rate in force at the beginning of the tax year Other benefits attributable to accommodation Any bills such as heating, lighting or Council Tax for the accommodations, which are paid by the employer, will also form a taxable benefit. If the employer also provides furniture with the property, then this will form an additional taxable benefit, as for any other asset placed at the employees disposal. However if the accommodation is rented by the employer as a furnished property, no such charge arises, as the value of the furniture is included in the rent by the landlord. Note: the Inland Revenue produces a Working Sheet which can be used as an aid in calculating the taxable benefit of accommodation Mileage Allowance Fir employees using their own cars for business, the Inland Revenue publishes a set of mileage rates (according to the engine size of the car and miles travelled) which the employer may pay by way of reimbursement without incurring a tax liability. This system was known as the Fixed Profit Car Scheme, but since 1998/99 the rates have been referred to as the Inland Revenue Authorised Mileage (IRAM) rates. Some employers pay a flat rate per mile, regardless of the actual cubic capacity of the vehicle. Where such a system is used, the Inland Revenue IRAM rates are amended to reflect this and the average of the two middle rates may be used. Business mileage: The NIC position The National Insurance Contributions Office accepts the IRAM up to 4000 miles rates as a measure of NIC free mileage payments, regardless of the number of miles travelled. NICs are due on any excess over these rates. This slight variation in treatment between tax and NICs means that where the over 4000 miles rate is exceeded, a tax liability arises on the excess, whereas NICs will not be due at all unless the up to 4000 miles rate is exceeded. Note: the Inland Revenue produces a Working Sheet, which can be used as an aid in calculating benefit of mileage allowances. Essential Car User Allowance If the lump sum is an accurately calculated proportion of vehicle standing charges and if the mileage rate paid in addition is below the IRAM rate, the difference between what you pay and the IRAM rate can be offset against the lump sum payment before Tax and NIC is assessed. In all other cases any lump sum paid will attract Tax and NIC unless the specific and distinct business element can be identified.

Tax Relief If the total car and motor mileage allowances paid are less than the amount calculated using the authorised mileage rates, then the employee can use the rates to claim tax relief on the difference. Where employees pay less than the approved rates, it is important to ensure that employees are aware of the procedure for claiming additional tax relief. Home telephone expenses Call charges and rental must be considered separately in cases where the employer pays an employees home telephone bills. The reason for this is that the rental costs would be incurred by the employee whether or not any business use was involved, and will therefore fail the wholly, exclusively and necessarily test for tax. Similarly, the specific and distinct test for NICs will not be satisfied and the rental will therefore