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2006: HMRC's Year of the U-turn
Since celebrating their first birthday under the new moniker of HMRC this April, Her Majesty's Revenue & Customs have been busy updating policies and issuing new guidelines, many of which affect those employed in the Scottish catering and hospitality industry. Barry Laurie provides a roundup of the recent changes that could affect your business…
TIPS AND TRONCS: THE END OF THE LINE
At last, HMRC have issued their definitive guidance on tips and troncs. With the re-issue of leaflet E24* on 18 October, they appear to have backed down from their original stance of investigating businesses and levying huge charges for backdated NIC contributions. As a result, some businesses now stand to receive a substantial refund of NIC contributions that were wrongly levied in the first place. If tips and troncs are a feature of your business, you should study the guidance carefully.
However, this is small consolation for the suffering that many companies have endured, as some businesses were even forced to close under the weight of these erroneous liabilities.
But perhaps the biggest climb down by HMRC is over the impact on the National Minimum Wage (NMW). Tronc moneys paid to staff via the employer's payroll count towards the minimum wage. This has caused disquiet in some quarters, but it nevertheless remains the law. HMRC now accept that this does not in itself result in an NIC liability on the employer, though you need to check the rest of the guidance to be sure there are no other problems.
STAFF ACCOMMODATION
Another difficult area is how staff accommodation is taxed. It is quite obvious that many rural hotels would find it impossible to source staff if they did not offer accommodation, especially with so many employees from overseas. However, you may be surprised to learn that in most cases, HMRC consider this a benefit in kind, and is therefore potentially taxable. There are some exceptions, but on balance, they are probably right under the law as it currently stands. While I doubt that this will change in the near future, HMRC are in discussions with the British Hospitality Association to determine some sensible guidelines. If you find HMRC are trying to tax the accommodation and are satisfied that they are right in principle, the result need not be all that painful. In most cases, there is a generally accepted way of valuing the 'benefit', which should keep the final tax bill very low. HMRC will not always volunteer this method.
Occasionally, the National Minimum Wage allowance for accommodation causes problems. The regulations allow £29.05 per week for staff accommodation to count towards the minimum wage, but I have frequently seen HMRC try to tax that as the value of the accommodation. As long as the staff contract is properly structured, the value should be much less than that, and HMRC's attempts to tax it should be firmly resisted. This is an extremely confusing area and most people both inside and outside HMRC struggle to make sense of it.
OWNER'S ACCOMMODATION – BOARD AND LODGINGS ADJUSTMENTS
Where the owners of hotels reside in their property, there needs to be a tax adjustment for their returns to cover the value of their board and lodgings. To keep matters simple, flat rates have been agreed in some areas.
However, this solution is not applied everywhere, and HMRC are currently trying to ensure more consistency. Regional variations are possible but I suspect too difficult to implement, both politically and administratively, so we may end up with a fixed adjustment over the whole of the UK. Until that time it is business as usual, and you should still be able to use the local agreement.
For help and advice on any tax issues, contact
Barry Laurie
Head of Tax Consultancy
McCabes
56 Palmerston Place
Edinburgh
EH12 5AY
Tel: 0131 225 6366
Fax: 0131 220 1041
Email: barry@mccp.co.uk
*See www.hmrc.gov.uk/helpsheets/e24.pdf to download leaflet E24 for guidance on tips and troncs.
This article has been edited from its original version. For the complete feature please see Catering in Scotland magazine November/December 2006.
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