As an Employer Gloucestershire County Council Has an Obligation Operate PAYE and NI Correctly

Accounting Instruction No. 17

TAX AND NICS LIABILITIES ON PAYMENTS AND STAFF BENEFITS

1.Introduction

As an employer, Gloucestershire County Council has an obligation to operate PAYE and NICs correctly. Consequently, any penalties incurred or arrears of tax (and any associated interest payable) are borne by the employer and not the employee. Where such costs arise they will be charged to the responsible service’s budget.

It follows, therefore, that before certifying payments or authorising a privilege (such as allowing private use of a GCC asset to members of staff) managers must ensure that the consequences for PAYE and NICS are understood, and permitted by GCC. It is also necessary to ensure that correct documentation and procedures are followed.

This Accounting Instruction attempts to alert Budget Holders/Managers etc. to consider further any situation where they intend to make payments to staff, or to allow use of a County Council asset, to ensure compliance with both H M Revenue & Customs and GCC policy.

Any queries regarding payment policies and procedures can be directed to Kevin Davey in Tax, Control and Pensions Finance on (01452) 425891.

2.Monetary Payments

Distinction must be made between types of payments, payments for goods or services and payments for salary or additions.

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2.1.Payments in return for goods and services are paid through the Creditor System and details regarding this can be found in Accounting Instruction 1 – ORDERING, RECEIVING AND PAYMENTS OF GOODS AND SERVICES

2.2.Payments of salary and additions to normal pay to employees of Gloucestershire County Council must be made through payroll. This ensures that they are treated correctly for PAYE and NICS purposes and also that the correct reporting procedures required by HMRC are adhered to. Details outlining payments to staff are outlined in Accounting Instruction 13 – PAYROLL PROCEDURES

2.3.When making payments to an individual who does not initially appear to be a GCC employee an assessment must be made as to the nature of the relationship between the individual and the Council, rather than the usual employment status of the individual who is carrying out the work.

2.3.1 Payments to Office Holders -Gloucestershire County Council has a legal obligation to deduct, and account for, PAYE and NICs in respect of fees paid to office-holders. Some office-holders may claim that they are not liable to PAYEand NICs because they are self-employed or operate through a personal service company. The guidance below tells you how to deal with such situations.

Definition of an Office Holder

An office holder is a person who holds a position which

• owes its existence to a constituent instrument, charter, statute, declaration of trust or instrument
• possesses a public title or character
• has an existence independent of the person who holds it
• has an endurance at least beyond the tenure of one person
• can be recognised as continuing to exist even when temporarily unoccupied

Fees may be paid gross without deduction of PAYE/NICs to office-holders (such as school improvement partners) only if

(a)the person operates through a personal service company

A personal service company is a registered limited company, usuallyowned by one person, which is engaged to provide services performed by its owner

(b) our contract is with that company and

(c)we are invoiced by, and make payment to, that company

• If you receive an invoice from the company owner (i.e. the person doing the work) personally, rather than from the company itself, you should make the payment through the payroll system and deduct PAYE and NICs
• If you have engaged and contracted an individual but receive an invoice from a personal service company acting as an agent for the individual, you should deduct PAYE and NICs from the payment

In all other cases PAYE/NICs should be deducted from fees paid to office-holders, i.e. they should be paid through the payroll system.

Note

HMRC are planning to introduce legislation that would have the effect of re-defining a personal service company owner as an employee of the Council (and therefore subject to PAYE and NICs) if the individual

• Is able to shape the direction of the Council
• Has authority or responsibility for directing or controlling major Council activities
• Has managerial control over a significant proportion of the Council’s employees
• Has managerial control over a significant proportion of the Council’s budget

2.3.2 Payments to individuals who are not office holders – determination of the employment status of individuals who do not qualify as office holders must be done using the HMRC web based tool A copy of the results must be printed off and attached to the invoice for payment(failure to do this will result in the invoice being returned from BSC Financial Administration).

If as a result of the assessment the individual clearly cannot be considered to be an employee of the Council, payment may be made through the Creditors System. If however this is not the case, payment must be made through the Payroll System with deduction of PAYE/ NICs where appropriate.

3.Taxable Benefits

3.1Reimbursement of Expenses

Confusion can arise concerning the reimbursement of expenses and what constitutes a true expense.

Remember that reimbursements of expense payments

• must do no more than repay the cost incurred by the employee

and

• must have been incurred “wholly, exclusively and necessarily” in the performance of his/her employment.

The “wholly, exclusively and necessarily” rule has important implications where there is perceived to be any personal gain derived from an expense payment or use of a GCC asset.

Therefore:

• where an employee makes a payment, or purchases an asset, primarily for business purposes (i.e. work),and is reimbursed by GCC but
• there is potentially some private use or benefit arising from whatever has been paid for

HMRC will consider the employee to be in receipt of a taxable benefit. HMRC regularly review payments to individuals to ensure that PAYE and NICs. has been applied correctly and that there is no profit element or benefit gained to the employee.

Examples of payments made to employees might be:

• Casual payments for extra duties
• Travelling expenses*
• Telephone Bills
• Staff Loans
• Relocation Expenses

* Calculation of mileage travelled for the purposes of carrying out duties of employment, and therefore claimable as reimbursable expenses, can be somewhat complex. For detailed rules regarding this and other aspects of travel expenses please refer to Accounting Instruction No.8 – TRAVELLING AND MEALS EXPENDITURE.

3.2Private Use of GCC Assets

Whenever an employee is granted use of a GCC asset, a potential PAYE and NICs liability exists if there is the possibility of private benefit arising from that use.

Examples of GCC assets that may be used by employees are:

• Living Accommodation
• Cars/Vans
• Mobile Phones

3.3Reporting to HMRC

As employer, GCC has a responsibility to report to HMRC all instances where its employees are in receipt of taxable benefits (as in 3.1 and 3.2 above). It does this via the annual P11D return, which it submits at the end of each tax year. All Budget Holders and Managers will be asked to return relevant details to the Tax, Control & Pensions Finance section during April prior to the submission deadline.

General arrangements for dealing with payments to employees are contained in the PAYE AND NICS LIABILITIES ON PAYMENTS AND STAFF BENEFITS - RED TAXBOOK. This is available on Staffnet.

STRATEGIC FINANCE

SHIRE HALL

WESTGATE STREET

GLOUCESTER

GL1 2TG

Feb 2013

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