By Ian Maston, solicitor, Chiltern plc, London


Employee benefit in kind issues

There have been some recent changes in relation to the taxation of certain benefits in kind. These may affect law firms as employers and advisers.



Late-night taxis

For many firms, late-night working is sometimes a necessity, resulting in the need to provide taxis for some employees. This does not constitute a taxable benefit in kind for an employee, provided that:

l He is required to work later than usual and until at least 9pm, no more than 60 times a year;

l This only occurs irregularly; and

l When the employee finishes working, either public transport has ceased, or it would not be reasonable to expect the employee to use public transport.



Up to now, these rules have ensured that no tax charge arises, with few exceptions, but this may soon change, following the publication of new draft guidance by HM Revenue & Customs (HMRC). The potential change is centred on the definition of 'irregular'. The guidance contains an example in which taxis are provided on 'a couple of nights in a week in order to finish a particular job', and it is confirmed that this will be regarded as irregular, where the annual limit of 60 is not exceeded. No mention is made of the possibility of an employee being required to work late every night for say, a one or two-week period, in connection with a large assignment or project.



If that was the only time the employee was required to work late in that year, a common-sense view would be that for that employee, the late-night working was indeed irregular. The draft guidance does not, however, indicate that this is HMRC's view. It remains to be seen whether, in the light of concerns which have been expressed, HMRC clarifies the position before it publishes the guidance in final form in the Employment Income Manual.



As this potentially involves a national insurance liability for the employer as well as an income tax charge for the employee, employers will need to take additional care if no clarification is forthcoming. This may include requesting HMRC's agreement that a taxable benefit does not arise in a particular employee's circumstances.



Health benefits

The tax-free provision of health screening and medical check-ups for employees may also be restricted in future.



Formerly, they were tax free, but from the current tax year onwards, tax-free treatment will only apply where:

l Health screenings are available to all employees; and

l Medical check-ups are available either to all employees or to those who have been identified in a health screening as requiring a medical check-up.



Firms may therefore need to check their policy on providing screenings and check-ups.



Computers for employees

This time, the change relates to the VAT which an employer can recover when purchasing a computer that is for an employee to use at home.



With effect from 13 August 2007, the VAT incurred by the employer is no longer automatically fully deductible. Full recovery is now only permitted where a computer is provided because it is necessary for an employee to carry out the duties of his employment, and any private use is insignificant.



In all other cases, the input tax must be fairly and reasonably apportioned, and only the portion relating to business use is recoverable. As a transitional measure, full recovery is still permitted in respect of computers provided under agreements entered into before 5 April 2006.



VAT - administrative changes

Staying with VAT, there are two administrative changes to be aware of:



Transfers of a going concern: on 1 September 2007, there was a change of record-keeping requirements on the occasion of a transfer of a going concern (TOGC) as, for example, on the sale of an entire business or, commonly, the sale of a property subject to an existing tenancy.



If the VAT number is not transferred as part of the TOGC, the responsibility for retaining the business records up to that date will rest with the transferor (rather than the transferee, as was previously the case). The transferee is, however, entitled to request such information as he may reasonably require.



Where the VAT number is transferred, the transferee is responsible for retaining the records, as in the past. The transferor may, however, now ask HMRC for permission to retain them. In that event, the transferee will once again have the right to request information.



Invoicing requirements: the following changes to VAT invoicing requirements apply from 1 October 2007:

l Invoices must be numbered sequentially so that they are uniquely identified;

l Invoices for goods sold under a second-hand margin scheme must indicate that fact, or

refer to the relevant UK or

EC legislation;

l Invoices for goods supplied to other EC member states must indicate whether the supply is exempt, zero-rated or subject to the reverse charge, or refer to the relevant UK or EC legislation; and

l Invoices for business supplies under the Tour Operators Margin Scheme must indicate that the supply is made under that scheme, or refer to the relevant UK or EC legislation.



HMRC has stated that no penalties will be charged for non-compliance in the first year, other than in exceptional cases.



UK tax legislation

If you had always suspected that UK tax legislation was unnecessarily complicated and lengthy, your suspicions were recently confirmed in the House of Commons.



The shadow Paymaster-General commented that the UK tax code now runs to approximately 10,000 pages - the longest in the world, and almost twice as many as when Labour came to power in 1997. India is second, with around 9,400 pages, while the US has only just over 5,000 pages.



Although this represents an ever-growing burden for businesses and their advisers, it may at least go a little way towards justifying the existence of tax lawyers.