Welcome to this month’s update.

HMRC’s new “Advisory Fuel Rates” have been announced. These are not statutory rates. There is no compulsion to use them but they are ignored at your peril. My advice to clients is either to follow these rates or ensure that you keep good evidence of your own calculations to justify reimbursing a higher rate to employees or more importantly to satisfy an HMRC officer that you have recovered the ‘full cost’ of any private fuel.

It is important to keep accurate mileage records. Any established failure to do so will result in company car fuel scale charges being imposed by HMRC Employer Compliance Officers. I am currently advising clients where limited records were kept by the directors and employees and HMRC has been demanding tens of thousands of pounds in tax, Class 1A NICs, interest and penalties. Another common problem is where mileage records are in very rounded amounts (50, 100, 200, 300 etc.) making it difficult to prove that no private fuel was ‘enjoyed’ and where fuel scale charges would be sought.

The notional value used for calculating the fuel scale charge benefit for a company car has increased in the current tax year (2010/11) from £16,900 to £18,000. This means an increase in the lowest fuel scale charge to £1,800 for a ‘qualifying low emissions car and an increase in the highest company car fuel scale charge to £6,300. This represents payment of £210 per month income tax on the fuel benefit and £806.40 per annum Class 1A NIC. This is why it is important to avoid incurring fuel scale charges where private fuel is not intentionally provided as a perk, or where the amount of private fuel/mileage does not justify the cost. You have been warned!

Next some reminders on your client’s 2009/10 P11Ds, where the statutory deadline of 6th July 2010 is getting ever closer. Do we need to submit P11Ds at all and what box was ticked on the P35? Was it P11Ds are not due or P11Ds to follow? If we ticked the box to say that P11Ds are to follow and now find that none need be submitted, we should tell HMRC that no P11Ds are to be submitted because there is nothing to report. HMRC guidance tells us that if “HMRC has sent a form P11D(b) to you - if this occurs and you have no P11Ds to submit, tick the box in section 2 that says no P11Ds are due for the year.” Be careful to avoid a penalty notice being issued, so if in doubt write to HMRC or telephone the Employer Helpline to confirm that no P11Ds are due.

We also need to think ahead to the very important deadline for payment of the Class 1A NICs declared on form P11D(b). Payment must reach HMRC by 22 July 2010 for electronic payments, or by 19 July 2010 if your client pays by cheque.

HMRC has issued more guidance about the new Late Payment Penalties, which apply for all employers and contractors from May 2010 and HMRC is now issuing penalty warning letters. HMRC may send your client a warning letter if they do not pay on time. The guidance says that they may do this the first time in the tax year they think your PAYE payment is late. The letter is issued about two weeks after the payment date. The letter is only to let you know that HMRC think you have made a PAYE payment late and that a penalty could be charged. It is not a penalty notice and you can’t appeal against it. The obvious advice is to avoid making late payment and when a warning letter is received, pay up quickly and contact the Business Support Service (0845 302 1435) if having difficulty making payment.

From 1 June 2010 individuals no longer need to complete form P86 to tell HMRC that they have come to the UK. Employees who are not on secondment, perhaps coming to work directly for a UK employer, will have to rely on the standard P46 and you as their advisor may have to contact HMRC to obtain a proper tax code.

The late payment penalties apply also to Contractors in the Construction Industry and clients continue to have problems with penalties that are out of proportion to the offences. There may be some light at the end of the tunnel as HMRC are looking at changes to the penalties, which may make them more proportionate. This is an argument that I have been using to seek a reduction in penalties where appropriate.

Next month, I will comment on the Emergency Budget and live in hope that it will not create a lot more work for employers and contractors.