March 2006 NEWSLETTER
Contents:
- VAT RECEIPTS REQUIRED FOR FUEL
- TAX DRIVE
- GOOGLED!
- STILL NOWHERE TO HIDE?
- CONTRACTORS VITAL TO UK WORKFORCE
- MORE MONEY; FEWER HOURS?
VAT RECEIPTS REQUIRED FOR FUEL
As of 1st January 2006, UK employees may have to change the way they buy their fuel! The move follows a European Court judgment issued last March.
It means employees now have the following options when purchasing fuel for business travel:
- Fuel cards/debit cards provided by the employer;
- ‘Put it on the tab,’ i.e. charge it to their employer’s account at the petrol station, or
- Pay for the fuel and be reimbursed by employers, only on production of receipts. (This is the contentious one.)
Under the previous system, the Value Added Tax (Input Tax) (Person Supplied) Order 1991 covered the system of employers reimbursing their employees’ fuel costs. But the European Commission took exception to that. They argued that because the fuel is sold to the employee as a private individual, employers waive their right to make tax deductions; the petrol is not supplied to them as taxable persons under Article 17(2)(a) of the Sixth Directive. Even if there was such a right, employers who don’t hold a VAT invoice, as required by Article 18(1)(a); wouldn’t be allowed to make the deduction anyway.
The Result
The UK took the moral middle ground, and argued on the strength of common sense, tax neutrality and the reduced administrative burden on companies. But the court found against them; they maintained that it can’t be proved that the VAT being recovered by organizations related only to fuel that was being used on company time and in the company’s interests.
So what does this mean in real terms? Well, although the case went against the UK, the Court did accept that employers are entitled to deduct the VAT incurred in purchasing the fuel.
The New Arrangements
As a result, the Government have scrapped the Value Added Tax (Input Tax) (Person Supplied) Order and replaced it with the Value Added Tax (Input Tax) (Road Fuel Purchased By Employees) Order. It means that employers will continue to be able to treat the VAT incurred by employees’ fuel costs as input tax, provided they hold an appropriate VAT invoice. And it means that employees will continue to be reimbursed, whether by actual cost, or on a mileage allowance basis. By and large, it’s status quo.
But the bottom line for employees is: no VAT receipt; no reimbursement.
So, how will this affect us? CPM is ready and waiting to implement the changes from 1st April 2006. In light of the new requirements our contractors will simply need to produce VAT receipts to support all mileage claims.
While we’re on the subject of cars, here’s a story of a couple of cars, a court case and tax reduction cul-de-sac.
A company director failed to reduce his liability to income tax, in spite of his having gained the determination of a special commissioner, before the case was appealed by HMRC. Company Director Sydney Vasili made use of two motor cars through his employer and sought to take advantage of a scheme for reducing his liability for income tax. But for the eleventh hour intervention of HMRC, he might have gotten away with it too!
Under Section 157 of the 1988 Income & Corporation Taxes Act: “a car that is made available to the employer (including members of his family) by reasons of his employment is to be considered an emolument of the employment;” consequently it should be taxed at an amount that is equal to the annual cash equivalent benefit of the vehicle.
According to the case, Mr Vasili’s company, having purchased a Ferrari and a BMW in 1997, transferred a 5% interest in each car to Mr. Vaisli. In return, Mr Vasili then made two payments of £1880 to the company, and both cars were made available to him to use.
In 1998 the company had the Ferrari independently valued, and then sold it to Mr Vasili for £20,000. Likewise in 2002, the BMW was valued and sold to Mr Vasili. In making his judgment, the commissioner referred to section 157 of the Income and Corporation Taxes Act, which states “a car is made available without any transfer of the property in it.” In his judgement, this took the benefit out of section 157, thereby making it chargeable under section 154; the benefit in kind provision: “The cost of providing the benefit is not chargeable to tax as his income.”
HMRC disagreed. They argued on two fronts: that cars were made available to Mr Vasili by his employers, his acquisition of five per cent interests notwithstanding; secondly that there had not been a transfer of the property in the motor car to Mr Vasili. Presiding Judge, Mr Justice Pumphrey observed that there simply hadn’t been a provision made for cases of cars that were co-owned by employer and employee.
HMRC pressed home their advantage, claiming that the stipulations of section 157 established a regime for motor cars, which could be applied in this case. In particular, section 168D of the Act: “Price of a car: capital contributions” acknowledged the potential for an employee to make a contribution toward the purchase of the car. In other words, it showed that the possibility had been considered and accommodated by the legislature.
Mr Justice Pumphrey agreed and accepted HMRC’s findings as correct. Accordingly, the transactions attracted the provision imposing a charge contained in section 157: “Cars available for private use.” Case closed!
If you’re in any doubt as to your tax responsibilities; whether you drive a BMW or a Beetle, get in touch. We’ll steer you right.
Google is not just a search engine phenomenon it’s a new verb. These days we don’t just search for it; we ‘Google’ it. Not content with that, they’ve practically cornered the search engine market, making Google the search engine of choice for most of us.
But following the meteoric growth the company has sustained since going public in 2004, it seems they’ve peaked. Indeed they failed to meet their expectations over the last financial quarter. Even their Chief Financial Officer (CFO) George Reyes believes that Google’s optimization period is over. Unsurprisingly Google’s share price plummeted 13% within hours of the CFO’s warnings, then leveled off 7.1% lower than their previous market index.
Reyes believes that the company’s rapid expansion is the result of a concerted effort to optimize their online advertisement technology. It has, after all, been a huge success. But, it’s simply not sustainable. “Most of what is left is organic growth,” he said. “Which means you have to grow your traffic and you have to grow your monetization. Clearly our growth rates are slowing and you see that in each and every quarter and we're going to have to find other ways to monetize the business.”
It’s ironic; for many internet users, Google is all about optimization. But while its users continue trying to secure the very best search engine rankings for their web sites, Google have ‘maxed out’ on it.
Is this an example of search engine optimization gone too far? We’ll wait and see.
It was a cheap shot; a slap in the face for the self employed, particularly plumbers. It was the ad they tried to ban; and did…
Following our report in the January issue of Freelancer, we’re glad to report that HMRC have acquiesced and written off their advertising blunder. Not that they had any choice in the matter.
You may remember the advert; you may equally remember the furore. For those of you who didn’t see it; the ad, which ran in a number of tabloids in December depicted a plumber hiding under a sink and quite clearly hiding from his tax responsibilities. The caption read 'With your help, we'll make sure self-employed people who don't pay their tax have nowhere to hide.'
Unsurprisingly, the campaign drew heavy criticism from several quarters, not least the Association of Plumbing & Heating Contractors and the Federation of Small Businesses. The Advertising Standards Authority upheld the complaints and forced HMRC to rewrite the tagline: 'With your help, we'll make sure people whose business is not registered for tax have nowhere to hide.'
Ironically, nobody’s debating the fundamental intent, just the cock handed execution. Let’s hope lessons have been learned.
CONTRACTORS VITAL TO UK WORKFORCE
We already knew as much; but it’s still nice to have official recognition of the valuable role played by freelance contractors. According to the Professional Contractors Group (PCG) contractors and consultants have a “valuable role to play in complementing the UK’s permanent workforce,” now more than ever.
Indeed, a recent report by the Chartered Institute of Personnel and Development found that 85 per cent of employers were finding it difficult to recruit staff, and cited a lack of specialist skills as the number one reason.
In response, PCG Chairman Dr Simon Juden said, “"Freelancers can be the perfect complement to a permanent workforce, especially when competition for staff is tough. They offer staffing flexibility, value for money and cost-effective deployment, without the burden of employment costs and responsibilities."
The PCG surveys its members every year and the results might make eye opening reading for recruiters. Among the respondents in the 2005 survey, 62 per cent were honours graduates, 18 per cent had obtained a master’s degree, 33 per cent had professional qualifications and 22 per cent had technical qualifications.
The range of talent among the nation’s freelancers is increasingly diverse. Not surprisingly, freelancers themselves are going to be increasingly valued as a vital part of the UK workforce.
Although most IT contractors say they’re happy working as freelancers, the majority of them want to work fewer hours – and earn more!
In fact as many as two thirds of them want to earn 15% more this year, even though a good half of them believe that the market will stay static for some time to come. More than fifty per cent of IT freelancers are keen to spend a lot less time working; time which, in the main, they believe would be better spent with their families. Some of them just want the opportunity to pursue their neglected leisure interests; whilst some are just too stressed by their current workloads to want to do anything more than enjoy some peace and quiet. (Source: JSA Group.)
Of course, CPM contractors will already know that we can help to preserve the work/life balance – and ensure you get paid without a hitch. That’s why we’re here – to make life easier; to give you more time to for you to do the things you enjoy.
So, despite a few minor gripes, the freelancing community look set for another successful year. In light of the PGC’s findings, freelancers can be sure that their skills will continue to be in demand. Added to that, customer loyalty and levels of remuneration are both high. It’s possible to make working relationships now that will be ongoing and profitable for all concerned.
Finance and public sector clients are leading the way as we head into the Spring. New systems investment in these areas is likely to buoy the freelance market and force the pay ceiling up a little higher. All of which means more opportunities for those that need them and more money for those that want it. Even more opportunities to take it easy? Maybe not!