Giant.... dispensation...ahem.

[gadgetman]

That must have translated to a hell of a lot of expenses. Is there a thread on this somewhere?

Tell that to SallyAnne - I think that the original tax demand was £15k before she argued it.

OK, she was limited, but it was expenses that were being targeted and discounted, IIRC.

[Friendly Accountant]

I can't believe this!?!

Hi T,

Thank you for coming back to me and I’m sorry to hear that you feel that this information is incorrect. I can assure you that even if you only paid £40.00 for your Bed & Breakfast (and have the receipt to prove that you incurred this cost) you will be able to claim the full £90. This is due to the Dispensation that we have with the HMRC which is a formal agreement made between HM Revenue and Customs regarding allowable expenses that an employee may claim.

As a result of the dispensation the expenses the employee receives tax relief on them automatically.The dispensation means that the employer (giant) carries the risk of additional tax following an investigation instead of the employee. HM Revenue and Customs carry out routine audits on companies holding dispensations.

I hope this gives you the reassurance you need, however if you would like to have these receipts returned, please confirm this to me, as this will have an effect on your next payment.

I look forward to hearing from you whether you definitely want these receipts back and if you do have any further questions, please do let me know.


Regards






I've decided to get my receipts back and close GIANT at the end of my contract in a couple of weeks.....


Thanks for your comments......

1. Dispensations have nothing to do with what expenses you can claim. They only affect the reporting requirements in respect of [U]valid[U] expenses that you have claimed.

2. If amounts are paid to you over and above the expenses you have incurred, they need to be included on your self assessment tax return and tax needs to be remitted on them. Yes, Giant could be on the hook for the employers NI, but you could be on the hook for the tax itself. It's not all their risk!!

I have to admit, I find this unbelievable.

[Alan @ BroomeAffinity]

Friendly,

You shouldn't find to unbelievable. Its almost common place. Have a look around most brolly websites and you'll find that most of them spout this nonsense.

[Ardesco]

What is unbelievable, is that they consistently get away with behaviour like this. HRMC should take a good hard look at umbrella companies like this rather than spending millions of pounds trying to prove IT contractors are IR35 caught for a £60,000 tax bill when they clearly aren't.....

[Contractor UK]

Giant reply

Giant have asked us to respond by way of an open letter:

-----
[name withheld]
C/O Contractor UK

4th April 2008

Dear [name withheld]

Re: Contractor UK Bulletin Board Thread, giant.... dispensation...ahem.

Contractor UK have been kind enough to allow giant the opportunity of responding to the above string you started and we have chosen to do this by way of an open letter.

We are happy to explain to you the basis upon which you may make your accommodation claims.

Under a dispensation granted by HMRC giant operates scale rates for subsistence and accommodation business expenses, reimbursed to contractors. Where a business expense has been incurred contractors claim at the scale rate, no more, no less; it’s that simple.

In the case of our Hotel (bed and breakfast) scale rate for outside London this is £90. If you choose to Stay at a good hotel and spend £120 you will out of pocket by £30. If you choose to stay at a more mediocre one for £75 you will gain £15. We do require you to keep receipts to demonstrate you incurred the expense in the first place – clearly they may not all be at £90, but HMRC guidance requires that you must have incurred an expense to claim a scale rate.

Guidance is given by HMRC on gaining approval for UK scale rates:
• “payments are set at a level which broadly represents the amounts the employees are actually spending” that is all the employees not each employee.
• “employers should therefore be prepared to provide evidence to HMRC with evidence of the amount their employees are spending” namely their employees as a whole.
• “Such evidence should normally be in the form of receipts”

So the normal process HMRC follow to determine a scale rate is to average the actual expenses incurred by a random sample of at least 10% of employees over a month and to set that as the scale rate. So sometimes employees win a little and sometimes they lose a little

In other cases HMRC publish actual scale rates to be used for example those to be used for overseas locations – for instance the Paris 24 hour scale rate (subsistence and accommodation) is currently 292 Euros. Incidentally HMRC operate scale rates in respect of their own employees e.g. Tax Inspectors, business travel.

Another example of winners and losers is of course the mileage rates set by HMRC at 40p some employees will make a profit on their mileage and others will not if their car has a particularly large engine or has low levels of fuel economy.

The HMRC website makes it clear there is no requirement to operate PAYE on scale rates and where a dispensation has been granted (as with Giant) these scale rate payments are not to be reported to HMRC on forms P9D or P11D. Section 72 of The Income Tax (Pay As You Earn) Regulations 2003 makes clear that the liability for any tax not deducted by the employer rests with the employer provided the employee has acted in good faith i.e. incurred an expense.

As you have been contracting with giant (and an employee) since April 2005, regularly claiming business expenses on the basis of our scale rates since April 2005, I am amazed it has taken nearly 3 years for the fact that you claim the scale rate, not the actual cost incurred, to become an issue, and you will also be aware that our scale rates have been reviewed from time to time over the years by HMRC.

The other outstanding issue you have raised with giant is your expenses of around £2000 that have been disallowed in line with our expenses policy (which you accepted). I do apologise for any inconvenience this has caused, however, I am sure you understand that giant must operate strictly within our published expenses policy to ensure we remain wholly compliant.

Working through giant you have full employee statutory rights. This includes a grievance procedure where contractors can progress issues they are dissatisfied with. In addition we offer a complaints process for contractors who prefer this route.

Clearly I would have preferred the opportunity of addressing your issues through one of these routes which is the normal process when an employee/ employer relationship exists. I am sure the matters you raise could have been dealt with efficiently and speedily through our normal processes.

I hope this open letter deals with your question to your satisfaction.

Regards

Michael Healy

Operations Director

[ASB]

Wouldn't it have been a mite easier if they had mentioned scale rates in any of their correspondence.

Surely the points are:-

1) The dispensation merely helps the paperwork. No more, no less. The fact that they have it in no way improves anybody's lot. Except from paperwork.

2) Yes, the scale rates do mean you can only get reimbursed X (when some expense has been incurred). This could be advantageous to some and disadvantageous to others. The dispensation is irrelevant from this (save for the reporting issues).

Of course, in order to maintain scale rates (which the HMRC are not overly keen on) then HMRC need to be satisfied the represent a reasonable averarge of the overall expenditure - by sampling or similar.

Scale rates and dispensations are different things.

[gadgetman]

Not quite, is does state:

"Under a dispensation granted by HMRC giant operates scale rates for subsistence and accommodation business expenses, reimbursed to contractors"

So this is a dispensation allowing them to use scale rates. This is the first I've heard of this one and it sounds interesting. If this allows you to claim subsistence at a fixed rate in the same way as for mileage then it could work out quite well. All you need to do (as per mileage) is prove you incurred an expense.

[ASB]

Not quite, is does state:

"Under a dispensation granted by HMRC giant operates scale rates for subsistence and accommodation business expenses, reimbursed to contractors"

So this is a dispensation allowing them to use scale rates. This is the first I've heard of this one and it sounds interesting. If this allows you to claim subsistence at a fixed rate in the same way as for mileage then it could work out quite well. All you need to do (as per mileage) is prove you incurred an expense.

I think there is a semantic issue in the words chosen. HMRC will indeed cover scale rates with a dispensation. They may give agreement to use scale rates (clearly have done so for giant).

[Tingles]

Giant have asked us to respond by way of an open letter:

-----
[name withheld]
C/O Contractor UK

4th April 2008

Dear [name withheld]

Re: Contractor UK Bulletin Board Thread, giant.... dispensation...ahem.

Contractor UK have been kind enough to allow giant the opportunity of responding to the above string you started and we have chosen to do this by way of an open letter.

We are happy to explain to you the basis upon which you may make your accommodation claims.

Under a dispensation granted by HMRC giant operates scale rates for subsistence and accommodation business expenses, reimbursed to contractors. Where a business expense has been incurred contractors claim at the scale rate, no more, no less; it’s that simple.

In the case of our Hotel (bed and breakfast) scale rate for outside London this is £90. If you choose to Stay at a good hotel and spend £120 you will out of pocket by £30. If you choose to stay at a more mediocre one for £75 you will gain £15. We do require you to keep receipts to demonstrate you incurred the expense in the first place – clearly they may not all be at £90, but HMRC guidance requires that you must have incurred an expense to claim a scale rate.

Guidance is given by HMRC on gaining approval for UK scale rates:
• “payments are set at a level which broadly represents the amounts the employees are actually spending” that is all the employees not each employee.
• “employers should therefore be prepared to provide evidence to HMRC with evidence of the amount their employees are spending” namely their employees as a whole.
• “Such evidence should normally be in the form of receipts”

So the normal process HMRC follow to determine a scale rate is to average the actual expenses incurred by a random sample of at least 10% of employees over a month and to set that as the scale rate. So sometimes employees win a little and sometimes they lose a little

In other cases HMRC publish actual scale rates to be used for example those to be used for overseas locations – for instance the Paris 24 hour scale rate (subsistence and accommodation) is currently 292 Euros. Incidentally HMRC operate scale rates in respect of their own employees e.g. Tax Inspectors, business travel.

Another example of winners and losers is of course the mileage rates set by HMRC at 40p some employees will make a profit on their mileage and others will not if their car has a particularly large engine or has low levels of fuel economy.

The HMRC website makes it clear there is no requirement to operate PAYE on scale rates and where a dispensation has been granted (as with Giant) these scale rate payments are not to be reported to HMRC on forms P9D or P11D. Section 72 of The Income Tax (Pay As You Earn) Regulations 2003 makes clear that the liability for any tax not deducted by the employer rests with the employer provided the employee has acted in good faith i.e. incurred an expense.

As you have been contracting with giant (and an employee) since April 2005, regularly claiming business expenses on the basis of our scale rates since April 2005, I am amazed it has taken nearly 3 years for the fact that you claim the scale rate, not the actual cost incurred, to become an issue, and you will also be aware that our scale rates have been reviewed from time to time over the years by HMRC.

The other outstanding issue you have raised with giant is your expenses of around £2000 that have been disallowed in line with our expenses policy (which you accepted). I do apologise for any inconvenience this has caused, however, I am sure you understand that giant must operate strictly within our published expenses policy to ensure we remain wholly compliant.

Working through giant you have full employee statutory rights. This includes a grievance procedure where contractors can progress issues they are dissatisfied with. In addition we offer a complaints process for contractors who prefer this route.

Clearly I would have preferred the opportunity of addressing your issues through one of these routes which is the normal process when an employee/ employer relationship exists. I am sure the matters you raise could have been dealt with efficiently and speedily through our normal processes.

I hope this open letter deals with your question to your satisfaction.

Regards

Michael Healy

Operations Director

Michael,


Thank you for the information.

Obviously my recollection of events varies from yours.

- My main concern was recent talk of a Government crackdown on "Umbrella company's expenses" - Employees claiming for expenses for which they did not incur.

- I 'had' to accept the expenses policy, as the portal was closed to me until I did!! - I couldn't put any timesheets in etc!! Although, I did register my concerns to one of your administrators and said I was accepting under duress - I believe I may have put that in one of my feedback messages.

- When I last stayed away from home, I claimed only what I paid out for hotels.

- I was originally told that I was not allowed to claim for expenses older than a certain period and this was part of the 'dispensation' - So how would the grievance process have helped? - I was told yesterday, this was incorrect and that was only your own admin rules.

- I'm still confused, if the dispensation is so water tight - why would there be any need for Giant to state they would indemnify their employees should there be an investigation by HMRC?

Eitherway, it matters little to me as I am passing everything over to HMRC at their request - Please forward my original expenses as promised and I do hope my final payments arrive in good time as promised.



T

One passing note... Previously, I have always found Giant an extremely good company to 'work for' - payments never late, do what they say they were going to do and website easy to use.

[Fred Bloggs]

As far as I can see nobody has anything to lose by using Giant and their scale rate dispensation. If ever the situation gets so bad that I have to wrap up my Ltd Co or I have to work an "IR35 caught" contract, then I will seriously consider Giant I think now.