Reply to: Giant.... dispensation...ahem.

[Bob Jones]

Some time ago I covered the question of scale rates on my website at

http://www.internet-taxation.co.uk/scale%20rates.htm

Bob Jones
InternetTaxation Limited

[LisaContractorUmbrella]

This may help:

A round sum expenses allowance is an allowance which is paid to an employee irrespective of whether he or she spends it or not in a particular way, and so it is taxed as earnings (s 62 ITEPA 2005).

A scale rate payment is a payment made as a reimbursement of expenditure actually incurred by an employee and this is tax free in the employee’s hands (principally s 336 to 338 ITEPA 2005)

So, to clarify, if the employee incurs the cost and that cost is being reimbursed a scale rate payment is applicable and no tax is due. However, if the employee has not incurred any cost but an expense is paid it is a round sum alllowance and therefore should be taxed as earnings.

[ASB]

If you only have one person in your company, then you won't get a scale rate, since it will always average to your actual expenses.

HMRC do seem to imply that they will allow scale rate for international travel for any size company though.

Mind you they are not exactly generous. The room rate I pay in Lille and Paris is more than the daily scale rate.

[TheFaQQer]

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.

Nobody has anything to lose, assuming that your costs are less than or equal to the scale rate dispensation, and you are IR35 caught so will be taking everything as PAYE rather than dividends. This assumes that you are not on FRS for VAT, and the costs of joining an umbrella are less than or equal to the costs of running a Ltd.

But why would that be any better than using your own Ltd with a similar 'scale rate' dispensation?

Because a scale rate is calculated as an average cost of your employees expenses. If you only have one person in your company, then you won't get a scale rate, since it will always average to your actual expenses.

[meridian]

Doesn't sound much different in practice to the expenses claimed by MPs and MEPs - receive a £250 allowance per flight, book a 1p flight on Ryanair, pocket the difference.

Surprised they let Joe Public away with that sort of racket though!

[LisaContractorUmbrella]

From the HMR&C website:

A scale rate payment which is calculated to do no more than reimburse the expenditure incurred by employees on allowable expenses will not be regarded as a round sum allowance ( EIM05100). The employer can be authorised to make such payments without deduction of tax under PAYE. See Booklet 490, Section 9.6 onwards.

However, it is important that you only apply that treatment to appropriate items. In general, scale rates are only appropriate for expenses which are widely incurred, in broadly similar amounts, but for which it is often difficult to get receipts. For example subsistence, or the expenses of cleaning uniforms or protective clothing (see EIM32465). Scale rates should be set at a fairly modest level which, taking one day with another, will be enough to cover the relevant expenses. They should not be pitched at a level to cover the highest amount that an employee might spend.

A dispensation can be given for this. Scale rate payments are amounts that are calculated to do no more than reimburse the average amount spent by employees

HTH

[r0bly0ns]

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.

Apart from people who's hotel bill is more than the scale rate.....

[SueEllen]

Turion you are coming across as a fraudster.

[Turion]

If you want 'real' receipts to produce just in case, just do a google search. You'll find plenty of ways to get receipts in a hurry. The web is the best place to look if you're in a spot of bovver. Would only bother if an investigation is looming though

[gadgetman]

But why would that be any better than using your own Ltd with a similar 'scale rate' dispensation?

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.

[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.

[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.

[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).

[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]

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.