Councillors’ Expenses – Latest Position
4 April 2016
Further to the Alert we sent on 8 March 2016 regarding the moratorium from HMRC in respect of its review of the retrospective tax/NICs position of home to work travelling expenses claimed by councillors, we have set out below the latest position as we understand it.
First, it is important to clarify that the statutory exemption from tax/NICs for mileage (and other forms of travel) expenses reimbursed to members for travelling between their home and the permanent workplace, ie the main council office, will definitely apply from 6 April 2016 as this is now enshrined in law. By way of reminder, this is on the condition that the member lives within the local authority area or no more than 20 miles from its border. In the case of mileage claims in a member’s own car the exemption only applies to rates reimbursed in accordance with HMRC’s authorised rates (currently 45p per mile for the first 10,000 business miles travelled in a year). If the Council intends to pay in excess of the authorised rates, a tax/NIC liability will arise on this excess.
Secondly, with regard to the HMRC ‘campaign’ for expenses reimbursed in the period 2011/12 – 2015/16 inclusive, we had been advised by numerous contacts within HMRC that the position was going to be clarified by 11 March. Clearly, that deadline has now passed and we have been chasing HMRC for an update urgently as there are a considerable number of unresolved cases still under review.
A senior source within HMRC told us that Council CEOs can expect an update by not later than 20 April. As we mentioned previously we believe that it is possible that the letter drafted by Harriet Brown, Tax Counsel, on behalf of the District Councils’ Section 151 Officers may have triggered HMRC’s re-evaluation and our source certainly didn’t deny that this was the case. Whilst we cannot be sure of the outcome of the re-evaluation, we would still be surprised if HMRC accepted the position set out in the letter ‘across the board’ as this would have significant consequences in respect of those cases that have been settled and a liability paid to HMRC.
We expect HMRC to recommence its campaign in the next few weeks and to review the position in each council on a case-by-case basis, based on the individual circumstances applying. Therefore, it may now be an opportune time to consider the position in your authority, whether or not HMRC has already been in touch, but especially if there is any prospect of a tax/NIC liability applying. We have a very strong record to date in helping many councils to achieve ‘nil’ liability settlements based on specific local circumstances. If you would like to discuss the matter with us, please do speak to one of our Employment Taxes team.
Councillors’ Expenses – Important Update
8 March 2016
In the past few months most local authorities have been contacted by HMRC in respect of the payment of mileage expenses to councillors for travelling between home and the main council offices. Whilst a statutory exemption from tax and National Insurance Contributions (NIC) will apply from April 2016, HMRC has dedicated considerable resource in reviewing the position for tax years 2011/12 to 2015/16 inclusive to establish whether tax/NIC should have been paid on these expenses in that period. As a result, some councils have settled liabilities of unpaid PAYE/NIC with HMRC.
We have assisted a large number of councils in their dealings with HMRC on this matter and, to date, have found HMRC has been prepared to take a pragmatic approach and, in many cases, agree that ‘nil liability’ arises where specific local factors are taken into account which support the argument that the councillors’ homes qualify as a second permanent workplace.
However, in the past two weeks or so there appears to have been a moratorium from HMRC on this matter. Unresolved cases have been referred to its East Kilbride office, which has advised that no further action will be taken for the time being. We have discussed this moratorium with a representative from the East Kilbride Employer Compliance Team who has said that we can expect an HMRC update by 11 March (or soon after). We understand that this is because the matter is being reviewed by HMRC’s Policy Division.
It is not clear at this stage what has triggered this re-evaluation of the position. It is possible that HMRC has had to seek a view from its policy and/or legal team, in light of the letter drafted by Harriet Brown, Tax Counsel, on behalf of the District Councils’ Section 151 Officers. This was an attempt to ‘sweep up’ all councils within one set of comprehensive technical arguments. Although presenting a strong technical case, the letter might have had unintended consequences. In our experience, it would be unusual for HMRC to accept a technical case ‘across the board’, especially where there have already been settlements agreed. This may have had the effect of de-railing HMRC’s previous approach which appeared to be based on the use of sensible individual discretion on a case by case basis.
Were HMRC to fully ‘back down’ in this matter, by conceding on the technical points made by Counsel, then there would be a number of councils looking for HMRC to repay tax, NICs and interest, as well as a number of individual councillors seeking a rebate. We think this is therefore an unlikely scenario; we hope that HMRC will justify its ‘sensible discretion’ approach and complete its ‘campaign’ on such basis.
While ruling nothing out, we do not expect HMRC to re-open cases where a nil liability has been firmly agreed by HMRC, but it is not clear how HMRC proposes to deal with cases that are unresolved or whether any new enquiries will be undertaken for any councils that have not yet been contacted. The position should become clearer in the next fortnight or so.
If you have any concerns about your authority’s position or have any queries, please do speak to one of our Employment Taxes specialists.