Top Tips for Practice Managers

The number of HMRC compliance visits over the last twelve months have been on the rise, with HMRC recruiting an additional 2,500 compliance officers and the Chancellor making £800 million available to tackle tax evasion, avoidance and fraud. This forms the basis for HMRC to collect an additional £7 billion a year in tax.

The need for a practice to be compliant has never been more imperative. HMRC generally target specific areas in which a practice may fall foul, therefore, the correct tax treatment is key.

Below is a list of common areas we have seen HMRC check and the correct tax treatment for tax purposes which practice managers should be aware of:

1. Mobile Phones – An employee may have a mobile phone (or sim card) as an exempt benefit, providing that the contract is between the employer and the mobile phone provider and paid from the employers’ bank account. Any private use by the employee is exempt. It should be noted that this exemption only applies to one mobile phone per employee.

This exemption does not apply if the contract is with the employee and the cost reimbursed by the practice.

2. Long Service Awards (LSAs) – These are a way of thanking staff and rewarding them for continuous service to a practice. There are restrictions on what may be given, most notably these are:

• Staff must have worked for you for at least 20 years.
• The award is worth less than £50 per year of service.
• The employee hasn’t been given a Long Service Award in the last 10 years.
• The award isn’t cash or a ‘readily-convertible asset’ - an asset that could immediately be converted to cash once gifted to an employee, such as vouchers or shares.

If the gift meets all of the above conditions, there is no tax or NIC due. If the value exceeds £50 per year of service, there is tax and NIC on the value of the award over £50 per year of service. Long Service Awards can often be useful if a practice wishes to give a member of staff a substantial gift on retirement or on leaving, as long as the conditions are met.

3. Staff Uniforms – This is an area often overlooked. A uniform only worn at work will not be a benefit in kind as long as it meets certain criteria. The essential test is whether the employee would be readily recognised as wearing a uniform by the person in the street. It is not enough for all of the staff to be wearing the same coloured top or blouse; it must contain something specific to that organisation.

Ordinarily, fixing a permanent and conspicuous badge to what would otherwise be ordinary clothing may be enough to make it a uniform. From past experiences, HMRC have enquired into these areas and have found that a deduction should not have been made as the clothing didn’t have a fixed badge or logo.

4. Childcare Vouchers – Exempt amounts for childcare vouchers and directly contracted childcare, continue for employees who are already members of your scheme before 6 April 2011. For employees joining a childcare voucher scheme after 6 April 2011 employers are able to give employees tiered amounts of childcare vouchers depending on the rate of income tax they pay. The monthly amounts are:

• £243 for basic rate taxpayers
• £124 for higher rate taxpayers
• £110 for additional rate taxpayers

This scheme is not available to the self-employed, i.e. partners. It is worth noting that there are conditions which must be met for the employee supported childcare scheme to qualify for tax relief.

5. Staff Gifts - The majority of staff gifts are taxed as a benefit in kind. An exception to this is trivial benefits provided to staff. HMRC consulted to introduce a £50 limit but this was not brought into legislation therefore there is currently no advised monetary amount applied. In practice, an example of this may be a bouquet of flowers when an employee gets married or a seasonal gift such as an ordinary bottle of wine or box of chocolates at Christmas.

Anything other than this should strictly be reported on a P11D. This would include, for example, expensive wedding gifts, substantial leaving gifts and any other gift to a member of staff exceeding the trivial exemption. A gift made in a personal capacity by the partners would not be treated as a benefit in kind but no tax relief would be available on the gift.

6. Reimbursement of Home Telephone Costs – If an employee uses their home telephone solely for business calls, the employer may reimburse the cost in full without any PAYE or national insurance implications.

If the employer reimburses the full cost of the home telephone bill and it is only partially used for business purposes, the line rental charges and the private calls are classed as meeting an employee’s liability and thus should go through the payroll.

7. Staff Parties – To be exempt, the party / social function must:

• Cost less than £150 per head
• Be annual – such as a Christmas party or summer barbeque
• Be open to all employees

If the practice has more than one surgery, an annual event that is open to all of your staff based at one surgery still counts as exempt. You may also put on separate parties for different departments, as long as all of your employees are invited to attend one of them. If a practice was to organise multiple events, providing the cost per head is still less than £150, it is still exempt. If the total costs exceeded £150 per employee the exemption may be used for the highest cost event up to £150 and any subsequent events are then treated as a benefit.

Should the events not meet the above criteria, the practice would need to report the benefit on form P11D and pay Class 1A national insurance on the entire benefit.

If you would like more information about any of the above, then please do not hesitate to contact Ceri Lewis or a member of our Healthcare Team.