(Don’t) Take the Money and Run

As HMRC’s servers creak with the tax returns of thousands of diligent taxpayers leaving their 2014/15 returns until the last possible moment, the organisation has announced it is cracking down on a new segment of taxpayers where it believes there is wide-ranging non-adherence to new rules.

Forget Facebook. Goodbye Google. Ebay? No way!

Local authorities are again in the firing line with particular focus on the change in local councillors’ expense rules. As our colleagues in BDO’s Human Capital tax team explain:

Local Authorities will be aware that the 2015 Finance Act introduced a new tax and National Insurance (NI) exemption for Councillors’ travel expenses.

From 6 April 2016, a Councillor’s journeys from their home to the Council offices will now be treated as business travel (rather than private travel) and, subject to their home not being more than 20 miles outside the relevant local authority boundary, a Council will be able to pay or reimburse local Councillors for their travel up to the HMRC Approved Mileage Allowance Payments (AMAP) rates without having to subject the allowances to PAYE and NIC.

That’s good news for Councillors across the country. So why should Councils be concerned? Because HMRC will be knocking on the Council’s door in case of discrepancies for previous years. Here’s our Human Capital team again:

Years up to 2015/16 – Unless it is necessary for Councillors to routinely see their constituents at home, HMRC considers that any allowance paid or reimbursed for travel between home and the Council offices (including taxi, train or bus fares) should be liable to PAYE and NIC deductions in full.

BDOlocalgov understands that HMRC will be writing imminently to Local Authorities and requesting a review of Councillors’ mileage claims dating back to 2011/12. If allowances were paid gross with no PAYE/NIC deductions, Councils are being asked to report the amounts paid to HMRC. Where any inaccuracy is identified, HMRC will charge statutory interest and penalties will be considered in addition to the amount of any PAYE and NICs due.

We would be interested to hear your views on what this change will mean for Councillors. Will it allow Councillors to effectively serve more constituents, particularly in rural areas? Is it just another burden for overstretched finance departments? How is your Council considering HMRC’s request to interrogate historical data?

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