What format will the agreement between HMRC and employers take?
Employers will need to apply for an approval notice – please see EIM30260 – Employment Income Manual – HMRC internal manual – GOV.UK for further guidance. The approval notice lasts for a period of up to 5 years from the date of effect. To apply for an approval notice, employers will need to:
· advise HMRC that they intend paying the agreed overnight rate to drivers with sleeper cabs who stay away from their home or normal place of work overnight; and
· confirm that they have a checking system in place to ensure that payments are only made on occasions when the employee was away from home overnight and incurred expenses as a result: EIM30270 – Employment Income Manual – HMRC internal manual – GOV.UK
The EIM also sets out models for checking systems which can be found at: EIM30275 – Employment Income Manual – HMRC internal manual – GOV.UK
Will existing agreements, pre April 2017, be continued without renewal?
Transitional arrangements exist for bespoke rates agreed within a dispensation where that dispensation was issued within the 5 years preceding 6th April 2016. These arrangements allow the employer to continue to use the rate agreed in their dispensation until the expiry of that 5 year period: EIM30280 – Employment Income Manual – HMRC internal manual – GOV.UK. Once that period expires employers will need to obtain an approval notice in order to continue to pay or reimburse employee overnight expenses at the industry rate without deducting tax and NIC.
If a haulier does not get an agreement from HMRC – How will drivers be able to claim for an overnight allowance?
Where an employer either has no approval notice or pays amounts in excess of the amount agreed in the approval notice they will be required to deduct tax and NICs from the payments as part of the employees pay. Employees retain the right to claim a deduction from HMRC subject to them retaining evidence of their expenditure. Employees will not be able to claim relief for the overnight allowance rate, only for the expenditure that they have actually incurred.
Employees can make the claim online or by completing form P87. For employees already registered for Self Assessment, or where the amount of the claim exceeds £2,500, employees will need to register for Self Assessment and complete and submit a Self-Assessment return. Further guidance on making a claim for tax relief can be found at: Claim Income Tax reliefs – GOV.UK
What expectation is there that the drivers will be working in this regime?
It will be up to employers to decide whether to pay or reimburse employees expenses using the industry rate. They retain the option to pay or reimburse only actual expenses incurred or to seek a bespoke rate that may be different to the industry rate. Should employers seek a bespoke rate they will need to undertake a sampling exercise to establish the amounts actually being spent by employees and will need to implement a checking system to ensure that payments are only made on qualifying occasions. Please see further guidance at EIM30250 – Employment Income Manual – HMRC internal manual – GOV.UK
HMRC also set out benchmark scale rates for subsistence, but these do not include an overnight allowance: EIM30240 – Employment Income Manual – HMRC internal manual – GOV.UK
Will there be any criteria that hauliers have to follow with regards to conducting random checks?
Although HMRC has published guidance on checking models that it will accept as meeting the requirements of the legislation (EIM30275 – Employment Income Manual – HMRC internal manual – GOV.UK), there is no specified method or timetable for checking systems.
The requirement is that an employer has a system in place for checking that it only makes payments to employees on occasions when they were travelling in the performance of their duties and that employees were in fact incurring and paying expenses of the kind reimbursed as a result of their travel: EIM30270 – Employment Income Manual – HMRC internal manual – GOV.UK
What checks will the drivers be subjected to?
Drivers will be required to retain evidence of their expenditure when away from home, usually receipts but other contemporaneous evidence will also be considered. Drivers need to be aware that they could be asked to show that they were travelling and incurred a cost. An occasional failure to retain evidence should not be seen as reason to withdraw an employer’s approval notice or prevent an employee from receiving further payments free of tax and NIC, but drivers need to be aware that consistent failure will lead to either employers taxing individual drivers on all payments or, if the failure is more widespread, the revocation of the approval notice. If an approval notice is revoked all payments made by the employer will need to be taxed as earnings from the employment and employees will need to claim deductions at an individual level subject to being able to present evidence.