Nigel Morris, tax director at MHA MacIntyre Hudson, offers advice to help HGV operators cope with recent overnight allowance changes
Under a 26-year-long agreement between the Road Haulage Association (RHA) and HMRC, employers had been able to make tax-free payments to drivers to compensate for nights spent in their cab.
This changed on 6 April 2017, and employers wishing to pay the overnight allowance free of tax and national insurance contributions (NICs) are required to apply for an approval notice from HMRC and keep more records. The agreement must then be renewed every five years.
Employers now need to ensure that they have: a robust checking system in place, including regular checks in a random sample of 10 per cent of claims and receipts; driver declarations; expense claim forms; and receipts showing actual expenditure.
This September, however, the RHA won a significant concession from HMRC after members complained that these newly-imposed rules were confusing, unfair and costing them money.
In response, the HMRC issued new guidance, which means that drivers won’t have to produce receipts totalling the exact amount payable under the overnight allowance – and that other means of recording expenses, such as digital photographs on a smartphone, will be acceptable to the tax authorities.
There is still a need to get HMRC agreement and look at policy, process and procedures, but the industry has won some easement on what is spent and when, and what record keeping methods are acceptable.
Employers must still act as quickly as possible to avoid additional reporting and unnecessary taxation.
This includes reviewing their existing arrangements, introducing robust and effective policies and procedures, and communicating the revised record keeping and checking requirements to drivers. This will help ensure the new arrangements are fully compliant and changes are effectively implemented.
As a reminder, from 6 April 2016, the legislation for dispensations under the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) was repealed and dispensations ceased to exist.
This resulted in the introduction of new legislation, and almost all expenses or benefits that might have previously been covered by a dispensation become exempt from tax and NICs, and no longer needed to be reported on the P11D form.
However, the onus is now on the business to make sure they are getting it all right and reporting or taxing the appropriate items – they can no longer rely on the cover from their P11D Dispensation.
All the recent changes by the government have prompted questions of whether more policies will be introduced that limit the freedom of HGV operators further. A review of the taxation of all benefits in kind, accommodation benefits and employee expenses will take place, so this latest development could be a front runner for more change ahead.
The whole area of employee expenses is under review and it’s imperative that employers seek advice to ensure that they have it all covered.