AT THE HEART OF THE ROAD TRANSPORT INDUSTRY.

Call our Sales Team on 0208 912 2120

Payments in kind

6th October 1994, Page 42
6th October 1994
Page 42
Page 42, 6th October 1994 — Payments in kind
Close
Noticed an error?
If you've noticed an error in this article please click here to report it so we can fix it.

Which of the following most accurately describes the problem?

Recent legislation intended to crackdown on national insurance payment dodgers has left some loopholes. If you want to reward an employee with a hefty bonus, there are still ways to reduce the Chancellor's cut.

The government recently announced legislation designed to stop employers cutting their national insurance bills by paying staff in "gemstones or alcohol", It seems that some smart operators were replacing cash with payment in diamonds and fine wines. As one door closes, another opens. Still want to avoid national insurance? Pay your drivers bonuses in cobalt, chrome or even arsenic. Mind you, at around 70p a pound that's a lot of arsenic, and some hauliers might want to think twice about putting so much temptation in their drivers' hands!

But don't simply laugh off the idea of payment in kind. Subject to a growing list of exceptions, there is no national insurance on these benefits so bills could be reduced.

Exceptions

The main exceptions are: stocks and shares; government securities; debentures; certificates of deposit; derivatives of the above; unit trusts; commodities or other property capable of being sold on the London Bullion Market or on a recognised investment exchange. This rules out gold, silver, platinum and palladium as well as commodity futures and financial futures, the conferment of an interest in a life insurance contract and, as mentioned. jewels and alcohol. Vouchers or other documents that can be exchanged for one of the above are also ruled out.

Basic rules

When looking for an alternative there are also a few basic rules. The contract to acquire the item must be entered into by the haulier, not his workforce. The employer should not be voted a bonus of a specified sum to be settled by the conferring of the benefit. The item must not be something that can be exchanged for cash by surrender.

If the employee is going to sell the item, it should not be within the scope of VAT—this is not a legal requirement, but it does seem rather silly to pay 17.5% VAT in a bid to avoid 10.2% national insurance.

So what can still work? For the director of a family haulage company, or the one or two senior employees of a operation, almost everything. There's no need to use a marketed avoidance scheme. Find out what the employee wants—a house extension, boat, world cruise, or whatever—buy it in the company's name, pay for it, and then vote it to the employee.

But if you want to reward 50 employees this will be an administrative nightmare. You could use store vouchers, which is fine if you're giving £50 bonuses, but a senior executive is unlikely to be impressed by 1100,000 in vouchers for a chain store. So when it comes to big bonuses, unless you're prepared to identify individual wants you'll need to come up with something that the employee can convert into cash. This is where chrome, arsenic and other strategic metals come in as they are not traded on exchanges but are traded between merchants.

Clearly your employee does not want the best part of 64 tonnes of arsenic dumped on his doorstep. Don't worry—it will stay where it is. What happens is that the employer buys the metal and the warehouse keeper is notified of the new owner. When he transfers it to the employee he merely informs the warehouse that he has transferred title to the employee and that he is to take future instructions from the employee. Most employees are likely to give instructions to sell as soon as the title is transferred to them. Indeed, the merchant who sells the metal to the employer will indicate that he is happy to buy it back from the employee if required.

Some people think that payments into an existing life assurance policy will also escape. Although the conferring of an interest in such a policy is caught, an additional premium does not confer one, it merely enhances the value of the employee's existing policy. Unfortunately the Contributions Agency, which collects national insurance, disagrees so try this route at your own risk.

Benefits

Income tax is much harder to dodge legally. Benefits in kind are liable to tax on their cost to the employer. They used to be outside the scope of PAYE, so the tax could at least be deferred, but the last Budget extended PAYE to "tradeable assets". These are defined as any assets for which arrangements exist to enable the employee to obtain for the asset an amount similar to the expense incurred on the asset by the employer". The arrangement for the merchant to buy the metal from the employee if asked to do so is undoubtedly such an arrangement.

For now the PAYE loophole been closed, while the gap in the national insurance regs has been left wide enough to drive a lorryload of cobalt through. On past performance the strategic metals dodge probably have a shelf life of two to three years before it is blocked. The bad news is that these schemes are not for small operators: the dealing costs are simply too high unless you are paying more than 150,000 The time and professional fees in combating an attack by the Contributions Agency also need to be borne in mind if they want to try to prove you have not carried out the scheme properly. But if a major fleet operator wants to pay £500,000 in bonuses the saving is likely to be well worthwhile. Anyone for arsenic?

17 by Robert Maas Robert Maas is tax partner of City Chartered Accountants, Blackstone Franks & Ca

Tags

Organisations: Contributions Agency

comments powered by Disqus