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PAY AS YOU EARN, NATIONAL INSURANCE AND NATIONAL MINIMUM WAGE FOR COMMUNITY RUGBY CLUBS – GUIDANCE NOTES
The briefing note set out above covers a wide range of issues relating to PAYE, National Insurance and National Minimum Wage for Community Rugby Clubs which we hope will be helpful to you. However, it by no means expects to cover all of the potential issues that may arise and a Club may need to address. Therefore, please do seek specialist advice from your Club’s accountant or an employment law expert if you require guidance.
CONTENTS
1. Introduction to clubs’ compliance responsibilities
2. The purpose of these guidance notes
3. PAYE and NIC obligations in general terms
4. Employment status for tax and National Insurance purposes
5. For ‘the love of the game’ payments to volunteers and others
6. Detailed accounting, reporting and auditing
7. Common problem areas
8. National Minimum Wage (NMW)
9. Action required
Appendix 1 – Employed vs self employed status
Appendix 2 - Expense claim form
Appendix 3 – PAYE Returns: Time limits and penalties
Appendix 4 – PAYE and P11D reporting
Appendix 5 – Potential cost of a PAYE settlement – an illustration
Appendix 6 - Policy statement on NMW enforcement.
Appendix 7 - What hours will be taken into account for NMW purposes
Appendix 8 – List of “do’s and don’ts” for clubs
PAY AS YOU EARN, NATIONAL INSURANCE AND NATIONAL MINIMUM WAGE FOR COMMUNITY RUGBY CLUBS – GUIDANCE NOTES
1. Introduction to clubs’ compliance responsibilities
We all know that employing people can create red tape for all organisations; sports, and in particular rugby, clubs are no exception. If you engage employees the club exposes itself to employment law, discrimination legislation and other legal obligations all of which are important areas in their own right. Equally important however is the club’s obligations if the individual is categorised as an employee for tax and national insurance purposes. This together with the National Minimum Wage (NMW) legislation creates additional obligations for rugby clubs.
All of these obligations relate to employed individuals and workers. There is no consistent definition of employee across all of the legislation and there are many types of employees: normal salaried or waged individuals, players without contracts, players with contracts and others who clubs may not regard as employees but are under the relevant law. Some individuals may not be employees but may be classed as workers for NMW purposes. For each particular piece of legislation it is necessary to look at the individual helping the club whether called an amateur, volunteer or semi professional and decide whether that individual is designated as an employee or worker. Helpful guidance on the Employment Law aspects can be found in the Club Management section of the Community Rugby website. As far as tax is concerned, whilst the rules of a particular sport may affect the way in which the club and individual operates, the fact that the sport regards the individual as self-employed or a volunteer or indeed an amateur carries no weight with HM Revenue & Customs.
Where a rugby club rewards an individual who is classified as employee for either Pay As You Earn (PAYE) or National Insurance contributions (NIC) purposes, it is vital that it gets its collection procedures right. The burden of these procedures is heavy. Clubs act as unpaid tax collectors. When errors are found the cost will usually fall upon the club and its officers not upon its employees.
PAYE/NIC rules are always changing and in the last decade there has been a general tightening up by the Tax Authorities in enforcing these rules in all sectors. HM Revenue & Customs (HMRC) is also responsible for monitoring employers’ compliance with the National Minimum Wage (NMW) legislation and in recent years difficulties have arisen at sports clubs when HMRC monitoring visits have taken place.
HMRC has taken interest in the application of PAYE and NIC at sports clubs over many years. When control visits have been carried out HMRC have found that the operation of PAYE has been prone to error; in the case of non-professional sports clubs the volunteers/other staff responsible for its operation often lack the appropriate skills and experience in this area. Dealing with events on the pitch is often much more exciting than backroom administration and tax matters can often fall into arrears.
Errors in applying PAYE and NIC and in the reporting of expenses and benefits can be costly particularly since the Tax Authorities can go back a number of years when they find errors and seek to not only collect the tax and NIC which should have been deducted but also to pursue interest and penalties because the club got it wrong. Sometimes the enquiry and settlement can come at time when clubs have cash flow problems and the enquiry can put the very existence of a club at risk. Finally if the club is unincorporated the ultimate liability can fall personally on the club treasurer who will then have to recover his costs from the club.
For clubs that are registered as community amateur sports clubs (CASCs) additional issues arise in connection with payments to members particularly the reimbursement of expenses.
2. The purpose of these guidance notes
The purpose of these notes is to summarise the PAYE, NIC and NMW obligations for community rugby clubs. Emphasis has been placed on the use of practical examples and checklists with the intention of making the notes user friendly and a convenient first point of reference for a club’s query on these issues. Clubs may need to adapt their procedures to come into line with current best practice.
If clubs are in any doubt they should take advice and make appropriate changes to their procedures to ensure that they are operating satisfactorily before any contact is made with HMRC. Such an approach, if adopted by all clubs will benefit community rugby significantly; furthermore it is likely that if HMRC becomes aware that proper procedures are not being operated correctly by particular community rugby clubs it may step up its involvement making matters worse for all clubs with potentially significant adverse financial costs for community rugby.
These Notes deal with the club’s PAYE, NIC and NMW obligations; of course there are many other employment obligations such as sick leave, holiday pay, pensions, compliance with statutory dismissal procedures and discrimination legislation which the club will need to consider.
3. PAYE and NIC obligations in general terms
Under PAYE and NIC rules community rugby clubs are treated in the same way as any other employer in relation to their employees. Because of the nature of sport and many of its own regulations there are certain areas which can give rise to tax problems. Essentially the club has responsibilities in relation to all employees that may include a number of people who the club may not automatically regard as employees such as stewards and bar staff are to:
· Collect and account for PAYE and NIC on all payments to ‘employees’.
· Complete certain forms and returns in relation to the collection of PAYE and NIC in expenses paid and benefits provided to those employees.
· Ensure that all employees are paid in accordance with the National Minimum Wage regulations.
The club therefore needs to:
· Keep adequate records.
· Deduct the correct amounts of PAYE and NIC and pay them over on time.
· Submit forms and returns to HMRC which are completed accurately and on time.
· Establish procedures to ensure it complies with NMW.
This is a minefield for club administrators who are often volunteers and do not have the time or expertise to deal with this increasingly complex and administratively time consuming area of tax. It is however vital to get it right.
The major area of difficulty is to determine what an individual’s employment status is. In this regard HMRC do regard certain individuals as working ‘for the love of the game’ and not employees so that certain payments which they receive are not subject to PAYE, NIC nor are they covered by NMW. In addition to status issues there are other common problem areas; for example the reimbursement of expenses which can give rise to PAYE and NIC liabilities for the club. Guidance on all these issues is contained in these notes.
4. Employment status for tax and NIC purposes
4.1 General rules
Employment status is a question of law to be decided upon the facts in each particular case. One of the main factors is the nature of the contract which may be written or oral, expressed or implied between the payer and the payee. The contract will be either a contract of service or a contract for services. The former means simply a contract of employment - it creates a relationship of master and servant. The latter is that which exists between the employer and an independent (self-employed) person. Appendix 1 indicates the issues that will be considered in determining status.
If clubs are in any doubt they should seek a ruling from their PAYE tax office each of which has a nominated officer to deal with enquiries and to decide on employment status. Decisions will be confirmed in writing if requested. Clubs can obtain a preliminary view of status by accessing the HMRC Employment Status Indicator on the HMRC web-site at http://www.hmrc.gov.uk/calcs/esi.htm.(See Appendix 1) The fact that a club has sought official guidance may protect it from an accusation of negligence if it is attempting to mitigate any potential unpaid taxes arising from an HMRC investigation or control visit.
Particular attention needs to be paid to the tax status of players and in doing so the place to start is the RFU’s rules relating to player contracts and registration. RFU Rule 6.1 Contracts for Participation and 6.2 Expenses are relevant here.
4.2 Players
Players who do not receive a Material Benefit do not need a contract. This term is defined in the Definitions section in the RFU’s Handbook– it does not include the reimbursement of proper expenses incurred for reasonable travel, accommodation subsistence or other expenses in relation to the game. Such reasonable expenses which may be reimbursed are further described in Rule 6. Where a Material Benefit for participation in the game is provided then a contract approved by the RFU must be entered into with the player. All players must be registered with the RFU if they are to participate in competitions. The registration procedures and form distinguishes between two types of player i.e. the ‘Amateur' who is not in receipt of a ‘Material Benefit’ and other players who do and must have a contract approved by the RFU. Model contracts are provided by the RFU and there is no doubt that HMRC would maintain that these give rise to employment arrangements between the club and the player. This will result in the club having obligations under the PAYE/NIC and NMW rules. Further the arrangements may be regarded as an employment for tax purposes even though they may not be regarded as employment for other purposes eg ‘paid to play’ contracts. However, ‘Amateur’ players who only receive reimbursement of reasonable expenses in accordance with Rule 6.2 may be regarded as playing ‘for the love of the game’ and not be treated as employees. This is discussed further below.
Additional payments made for winning performances or in reward for the team earning
bonus points would be regarded as performance bonuses and would be chargeable to tax as earnings from the player’s employment.
4.3 Other individuals
In determining the employment status of coaches, physiotherapists, trainers, match stewards, gatemen, cleaners and bar staff etc the general principles of employed vs self-employed status contained in Appendix 1 will need to be considered. However it is likely that such individuals will be treated as employees within the PAYE and NIC rules where they receive anything other than a reimbursement of their actual expenses computed on a reasonable basis. Indeed in the case of another sport HMRC has indicated that such individuals should have PAYE deducted from salary, bonuses, round sum allowances, payments for travel expenses between home and ground and any payment related to services for the club.
4.4 Casual helpers
The fact that an individual is engaged on a casual or part-time basis does not mean that they are outside the PAYE regulations. The normal tests for employment/self-employment need to be reviewed and the individual’s status must be determined. In many situations an employment will exist eg for ‘paid to play’ players. The fact that the individual is labelled as a ‘casual’ will not help. There are special procedures for such individuals which must be complied with which includes notifying HMRC and deducting income tax. If these are not followed there is a risk that tax, interest and penalties will be recovered by HMRC from the club for not operating the correct procedures.
5. For ‘the love of the game’ payments to volunteers and others
5.1 Specific re-imbursement of expenses only
Undoubtedly individuals help at many rugby clubs ‘for the love of it’ and in many cases expense payments are made to cover genuine travel (see below) and other expenses. Such expenses are expressly permitted to players without the need for them to have a contract and therefore become employees. In such situations it may be possible to establish that an individual is involved ‘for the love of the game’ and is therefore not an employee because he or she is not making any money out of it. This may also be the case for National Minimum Wage purposes (see below).
Such an approach has been agreed for many years with HMRC in relation to players in another sport who do not have a contract with their club and who only receive reimbursement of their expenses. It is however necessary to demonstrate that there is no written or oral contract of employment with the player concerned and that the expense payments do no more than reimburse the actual costs incurred. This approach can be equally applied to other individuals without contracts who receive no more than their expenses reimbursed on a reasonable basis.
5.2 Detailed procedures
What is required to come within this non-employed category is for each club to have a system for controlling, reporting and reimbursing specific expenses to individuals including appropriate documentation. Such procedures must already exist at clubs for players in order for the ‘Amateur’ declaration to be signed on the player registration form. For the club not to regard such individuals as employees it must be able to demonstrate that the particular individual receives no more than reimbursement of the actual expenses incurred. Thus for example ‘love of the game’ players should not receive expense payments for games or training sessions they do not attend. They are also not able to receive signing on fees or other bonuses in the course of a season. If they do then they have ceased to play as a ‘love of the game’ player and all of their earnings should be subject to tax.
Where an expense claim system is in place and is operating effectively in relation to individual Amateur players PAYE need not be applied to expenses payments made to those players. Where clubs are not able to comply with these rules then whole amount paid to the player may be subject to PAYE.
5.3 Round-sum allowances
Clubs may pay ‘expenses’ in the form of round sum allowances. In reality these payments may not be expenses at all but disguised salary. HMRC will not generally accept that round sum allowances paid in lieu of actual reimbursement of expenses will enable the club to treat the player as within the ’love of the game’ category. It regards such round sum allowances as pay in relation to which PAYE and NIC should be accounted for. In order to come within ‘love of the game’ treatment there must be genuine expenses which are reimbursed. These need to be identified, accounted for and justified with the necessary supporting documentation including a proper expense claim form with the relevant paperwork. A pro-forma expense claim form that clubs may use if they do not have a standard expense claim form is included as Appendix 2. In other words if rugby clubs follow Rule 6.2 there should be no difficulties. If a club has any doubt about its treatment of players or other individuals as non-employees under this head then they should approach their PAYE Inspector of Taxes to clear the treatment in advance.
5.4 Practical issues
One of the major elements of expense reimbursements is likely to be expenses for the use of the individuals own car. HMRC has agreed that individuals within the ‘love of the game’ category may be reimbursed for legitimate travel at up to 40p per mile – this is the statutory mileage allowance payment for employees using their own cars which applies to car mileage of up to 10,000 miles a year. Above that level the rate which may be reimbursed is currently 25p. The important point to note is that all mileage in connection with work for the club qualifies without creating an employment. Thus travel costs from home to the ground and squad sessions as well as to away matches can be reimbursed without the normal restriction for ‘home to office’ travel. Since the RFU approved rate is 38p per mile up to 10,000 miles (25p thereafter) there should be no difficulty with ‘Amateur’ players coming within the ‘love of the game’ treatment provided the appropriate documentation is maintained. However it is important that adequate procedures are put in place.
In the past HMRC has identified a number of abuses of guidelines for such individuals such as the following:
1) Two or more players together in one car and multiple expense claims are made.
2) Company or employer provided vehicles are used by the player and a claim for full reimbursement of motor mileage is made.
3) An estimated motor mileage is calculated at the beginning of the year on the basis of say, three visits a week to the ground from a player’s home. This is multiplied by the number of weeks in the year and divided into a suitably round weekly figure which is paid week in, week out, regardless of whether or not the player concerned plays or attends training sessions and is even paid where the player is injured so does not attend the club either on match days or for training.
4) Motor mileage payments are made to players who do not drive or do not have their own transport.
5) Motor mileage payments are made to players who live within walking distance from the ground.
6) Payments of motor mileage are made to players to travel to away games when they
travel on a team coach.
7) Motor mileage payments are made to players for home to ground travel even when the club has no record of the home address of the majority of the players.
8) Clubs pay motor mileage allowances unrelated to length of journey.
9) A substantial proportion of clubs inspected had paid reimbursed motor mileage
expenses yet had no record of claims made.
6. Detailed accounting, reporting and auditing
6.1Procedures generally
As regards PAYE and NIC, clubs have responsibilities to collect and account for this throughout the year and also to complete certain forms and returns both during and at the end of the income tax year. For a club that needs to start applying PAYE and NIC the HMRC website is a good place to obtain guidance. ‘Register as an Employer’ which can be found at www.hmnrc.gov.uk /employers is a good place to start. HMRC booklet ‘Thinking of employing someone’ which is available via that link may also be useful. The club will need to set up a Payroll and account for income tax and NIC to HMRC on a regular basis through the income tax year. As an employer the club will soon become familiar with some of these forms (eg P11D’s, P35’s P45’s and P60’s). The procedures are too detailed for inclusion in these notes and clubs should refer to HMRC’s detailed guidance.
6.2Time limits
Time limits are set for the payment of tax and the submission of forms and returns and employers face automatic penalties for failure to complete them on a timely basis. There is now a much stricter enforcement of the time limits and less scope for reducing the penalties for getting things wrong although good professional advice will help in this regard. Details of the time limits for the current tax year 2007/08 for submitting PAYE /NIC returns and returns of expenses and benefits together with the penalties for non-compliance can be found at Appendix 3 as well as penalties for not sending the forms on time interest will be charged on any unpaid PAYE and NIC.
6.3Year end returns
Clubs should also note that from April 2010 employers are required to file end of year returns electronically. Prior to then a tax free payment will be made for clubs filing their end of year return online. If a club fails to file its returns on time or pays late it may become liable to a default surcharge. There is therefore every incentive where the club does have employees to deal with the procedures and forms on a timely and accurate basis.
Clubs must report payments of expenses and benefits provided to directors (if the club is incorporated as a company) and employees earning over £8,500 per annum (Form P11D). This is a low limit which was put in place many years ago and has not been index-linked. For employees earning less than this figure there is a separate return which may need to be completed (Form P9D). Clubs will need to review the form P11D reporting of expenses and benefits if they have employees. Expenses must be put on the returns even if they are business expenses on which the employee will not pay tax. However, it is possible to avoid reporting business expenses which do not give rise to an income tax liability by obtaining a dispensation from HMRC. Reporting expenses and benefits often causes problems and where the club does have employees it is well to check that the appropriate procedures are complied with. HMRC does check that such forms are completed accurately.
6.4HMRC Control Visits
HMRC also checks that clubs comply with their PAYE, NIC and expense reporting obligations on forms P11D by carrying out regular control visits. Where a club is subject to a visit HMRC can be expected to not only look at compliance with employee PAYE procedures but also to review any individuals which are claimed to be treated as participating ‘for the love of the game’ and therefore not employees. This is a potentially costly area for rugby clubs if proper procedures are not in place. In advance of any HMRC proposed visit a club should check that its procedures are operating affectively. Appendix 4 contains some guidelines on this process.
7. Common problem areas
7.1Travel expenses
Employees are entitled to receive specific reimbursement of actual travelling expenses incurred in the course of their employment on a tax free basis. For this purpose the expenses should be reasonable and the clubs reimbursing within the RFU guidelines within Rule 6.2 should not be taxable. Players classed as employees of the club who are reimbursed travel costs in relation to their travel from their home to the clubs home ground or training ground will be taxable. However reimbursements of travel costs in respect of journeys from home to an away ground (therefore not to the individuals’ normal place of work) should not be subject to tax.
7.2Cars
If an individual has a company car by virtue of his full-time employment (even for example with another employer) then he must only claim reimbursement of the fuel cost as opposed to the 40p per mile reimbursement. A dispensation should be obtained from the local tax office to cover such payments when they are made to employees. The expense reimbursement form should state whether the car is personally owned by the individual or whether a company car.
7.3Subsistence
Reasonable accommodation and meal costs in respect of attendance at away matches can be reimbursed to employees or paid for directly by the club on a tax-free basis. The costs falling within RFU rules should satisfy the reasonableness test. A dispensation from reporting on forms P11D should be obtained.
7.4Clothing and equipment
Players may be reimbursed for the cost of necessary equipment such as boots, training gear etc. However clubs must obtain documentary evidence of the actual expenses. It may be possible to negotiate a kit allowance with the PAYE Inspector of Taxes if it can be demonstrated that the amounts paid to a player on an individual weekly basis are no more than the actual costs incurred. Further players and officials may be provided with a club uniform – blazers etc. Provided such clothing has the club crest attached this should not be a taxable benefit.
7.5Telephone
Club officials including the team manager may conduct club business using their telephone(s). Where this is the case then the cost of such calls may be reimbursed by the club. However telephone rental charges should not be reimbursed. The cost of calls should be split and allocated between personal and club business and a photocopy of the telephone bill should be supplied to the club to support reimbursement. These principles apply to both land lines and mobiles.
7.6Round sum allowances
Expenses may be paid in the form of round sum allowances. HMRC generally regards such round sum allowances as pay in relation to which PAYE and NIC should be accounted for. If there are genuine expenses to be reimbursed these need to be identified, accounted for and if appropriate any allowance which the club wishes to give agreed with the PAYE Inspector of Taxes as being tax-free. Such expense payments must be justifiable and if clubs pay round sums without the appropriate documentation in support they should review their procedures as a matter of urgency since HMRC will seek to tax them and collect back PAYE/NIC.
7.7Honoraria
Club officers and committee members are sometimes awarded honoraria in recognition of services to the club. Care should be taken with honoraria since they may be taxable as a reward for services which is regularly paid to the office holder. HMRC views honoraria as taxable so that NIC and PAYE should be accounted for. Clubs should confirm with HMRC that the honoraria can be paid tax-free if they have good grounds.
7.8Second employments
Employed players may very well have another main employment. Such individuals should be subjected to PAYE deductions by the club as the second employer in such cases. Personal allowances are likely to be set against the income from the main employment so that income from the club will be taxed at basic rate. Higher rate tax will be collected on the submission of a tax return by the individual. NIC will also be due under the second employment with the club but an application can be made where appropriate to authorise the club to deduct only 1% as employee’s contributions. Employers’ contributions are still payable.
7.9Payments to third parties
PAYE issues can occur where players are paid by a third party to play for the club. Deduction of income tax is still required under the PAYE regulations if the player is employed by the club. However the PAYE obligations generally fall on the third party who is deemed to be the employer in such situations. The NIC regulations place the NICs liability on the “secondary contributor” – which is usually the actual employer. Great care should be taken, however, particularly if the club is a party to such arrangements; specifically, the club should take advice to ensure that it is not liable for any unpaid PAYE and NIC and that any necessary reporting to HMRC is carried out.
7.10 Gross cash payments
One of the most common areas where problems arise is in relation to gross cash payments. These are payments made to employees under the tax law without deduction of tax under PAYE or accounting for NIC which arise principally:
a) Where the club does not treat the individual as an employee but under tax law
he or she is and
b) Payments to employees such as players, managers etc sometimes outside the
normal responsibilities and in addition to their salary.
These are great risk areas for the club since HMRC will seek to recover tax and NIC from the club rather than the individual in these circumstances. The employment status of individuals has been dealt with in detail above and the PAYE/NIC cost will fall on the club, although from 6 April 2008 HMRC may direct that the club are relieved of an amount of tax, which would otherwise be payable, to the extent of any tax paid by the individuals under Self Assessment, for example as a self-employed contractor. With regard to (b) above cash payments made without deduction of tax in addition to normal salary payments are possibly not quite so common but may arise if for example petty cash payments are made for some additional duty outside normal hours. A review by HMRC of petty cash payments often provides a useful source of tax revenue in an investigation.
7.11 Effective procedures and documentation
HMRC has taken particular interest in sport in the past. It is recommended that all clubs ensure that their PAYE and NIC procedures are in order since it is likely that if bad practice is found at even a small number of clubs this may lead to HMRC increasing their focus on clubs as a whole. Clubs should plan on the basis that they are likely to be visited by HMRC at some point if they have employees. In such cases clubs that have not agreed their procedures with HMRC may wish to approach the HMRC Inspector dealing with their PAYE affairs (after taking appropriate professional advice) to ensure that HMRC is happy with the procedures being applied. There is likely to be particular concern with players following the professionalisation of the sport. Whilst clubs may regard players as amateurs rather than employees because they are playing ‘for the love of the game’ it is always helpful to ensure that proper documentation is in place so if there is a challenge evidence is available to support the club’s treatment. Whilst this is often difficult for clubs run on essentially a voluntary basis the investment of time is well worth the effort. Failure to implement proper procedures can be costly with potentially substantial costs for a club as Appendix 5 shows.
8. National Minimum Wage (NMW)
8.1 Background
Clubs should ensure that where individuals undertake work under a contract of employment or a worker’s contract (either written oral or implied) that they are paid in accordance with the NMW regulations. This is potentially a particularly difficult area for community rugby clubs where individuals assist the club on a voluntary basis. Discussions have taken place with HMRC which monitors NMW and DTI (now DBERR) which is responsible for policy and guidance has been issued to help clubs with NMW.
The main rate for workers age 22 and over is £5.35 an hour from 1 October 2007 (£5.73 from 1 October 2008). The development rate for 18 to 21 year olds and the young workers rate (for workers under 18 who are above compulsory school age) are £4.60 and £3.40 respectively from that date (increasing to £4.77 and £3.53 respectively from 1 October 2008).
If a player has a contract approved by the RFU then this will constitute employment for NMW purposes, the player will be a ‘worker’ and the club must ensure that the hourly rate paid amounts to at least the NMW rate for that individual. If a player or other individual assists the club as a volunteer receiving nothing in return (e.g cash or benefits) and under no obligation to provide that assistance, then it is unlikely that the individual will be treated as a worker and NMW does not have to be paid.
The most difficult area is where an individual (including an Amateur player) receives some payment or benefit. This may even be expenses which may or may not be in excess of the reasonable expenses allowed to players without breaching the material benefit rule. Payment of expenses can classify the individual concerned as a worker for NMW purposes and indicate that they must be paid the NMW for each hour that they work. This includes playing in the game, travelling to away games and squad sessions.
In practice there are likely to be two main areas where NMW may apply to individuals involved with clubs:
a) People who are believed by the club to be volunteers but who come within
the NMW provisions because they are workers for NMW purposes.
b) Employees, and workers who are subject to NMW where the rules can
operate in somewhat unexpected way.
Fortunately following the discussions mentioned above written guidance has been produced which is available to clubs. Where clubs are registered with National Governing Bodies which are members of the Central Council of Physical Recreation (CCPR) these workers may be classed as voluntary workers for NMW purposes in certain circumstances. As regards (a) the Central Council of Physical Recreation and the Department for Business Enterprise and Regulatory Forum (DBERR) have produced a ‘Policy Statement on NMW enforcement’. This is included as Appendix 6. Both HMRC and DBERR agree that grass roots sport and recreation could not exist without voluntary workers and are keen to see that NMW is administered in accordance with the Government’s agenda for improved public health and social engagement and that common sense should be applied when looking at the operation and enforcement of NMW. The guidance has been produced consistent with those sentiments.
8.2Where NMW doesn’t apply
Anyone who is genuinely self-employed is not entitled to the NMW. However, this is not just a question of the label put on the relationship but the facts and circumstances of a particular individual’s work needs to be considered. Someone who is self-employed for income tax and national insurance purposes may not be self-employed for NMW purposes if they fall within the definition of a worker who is entitled to NMW.
Workers who satisfy the conditions to be classed as voluntary workers for NMW purposes do not qualify for NMW under section 44, National Minimum Wage Act 1998. This legislation can only apply when the worker is employed by a charity, voluntary organisation, associated fund raising body or a statutory body. For the purposes of this legislation, Community Amateur Sports Clubs registered with HMRC under the Finance Act 2002, schedule 18 will be treated as being a charity for the purposes of the National Minimum Wage Act 1998, Section 44. This means that workers involved with these clubs who meet the voluntary worker criteria will not qualify for the minimum wage.
For the voluntary worker provisions to apply workers must receive no monetary payments except:
· Reimbursement of expenses incurred in the performance of duties or a reasonable estimate of those expenses.
· No benefits in kind except the provision of some or all of the worker’s subsistence or accommodation reasonable in the circumstances of the employment or training required to do the job.
There are special rules for workers who work for a charity and who work for another charity, voluntary organisation, associated fund raising body or statutory body.
Genuine volunteers are not entitled to NMW. A genuine volunteer does not have a contract and is free to come and go as they please without any obligation. They have no expectation of and are not entitled to receive any monetary payment or benefit for the work they do.
The payment of out of pocket expenses or the provision of an unexpected gift is unlikely to make a volunteer a worker for NMW purposes. However, care should be taken to ensure that any payments, expenses or gifts do not amount to a contractual relationship (i.e. a volunteer is playing in return for a reward) as in such circumstances the volunteer is likely to be a worker for NMW purposes.
8.3 Official guidance on NMW and sport
The Policy Statement in Appendix 6 contains some guidelines on expense payments. HMRC has also indicated that it can agree that, when calculating the payment of expenses, HMRC authorised mileage rates (40/25p per mile) can be used. They have, however, emphasised that it will be important for the organisation paying the expenses to ensure that they can demonstrate that the expenses have been incurred (with appropriate documentation). Again any payments that are more than actual expenses incurred will cause problems because it will produce an element of profit and thus bring the individual within NMW. There will also be tax and NIC obligations.
As regards 8.1 (b) The Football Association has held discussions on the application of NMW within the sport of football. Guidance Notes for Clubs (March 2005) have been produced summarising the results of those discussions. The notes provide useful guidance on what hours will be taken into account for NMW purpose for players who are workers. There is also a useful section on how the rate paid to a player should be calculated. Clearly the hours worked are important in establishing entitlement to NMW. Specifically the Notes deal with:
- Home games
- Training
- Away games
Appendix 7 contains details of this guidance on hours worked. In determining compliance with NMW, the hours worked under these headings need to be totalled and divided into the weekly national minimum wage pay to give an hourly rate. If this is less than the NMW rates mentioned above then the club may be in breach of the NMW legislation. In practice difficulties can arise and it is therefore strongly recommended that clubs regularly review the levels of hourly wage being paid to players with whom they have a worker’s contract (written, oral or implied).
The NMW legislation is a potentially very important area of legislation for clubs with serious consequences if breached. Given the requirements of the legislation it is clear that clubs should ensure that they keep detailed records to enable them to comply with NMW requirements.
9. Action required
Clubs should review their PAYE, NIC and NMW procedures now and get them in good order. In doing this Appendix 8 which contains a list of do’s and don’ts may help. They may need to obtain advice from professional advisers to give the club a ‘health check’. Particular attention should be paid to gross cash payments, round sum allowances and expenses and benefits. A particular risk is where expense payments are paid to players - procedures should be closely reviewed and documented so that if a challenge comes in from HMRC a robust defence can be made.
Richard Baldwin
22 April 2008
APPENDIX 1 – EMPLOYED v SELF EMPLOYED STATUS
The issues that will be considered are:
Control
Tests of control include whether the following apply:
· The payer has control over what work is to be carried out and when and how it is to be performed;
· The payee is expected to work set hours or a given number of hours per week or month;
· The payee is subject to the payer’s disciplinary code and the payer has the right to suspend or dismiss the payee (with dismissal being subject to a period of notice);
· There is a clear obligation on the part of the player to represent the club when it requires
· The payee is paid on a weekly or monthly basis, is able to earn overtime pay, is entitled to holiday and sick pay and/or is able to join an employers’ pension scheme.
These are indications that a contract of service exists.
Economic Reality
The test of economic reality is whether or not the person performing the work is in business on his own account, (i.e. is he self-employed). Questions to be asked include the following:
· Does he work for more than one employer? It should be noted that it is quite possible for someone to have two or more sources of earnings and to be an employee in respect of one or more sources of earnings.
· Does he incur personal financial risk or have the ability to profit by sound management?
· Is he required to make good unsatisfactory work in his own time and at his own expense?
· Is he expected to provide his own equipment to perform the work (meaning major items of equipment as opposed to small tools which many employees provide)?
· Does the contract enable him to provide a substitute or engage helpers for whom they are responsible and who they pay to assist them in providing services?
Provided the answers given to the ESI questions accurately reflect the terms and conditions under which the services are provided at the relevant time of the contract, HMRC will be bound by the ESI outcome where the engager or their authorised representative provides copies of the printer-friendly version of the ESI Result screen, bearing the 14 digit ESI reference number, and the Enquiry Details screen. You should also retain a copy of the written contract (if available) in relation to the engagement which the print-out refers along with any other documentation you relied on when completing the ESI.
APPENDIX 2 - EXPENSE CLAIM FORM |
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| EXPENSE CLAIM | | | | | | | |
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| NAME | | DATE | | |
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| Mileage | | | | | | | | |
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| Car provided | (circle as appropriate) | own / rugby club car / company car | |
| | | | | - with private fuel/ without | |
| Date | from | to | reason for journey | mileage | rate/mile | | claim | |
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| carried forward | | | | | | | |
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| Total mileage claim in period | | | | A | £ | |
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| Other Expenses | | | | | | | |
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| Date | reason for expense | net | VAT | claim | |
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| Total other expense claim in period | | | B | £ | |
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| Total mileage and other expense claim in period | | A+B | £ | |
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| I hereby claim the above expense and confirm that I have personally incurred the expense, exclusively and necessarily in the course of my duties for _________________________ Rugby Club | |
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| Signature of claimant | | | | | |
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Appendix 3 – PAYE Returns: Time limits and penalties
| Deadlines | | | |
| Forms | Date | | Penalty provisions |
| P14, P35, P38 | 19 May following tax year | Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) reg 73 and 74 | TMA 1970, s 98A |
| P9D, P1lD, P11D(b) | 6 July following tax year | Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) reg 85 | TMA 1970, s 98 |
| Penalties that may be imposed for late returns |
| Forms | Initial | Continuing | Delay exceeds
12 months |
| P14, P35, P38, P11D(b) | £100 per
50 employees | £100 monthly per
50 employees | Penalty not exceeding 100% of the tax or NICs payable for the year of assessment but not paid by 19 April following the end of the year of assessment |
| P9D, P11D | £300 per return | £60 per day, per return | |
| Penalties that may be imposed for incorrect returns |
| Forms | Provision | Penalty | |
| P14, P35, P38 | TMA 1970, s 98A | Maximum of 100% of tax underpaid (s 98A(4)) |
| P9D, P11D | TMA 1970, s 98 | Maximum penalty £3,000 (s 98(2)) | |
| Interest on unpaid PAYE/NIC |
| Interest Rate | Date | Statutory provision |
| Vary with Bank of England interest rates | Accrues from
19 April following end of tax year | TMA 1970, s 86 |
APPENDIX 4 - PAYE AND P11D REPORTING
In recent years, tax legislation in respect of earnings and benefits for directors and employees has been significantly tightened up. Also, PAYE and P11D responsibilities for the collection of tax on earnings and the reporting of benefits have become more onerous.
Although income tax liabilities attach to individuals, the HMRC can, and frequently does, look to employing clubs for any tax which has been lost due to their failure to collect tax or to report benefits. Failure to comply with these responsibilities can therefore result in substantial costs for clubs particularly since HMRC can go back and collect tax for the previous six years. In addition to the tax lost, penalties and interest may be levied and this can result in substantial sums being owed HMRC. The message is to be prepared for a detailed HMRC control visit, particularly in the current environment, and avoid problems if possible.
Dispensations
A dispensation is a notice from the tax inspector that relieves employers from the obligation to report expense payments on year end PAYE returns. A dispensation may be given where it can be shown that:
l No tax would be payable by the employees on the expenses payments; and
l Expense claims are independently checked and authorised by the club and, where possible, receipts go with the claims. Dispensations may be given for routine expenses such as travelling expenses however a dispensation cannot usually be obtained for 'round sum' expense allowances.
Guidance is available from the HMRC website which explains in greater detail how dispensations work. HMRC also publish a leaflet for employees, IR125: "Using your own car for work" which explains the tax position where the employee uses his own car to make business journeys.
Checklist
There follows a checklist of major items where difficulties can arise which should be used as the basis for discussion with the club's professional advisers, Many of the items shown will also give rise to NIC liabilities which may be picked up as a result of a control visit.
1. Employees
Are P11D's prepared for employees or has a dispensation been granted by
The HM Revenue & Customs?
Are any of the following provided and if so do they appear on P11D's?
a) Travel and subsistence expenses.
b) Round sum allowances.
c) Payments out of petty cash.
d) Specific expenses which are not supported by vouchers.
e) Entertaining facilities and expenses.
f) Cars.
g) Clothing including ties, blazers.
h) Petrol.
i) Payment of home telephone bills.
Of course, some of the above may be covered by a specific dispensation or subject to a claim by the individual that the expenses have been incurred wholly, exclusively and necessarily in the performance of their duties.
2. Casuals/consultants
a) Are consultants engaged on a regular basis? If so, are they truly self-employed or are they employees? Have the arrangements been documented/cleared with HMRC?
b) Is tax being deducted from payments to match day staff e.g. gatemen, stewards, etc? Alternatively, have HMRC been notified of the payments and are they happy with them? Are details of payments recorded as required by the PAYE Guide for Employers - payments to casuals?
c) Are lottery agents, representatives and commercial people employed or self-employed? Has the treatment been agreed by HMRC and proper documentation been prepared?
d) Is tax being deducted from payments to other casuals, e.g. barmen?
3. PAYE and payments to all categories of employees
Is PAYE applied to the following payments?
a) Salaries.
b) Bonuses.
c) Signing on fees.
d) Round sum allowances.
e) Payments for travelling to and from home to the ground.
f) Ex-gratia and other termination payments.
g) Any other cash payments.
APPENDIX 5 – POTENTIAL COST OF A PAYE SETTLEMENT – AN ILLUSTRATION Assume:
20 players
1 manager
1 coach/physio
25 matches per season
All 22 individuals are paid on average £100 per week with an additional £10 for expense payments which are not supported by receipts
3 ‘voluntary’ staff treated as casuals paid £20 per day for each match
Potential liability 2006/7 tax year
| Annual payments | |
| 22 x (£100 + £10) x 25 weeks | £60,500 |
| 3 x £20 x 25 weeks | £ 1,500 |
| | £62,000 |
| Income tax at, say 22% | |
| 62,000 x 25 weeks | £13,640 |
| National Insurance Contributions* | |
| Annual payments | |
| 22 x (£100 + £10 – £97) x 25 weeks £7,150 | |
| Employees at 11% | |
| £7,150 x 11% | £ 787 |
| Employers at, say 12.8% | |
| £7,150 x 12.8% | £ 915 |
| Total Annual Cost | £15,342 |
If PAYE has not been deducted for six years the assessment could be extrapolated across the whole period, and may reach £92,052 on top of which penalties and interest would be payable. This settlement only relates to the staff mentioned above, and could be even higher than this if PAYE and NIC has not been applied to payments to other employed individuals.
*National Insurance Contributions (NIC) are calculated on payments made in excess of £97 per week. Therefore, for payments to an individual who earns £100 per week plus £10 expenses, the difference between £110 minus £97 is liable to NIC. Match day staff are not liable to NIC as they earn less than the £97 weekly threshold.
APPENDIX 6 - POLICY STATEMENT ON NMW ENFORCEMENT
Central Council of Physical Recreation and the Department for Business, Enterprise and Regulatory Reform
Background
This guidance applies where an individual is paid money (including reimbursed expenses) or given a benefit by an employer and is obliged to perform an activity in accordance with the employer’s instructions. In such cases, then there will almost certainly be a contract between the two parties and the individual will be a worker even if the individual considered themselves to be only “volunteering”. From this it follows that the minimum wage is due unless the individual meets the criteria for voluntary workers under the NMW legislation.
Under the NMW legislation the onus is on the employer to be able to prove that the minimum wage has been paid, or is not due. This is intended to ensure that an employer cannot avoid his obligation to pay the minimum wage by being non-co-operative or by pleading an absence of documentation.
All of this has implications for sports clubs where arrangements for those who give their time in exchange for expenses or other benefits could inadvertently trigger the obligation to pay the minimum wage. Also, clubs might have difficulty in being able to demonstrate from the records they hold whether the minimum wage is due or has been paid – and without records the presumption would be that is due.
There are clear advantages in having workers classed as voluntary workers under the NMW legislation as the minimum wage need not be paid. This guidance is to help clarify what HMRC has to consider when looking at voluntary workers who do not qualify for minimum wage.
Voluntary workers are defined in the National Minimum Wage Act 1998, Section 44 as workers who are employed by a charity, a voluntary organisation, an associated fund-raising body or a statutory body. They do not qualify for minimum wage as long as:
· no payments are made to the worker except in respect of incurred expenses or where they represent a fair and reasonable estimate of out of pocket expenses; and
· the worker receives no benefits in kind, except the provision of reasonable subsistence (food and drink) or accommodation.
What has been agreed between the DBERR, HMRC and the CCPR
Proactive Investigations
No proactive investigations: HMRC will not initiate investigations on CCPR members and affiliated volunteer/sports clubs for minimum wage compliance – but HMRC will of course look into cases where a worker or ex-worker makes a specific complaint that they should have been paid the minimum wage.
Charitable Status
Community Amateur Sports Clubs registered with HMRC under the Finance Act 2002, schedule 18 will be treated as being a charity for the purposes of the National Minimum Wage Act 1998, Section 44. This means that workers involved with these clubs who meet the voluntary worker criteria will not qualify for the minimum wage.
Non-monetary benefits-in-kind
This is important, as the provision of a benefit could trigger eligibility for the minimum wage.
· Match day volunteers: Where workers have access to a football match, golf competition or other sporting event as part of their voluntary role, (e.g. monitoring/assisting crowd safety, selling programmes, operating turnstiles), access to the event will not be treated as a non-cash benefit for minimum wage purposes.
· Provision of uniform, jumpers etc: where a worker or someone acting in an official capacity at a sporting event is provided with clothing to enable them to be distinguished from competitors and members of the public, the provision of such clothing will not be treated as a non-cash benefit for minimum wage purposes.
It should be noted that:
(i) The item provided has to be reasonable, i.e. a jumper or a jacket for a worker of a golf event is acceptable, providing a set of golf clubs is not;
(ii) The item should be necessary to perform duties, i.e. for a worker to stand out from crowd;
(iii) If the item is allowed to be retained – it has to be a gift, i.e. they might expect to receive but it must be the case that they’re not entitled to receive it.
· Free food or drink and honoraria: where a free basic meal or drink is provided, such provision will be treated as reasonable subsistence. This could also cover cases where a reasonable honorarium is made, which may be expected, although there should not be any entitlement to the sum received. In such cases the provision of the food and drink or an honorarium would not on their own trigger eligibility for the minimum wage.
However, HMRC reserve the right to take enforcement action where they believe workers are being exploited e.g. where benefits-in-kind are being offered on a scale as a replacement for monetary payments. Workers will also have the right to take their own case to an Employment Tribunal.
Expense payments
Expenses can be paid at a flat rate if they represent a fair and reasonable estimate of out of pocket expenses and it would be otherwise administratively cumbersome for the provider to calculate individual expenses. Therefore a flat rate figure which represents genuine average expenses for a group of people would be acceptable. Records should be kept of all expenses paid and the organisation or club should be able to explain how they arrived at the level of expenses paid.
Paid/voluntary work
A coach (or similar) can provide additional time coaching on a voluntary basis and this time will not be considered as unpaid overtime. This will be the case as long as no payment is received for this period other than for actual or estimated legitimate expenses.
However, it is critical that what happens in practice is not simply an extension of what the coach provides under their contract, i.e.
there is no obligation that the coach will be volunteering their time;
the original payment by the club is not provided on the basis of additional voluntary time being worked;
the coach is not under the direction of the club during the voluntary period, other than in connection with mandatory statutory obligations (e.g. in connection with child safety), the coach is free to go after the contracted time is completed and does not suffer any detriment if they do not volunteer.
Office Holders
Office Holders are exempt from the minimum wage. Their defining characteristic is that the office, which exists independently of the person who fills it, defines rights and duties of the office holder. An Office Holder could be a club secretary or treasurer. However if the office holder also holds a worker’s contract with a named individual/employer, or they are working with both the expectation of and an entitlement to an honorarium, then they may be brought within the scope of the minimum wage.
Record Keeping
Clubs should retain entries in cash and petty cash books, keep records of the identities of those receiving payments, when they "work" and for how long. Clubs need to keep a record of how estimated expenses are calculated. This record keeping is for the club’s own benefit as the onus of proof lies with them should an individual claim that the minimum wage should have been paid.
Updated October 2007
APPENDIX 7 - WHAT HOURS WILL BE TAKEN INTO ACCOUNT FOR NMW PURPOSES
In calculating an individual player's hourly wage, The HMRC has stated that football players are deemed to be performing 'unmeasured work'. This assessment is based on the fact that players are not paid by the number of hours they work, and it is not possible to specify exactly the number of hours they will work each week.
Essentially, therefore, the HMRC has indicated that the following activities will be taken into account when calculating the hours worked in a period by a footballer.
Home Games
The period between the time required by a club for the player to report to the home ground until the time he is free to leave the ground after the game. This should include a `reasonable' allowance for showering, changing etc. (i.e. it cannot be immediately on completion of the game). However, if the player chooses to stay on to socialise etc, this will not be included.
Travelling time from the player's own house to home games will not be included.
Training
The period between the time required by a club for the player to report to the ground until the time he is free to leave. This should also include a `reasonable' allowance for showering, changing etc.
Again, travelling time from the player's own house to training will not be included.
Away Games
The period between the time the player is required to report at the home ground for travel to the away ground and the time the player arrives back at the home ground after the match.
Example; A player leaves his house at 10 am for his home ground. He is required to be at the home ground at 11am for a three hour coach journey. After an hour’s changing and warming up, ten minutes half time, ninety minute match and an hour warming down and changing, the team coach leaves at 6.00 and arrives back at the home ground at 9 pm. The player drives back to his house, arriving there at 10 pm.
Time to include for NMW purposes – Everything, except time taken to drive from the player’s home to home ground (1 hour) and the return journey (1hour). Total hours therefore ‘worked’ on the day by the player for NMW purposes is ten hours (time required at home ground (11 am) to time he reports back at home ground (9 pm)).
If a player travels directly from his home to the away ground, then all the time he spends travelling should be included.
Note – extracted from The Football Association
National Minimum Wage for Players
Guidance Notes for Clubs
March 2005
APPENDIX 8 - LIST OF “DO’S AND DON’TS” FOR CLUBS
Please do :
· Review your PAYE/NIC/NMW procedures now unless you have done so within the last 2 years (Appendix 4).
· Determine the status of individuals you pay as either :
- playing for the love of the game
- employed
- self-employed
and apply PAYE/NIC to employees.
· Consider NMW if an individual is employed receiving more than a specific expense reimbursement.
· Keep adequate records and documentation
· Only reimburse expenses if supported by an expense claim form (Appendix 2) and receipts.
· If HMRC tell you they are coming for a control visit speak to your accountant before they come.
· If you are a CASC check that your expense reimbursement policy for members does not breach the CASC rules.
Please do not :
· Make gross payments to individuals e.g. to casuals unless they are self employed.
· Pay round-sum allowances without deducting tax unless HMRC has agreed in advance.
· Reimburse car mileage unless the claimant makes a claim confirming he has actually driven the miles to be reimbursed.
