Fears grow over 10m tax bill

In closing a national insurance loophole that encourages bad employment practises, the Department of Social Security is acting directly in the interests of 150,000 people. And, indirectly, for everybody who pays national insurance in the UK.

According to the DSS, employers are escaping national insurance payments, by topping up employee’s wage packets with NI-free grocery store, luncheon and any other sort of voucher imaginable. For the employer it means a tax saving, but for the DSS it means lost revenue. It is a tax evading scam. And one which should be eradicated.

And that is exactly what Social Security Secretary Harriet Harman has committed herself to. But in announcing the tax change she has triggered fears that it will lead to other employee incentive schemes, including frequent-flyer programmes, and those which support the mass of loyalty schemes in the UK, being hit financially.

But the legislation, set to come into force in 1999, was unveiled in a Commons speech at the second reading of the Social Security Modernisation Bill last month.

Harman highlighted the case of the owner of a residential care home who paid employees in cash, up to the National Insurance Contributions lower earnings limit, and the balance in vouchers from a supermarket chain – thereby avoiding national insurance payments.

But the legislation will also affect ‘vouchers’ – both paper and those collected electronically – used as employee incentive schemes, which includes Air Miles. But the fear of some, expressed privately, is that once the tax is introduced it will be more far reaching than initially intended, not just related to employee incentives.

Officially the British Airways-owned Air Miles says any such fear is ‘second-guessing a government department which has not yet commented on how this would be administered’.

When pushed last week, the DSS could not initially say how the 10m figure Harman announced was calculated. It is understood to be based on unspecified Inland Revenue statistics. But how could the 10m figure be arrived at without knowing how the tax was to be administered?

At the same time, its sister body, the Contributions Agency, which manages the national insurance system, has no definition of a ‘non-cash voucher’. The DSS does not know how the tax will be administered, partly because the Bill is still making its way through the House of Commons, but also because the DSS gives the impression that it has not made up its mind.

Those using incentive schemes – especially frequent-flyer programmes – need to persuade the DSS that they should not be financially hammered in the wake of a move that everybody should applaud.

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