Tag: employment tax

Tax implications of return-to-office incentives – AAT Comment

Posted on by Alicia Sprott

Companies are now offering perks such as free breakfasts, fruit baskets, social events, and even covering commuting costs to make office environments more appealing. However, organisations need to be aware of the additional tax and NI costs incurred.

Social events in particular could trigger a benefit in kind charge, leading to tax and NI liabilities. Employers considering such incentives must be aware of the need to possibly enter into a PAYE Settlement Agreement (PSA) with HMRC. This agreement allows tax and National Insurance contributions (NICs) to be settled on benefits that are minor, irregular, or impractical to process otherwise.

Nick says: “Employers need to budget for almost a ‘doubling’ of the original cost of the social event once the tax and NIC liabilities are considered.” There also are further considerations to be made for those organisations which agree to pay for all or part of an employee’s commute to the office.

You can read Nick’s comments in full via AAT Comment here.

Further guidance

While incentives can be an effective strategy to bring teams back together physically, they come with their own set of tax considerations. Organisations must plan these initiatives carefully to manage the additional financial burden effectively. For more detailed guidance on managing the tax implications of return-to-office incentives, please get in touch with Nick directly.

LLPs: HMRC’s new salaried members rules guidance on capital contributions

Posted on by Alicia Sprott

The rules tax the members of an LLP as employees if three conditions are all met:

  • Condition A: it is reasonable to expect that at least 80% of an individual member’s total remuneration is ‘disguised salary’ (which does not vary or which varies but without reference to the LLP’s profits);
  • Condition B: the individual member does not have significant influence over the affairs of the LLP; and
  • Condition C: the individual member’s capital contribution is less than 25% of the disguised salary that it is reasonable to expect will be payable to him in the relevant tax year.

Failure to meet one or more of these three conditions means that the relevant member will be taxed as self-employed rather than as an employee, which can result in a significant saving of employer’s National Insurance (NI). Alternatively, where salaried members are taxed as employees and their income forms part of the employer’s tax bill, it will also be subject to the Apprenticeship Levy (0.5%), where the employer’s annual total pay bill is £3m or more.

HMRC’s new guidance

HMRC has recently changed its guidance on the interaction of the targeted anti-avoidance rule (TAAR) and Condition C. The TAAR states that any arrangements must be disregarded if those arrangements , ensuring that salaried members rules do not apply.

Until recently, HMRC’s guidance did not preclude LLPs from requiring capital contributions of 25% or more, in order to ensure that Condition C was not applicable. HMRC has, however, amended its Partnership Manual to remove this assurance and to insert an example suggesting that the TAAR applies where a capital contribution is increased with a view to avoid meeting Condition C.

Why the change in stance?

Whilst we can’t be certain, we understand that HMRC’s change of stance was prompted by the recent case of HMRC v BlueCrest Capital Management (UK) LLP. The recent changes to HMRC’s guidance indicates that it is taking a wider view of how and when the TAAR will apply.

The changes to the guidance will be of immediate concern to LLPs and members who have arrangements in place, which apply incremental movements in capital, as these arrangements may now trigger the TAAR. LLPs must ensure they have a robust process in place and assess each member against all three conditions on a regular basis, and at least before the start of each tax year.

However, we must note that the change is only to HMRC’s guidance, not a change to the legislation or case law. HMRC’s guidance will remain relevant to arrangements put in place before the recent change.

How we can help

We can help you review current arrangements to determine if you are compliant with the legislation, to identify if there is a greater risk of HMRC challenge – given its change in guidance – and to mitigate any risks identified.

For more information or to discuss the above, please get in touch with your usual haysmacintyre contact, our Employment Tax team, or our Partnerships Tax team.

Payrolling of benefits – update

Posted on by Katie Trower

Mandatory payrolling

It is proposed that the payment of Class 1A National Insurance (NI) will be paid monthly, as opposed to annually by 19 July. The amount of Class 1A NI paid will be calculated based off the value of the benefits reported for that month.

Do you need to do anything now?

Employer registered with HMRC to payroll benefits – No

A number of employers are already processing the cost of providing benefits in kind through the payroll on a voluntary basis. Employers who already voluntarily payroll benefits do not need to take any action.

Not registered with HMRC to payroll benefits – Yes

Employers that wish to operate the voluntary payrolling of benefits before 2026 can only do so by registering with HMRC. Employers must register to do so with HMRC before 5 April 2025 to be effective for the 2025/26 tax year.

How can you prepare?

Whether you are currently registered with HMRC for payrolling of benefits or not, from April 2026 this will be a mandatory requirement and employers will need to plan for how this can be achieved. For example, reviewing how the benefit values are collated, through to producing forms P11D for annual reporting and how this can be amended to report the costs in real time.

This may be one process for medical insurance or company cars but could be a more complex issue for other benefits, such as relocation costs.

Establishing a process now to implement a system would be a good step forward. It may be worthwhile considering starting to payroll benefits in kind before April 2026, which will put you ahead of the game and reduce any issues with, for example, tax codes. This may reduce the impact of the change on your employees.

For further information please contact Jo Hennessy, Employment Tax Senior Manager.

Pension salary sacrifice explained

Posted on by Alicia Sprott

 

What is a pension salary sacrifice?
In this video, Nick shares the valuable benefits of a pension salary sacrifice exchange for both employers and employees, especially during difficult economic times. Traditionally, employees pay pension contributions from net earnings. However, with a pension salary sacrifice, employees agree to a reduced salary in exchange for employer-managed pension contributions, resulting in lower Income Tax and National Insurance contributions (NICs), and increased take-home pay.

Watch the video to understand:

  • Advantages for employees who can see immediate tax relief.
  • Advantages for employers, including reduced taxable earnings.
  • The importance of maintaining compliance with the National Minimum Wage.
  • Potential downsides of the scheme, such as the impact on state-related benefits.

Employers can take away actionable steps when considering and implementing a pension salary exchange, and our Employment Tax team can assist with the planning and consultation of such a scheme, as well as supporting employers with staff engagement and how the scheme is received by employees. If you need further advice on a pension salary exchange, get in touch with Nick at nbustin@haysmacintyre.com or your usual haysmacintyre contact.

Autumn Statement 2023: National Insurance Contributions

Posted on by Alicia Sprott

National Insurance rate cut

From 6 January 2024, employees earning between £12,570 and £50,270 per annum will pay 10% National Insurance (NI). This is a cut of 2% and means that an average worker, earning £35,400, will receive an additional £450 in their pay packet. Someone in the higher tax bracket of £70,000 will be £750 better off. The Chancellor said: “This will reward work and sustainably grow the economy, providing a combined rate of Income Tax and NICs for an employee paying the basic rate of tax of 30% – the lowest since the 1980s.”

Veteran NIC relief

Employers who hire veterans will receive an additional year of NIC relief. This relief was implemented in April 2021, with qualifying businesses paying zero rate employers’ NIC up to the veteran’s upper secondary threshold, which is currently £50,270. An employee qualifies as a veteran if they have either:

  • Served in the regular armed forces for at least one day
  • Completed at least one day of basic training

The benefit is accessible to any veteran who has begun their first civilian job, regardless of when they left the regular armed forces.

The qualifying period begins on the first day of the veteran’s first civilian employment after leaving the regular armed forces and ends 12 months later.

NIC relief and Investment Zone programmes

Following the 2023 Spring Budget, the Government launched the refocussed Investment Zones programme, which afforded tax and NIC reliefs for qualifying employers. Eligible businesses enjoy a range of ‘tax’ incentives, such as enhanced capital allowances, relief from Stamp Duty and employer NICs for additional employees. To qualify for the NIC relief, the new employee must spend 60% or more of their working time within an Investment Zone tax site. This rate can be applied on all new hires earning up to £25,000 per annum for those employers operating in a Freeport and Investment Zone sites. The relief is available for up to 36 months per employee.

The original incentives period was five years, but this has since been extended to 10 years. New Investment Zones were also announced for the West Midlands, East Midlands, and Greater Manchester, as well as Wrexham and Flintshire.

Further commentary

Although the reduction in employees’ NIC is welcome, it will only partially offset the freezing of the tax/NIC bands. Normally, the personal allowance for Income Tax and the basic rate limit would have increased in April 2024.

A similar increase would have increased the current higher rate barrier to £53,580. The result was a higher tax burden on people who otherwise would not have been taxed.

Using the 4.6% inflation rate, someone on a low income of £20,000 would have seen their pay increase by £185, instead of £149, with the NIC changes.

It should also be noted that with no reduction in the employers NIC, and the imbalance between employee and self-employment NIC rates, it may mean that disguised employment is encouraged.

Additionally, although the NIC reduction in January 2024 is around six weeks away, with Christmas and New Year in between, the implementation may present difficulties for payroll and software providers, resulting in employees receiving incorrect net pay.

Please contact our Employment Tax team should you have any questions.

Autumn Statement 2023: National Minimum Wage Increase

Posted on by Katie Hiddleston

The following tables show how the NMW and NLW come together.

The new rates are as follows:

NMW rate from 1 April 2024 Increase in pence Percentage increase
National Living Wage (21 and over) £11.44 £1.02 9.80%
18-20 year old rate £8.60 £1.11 14.80%
16-17 year old rate £6.40 £1.12 21.20%
Apprentice rate £6.40 £1.12 21.20%
Accommodation offset £9.99 £0.89 9.80%

 

The current rates (from 1 April 2023) are:

23 and over £10.42
21 to 22 £10.18
18 to 20 £7.49
Under 18 £5.28
Apprentice £5.28

 

The rate increases are the largest at any one time and since the inception of NMW. The increase follows recommendations put forward by the Low Pay Commission (LPC) and allows the Government to meet its targets set in 2019.

The new rates ensure that all those over the age of 21 are now paid at the NLW; the 23 and over band has been combined with the 21 to 22 band. At the other end of the scale apprentice who reach 21 whilst still in the apprenticeship will also be entitled to NLW.

For further details concerning the changes announced by the Government, please speak with a member of the Employment Taxes team.

Changes to the application process to obtain a certificate of coverage

Posted on by Alicia Sprott

As a consequence of a review carried out by HMRC, the application forms and supporting guidance have been updated, which will help speed up the application process and remove opportunities for error. HMRC is also replacing the ‘apply by post’ forms with the newer digital versions for applications, which will be more accessible and easier to use.

The new digital forms will, with effect from 1 December 2023, replace the following:

  • Apply for a certificate confirming an employee pays UK National Insurance when working abroad (CA3822)
  • Apply for a certificate to confirm you will pay UK National Insurance while self-employed abroad temporarily (CA3837)
  • Apply for a certificate to confirm you pay UK National Insurance when working in 2 or more countries (CA8421)

The digital versions can be accessed using either a Government Gateway account or email address. The digital forms are used to gather the information HMRC needs, to decide as to whether the applicant can remain within the scope of UK NI whilst working abroad.

For further information, please contact a member of our Employment Tax team.

Employment Taxes newsletter – October 2023

Posted on by Alicia Sprott

See below for the topics covered in this edition:

  • Employment taxes roundup:
    • Salaried members update: BlueCrest Capital LLP
    • HMRC compliance team increases in size
    • Upper Tier Tribunal (Tax and Chancery) IR35 case hearings
    • Veezu to go before employment tribunal
    • Bank of England interest rates
    • Rise in National Living Wage
    • HMRC compliance activity
    • Check Employment Status for Tax (CEST) tool
  • Consultations:
    • IR35 off-payroll working rules
    • Construction Industry Scheme (CIS) reform
    • Umbrella companies
  • Other points of interest:
    • Home to work travel expenses
    • Christmas costs

To download the full publication, click the link below.

Salaried member rules update in light of BlueCrest Capital

Posted on by Alicia Sprott

Background

The original FTT decision was published on 29 June 2022. In our previous article, we explained that the SM rules set out three conditions that, if all met, meant the member is treated as an employee of the partnership for Income Tax and National Insurance (NI) purposes. In the appeal to the FTT, the parties accepted that condition C was met – where the individual’s capital contribution is less than 25% of the amount of the disguised salary that it’s reasonable to expect the member to receive.

So only conditions A and B were considered by the UTT. To recap, the conditions are:

  • Condition A: If at the relevant time it is reasonable to expect that at least 80% of the total amount payable by the LLP, for the individual’s services in individual’s capacity as a member of the LLP, will be ‘disguised salary’. This includes payments which are either fixed, variable but without reference to the overall profit or loss or is not in practice affected by the overall amount of profits or losses of the LLP.
  • Condition B: The mutual rights and duties of the individual do not have significant influence over the affairs of the LLP.

In its decision, the FTT partially allowed BlueCrest’s, stating that all members of BlueCrest met condition A and some met condition B. However, BlueCrest cross-appealed against the decision, arguing that the FTT erred in its construction of condition A and applied the wrong test, resulting in the appeal.

HMRC’s appeal against the FTT’s decision was based on the argument that no members had significant influence over BlueCrest’s affairs, and that the FTT erred in its construction of Section 863C Income Tax (Trading and Other Income) Act 2005 and its application of the test.

Summary of the UTT decision

The UTT found that:

  • All members of BlueCrest met condition A due to the insufficient link between profits and discretionary allocations.
  • Portfolio managers and desk heads with capital allocations of $100 million or more do not meet condition B due to their significant influence over BlueCrest’s affairs, including managerial and financial activities.
  • Other portfolio and non-portfolio managers, other than the original executive committee, meet Condition B as they do not have significant influence over BlueCrest’s affairs.

What does the decision mean for LLPs?

Although the UTT decision merely reinforced the earlier FTT decision, the case again emphasises the importance of making sure that bonuses and performance shares vary with the LLP’s profits when people fail condition A.

Perhaps more significant, in the judges’ view, is that interpretation of condition B may cover more members than HMRC has previously suggested. The judges found that significant influence can encompass managerial, financial, and operational aspects of a firm.

Furthermore, this influence does not have to cover all aspects of the LLP, but the member must demonstrate significant influence over a key part of the firm that contributes significantly to the firm’s business. This could be helpful for LLPs and other professional firms if they have a similar setup to BlueCrest.

Next steps

All LLPs should review their LLP structure in light of this judgement. This involves:

  • Having a robust process in place to demonstrate that they failed one of the conditions and revalidating their conclusion at each re-test date.
  • Reassessing compliance regularly using trigger points such as year-end, recruitment, promotion, retirement, new teams, and business lines, etc.

The UTT decision may not deter further cases or legislative drafting, as HMRC is expected to closely monitor the SM legislation and its compliance, due to potential Income Tax and NI leakage.

How we can help

As we represent a number of LLPs, our team has in-depth experience and knowledge of the SM legislation. We can help you assess member activities to determine if you are compliant with the legislation and mitigate any risks identified. For more information or to discuss the above, please contact your normal haysmacintyre contact or the Employment Tax team.

HMRC pauses off-payroll worker reviews pending consultation outcome

Posted on by Alicia Sprott

We are aware of concerning HMRC’s approach to ongoing off-payroll worker reviews and the possibility to offset any taxes. This has seen HMRC contacting taxpayers, who are currently undergoing an employer compliance review, to delay settlement of cases pending the outcome of a consultation process (now closed).

We understand that a decision on how to proceed with any new legislation has not yet been decided upon. It is expected that any new legislation will come into effect from April 2024, but we may hear more on 22 November 2023, the date of the Autumn Statement. However, the proposed set-off arrangements may help those who are faced with significant liabilities.

We are aware that HMRC has paused current reviews where the amount of tax due has been determined, and where:

  • The taxpayer has acknowledged in writing an error in applying the off-payroll worker rules; and
  • The deemed employer’s gross liabilities have been agreed (including any penalties which will form part of the settlement).

In addition, HMRC will require details of the personal service company (PSC) and the worker’s full name and National Insurance number to be able to verify any tax and NICs which could be available for set-off.

If you have any questions concerning how you manage your off-payroll worker arrangements, or settle any historic liabilities with HMRC, please contact a member of our Employment Taxes team.

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