Tag: national insurance

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.

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.

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.

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