The Employment Appeals Tribunal recently ruled in HM Revenue & Customs’ favour by supporting current National Minimum Wage legislation relating to tips.
This means that employers have to pay their staff at least the National Minimum Wage regardless of any tips, gratuities, service or cover charge unless the tips are paid directly through the employer’s payroll.
Just to confirm that the amount payable tax free to employees working from home, without the need to keep receipts, had risen from £2 to £3 from 6 April 2008.
The Revenue have recently issued a number of documents regarding their procedures and rights on PAYE inspections, together with some details on their obligations, what you can do, etc. You can find full details at www.hmrc.gov.uk/leaflets/c6.htm.
Loan accounts are increasingly being looked at by HMRC with a view to collecting national insurance contributions (NIC).
Often a director operates his loan account such that regular amounts are debited to the accounts to meet his mortgage, school fees or other living expenses; the amount overdrawn is subsequently cleared by voting a bonus to bring the account back into balance. In HMRC’s view in this situation the director is receiving an advance of his remuneration and so there is a payment of earnings.
HMRC’s view is that NIC liabilities for company directors arise at the earlier of payment or entitlement. This should not increase the NIC due but requires the payment to HMRC to be made earlier.
There are also occasions where a director operates a loan account but on the understanding that he will clear the overdrawn amount by either introducing some of his own income or he will give up or repay a dividend. These overdrawn amounts are not in anticipation of future remuneration and NIC liabilities will only arise if the amount overdrawn is not cleared in full and the balance is written off. Such written off amounts attract liability.
Remember also to Class 1A NIC liability which will arise on the benefit of the loan.
Many employers reimburse subsistence expenses by way of scale rate payments.
HMRC has now agreed that employers may use the benchmark rates published by the Foreign and Commonwealth Office when paying accommodation and subsistence expenses to employees who travel abroad on business without the need for the employees to produce expenses receipts. The rates can be found at http://www.hmrc.gov.uk/employers/wwsr-april08-revisions.pdf.
Accommodation and subsistence payments at or below the published rates will not be liable for Income Tax or National Insurance contributions and employers need not include them on forms P11D. However, if an employer decides to pay less than the published rates its employees are not automatically entitled to tax relief for the shortfall. They can only claim expenses supported by receipts, less any amounts paid by their employer.
These tax/NIC free amounts are in addition to the incidental overnight expenses that employers may reimburse tax/NIC free (http://www.hmrc.gov.uk/manuals/eimanual/EIM02710.htm).
Apparently, such arrangements do not meet the new requirements that are being introduced from 6 April 2008.
HMRC is aware that over the years some employers have reached agreements with their local tax office, for example with regard to:
These local agreements are now being ended and may lead to the rejection of the information submitted.
HMRC is reviewing all local arrangements with a view to terminating them and any affected business should urgently conduct a similar review to avoid having your data rejected.
HMRC has recently increased the guideline rate for tax and NIC free payments to employees who work at home. This is the amount the employers can pay without the employees keeping records. From 6 April 2008 the rate is increased from £2 to £3 per week.
HMRC has published new guidance on the new penalty provisions that will apply from April 2008.
HMRC states that it has designed the new penalties so that:
The new penalties initially apply to VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme.
Further information can be found at:
http://www.hmrc.gov.uk/about/new-penalties/penalties-leaflet.pdf
http://www.hmrc.gov.uk/about/new-penalties/faqs.htm
The shortage of skilled staff is encouraging businesses to incentivise their workforce by giving greater control over the make-up of their remuneration package – “flexible benefits”.
The employees’ participation in a flexible benefits scheme is usually funded by agreeing to reduce salary in return for a non-cash benefit.
Savings can be realised where the benefit provided to staff is tax and/or NIC free. Typical examples include employer’s pension contributions; employer-provided childcare arrangements; and ‘bikes for work’, as well as alternative options, such as a reduction of pay in return for increased holiday entitlement, All of these need to be implemented correctly for the sacrifice to be effective.
Generally, salary sacrifice arrangements are effective where the contractual right to cash is reduced, and the employee is not freely able to revert to their original higher salary in place of the benefit being provided. It is important that the employee’s contractual entitlement to future pay must be relinquished before the point at which it is treated as received for both income tax and NIC purposes. The revised contractual arrangement must also genuinely entitle the employee to a reduced cash payment, in exchange for the provision of a benefit by the employer.
Usually, HMRC’s approach will be that in cases where there is a variation to the contract, lasting for a minimum period of a year, it will accept the position. However, if the agreed period is less than twelve months, the risk of HMRC challenging the arrangement is considerably higher. In a worst case the sacrifice is ineffective and tax and NIC is charged on the gross amount.
It is worth taking time to get this right but done correctly both employer and employees can be winners.
The Government has recently announced the annual increase to the National Minimum Wage to apply from 1 October 2008:
The proposed increases to the current rates are as follows:
| CURRENT | PROPOSED | |
| ADULT | £5.52 | £5.73 |
| 18-21 year olds | £4.60 | £4.77 |
| 16-17 year olds | £3.40 | £3.53 |
An employer is obliged to deduct tax and insurance from any payments made to their employees. But what happens if they get this wrong – perhaps because they mistakenly thought the “employee” was self-employed?
This was the point decided in a 2005 tax case, Demibourne Limited v Revenue & Customs Commissioners. The individual (an odd-job man called Mr Bone) had paid tax on the basis that he was self-employed. However, having concluded that Mr Bone was in fact an employee of the company, the Special Commissioner required the company to “gross up” all the payments they had made to Mr Bone and to pay PAYE and national insurance on this gross amount, without any allowance for the income tax he had already paid. In effect tax was being paid twice on the same income.
This will seem to many to be an most unfair outcome, but one that, in our experience, the Revenue have applied consistently following the Demibourne case. Fortunately, in recent months the Revenue have tried to find a way to avoid double taxation in this type of situation and draft proposals were issued on 28 February 2008.
If these proposals become law, it will become possible – in specified circumstances – for some of the PAYE liability to be transferred to the employee. The liability transferred will not exceed the tax assessed on, or paid by, the employee, leaving him no worse (or better) off.
The new rules would effectively take us back to where we thought we were, before the Demibourne case.
What they do demonstrate, though, is that the Revenue can – and will – work to remove iniquities, even where doing so might leave them worse off.
Companies thinking of offering EMI share options to employees will have three new factors to consider:
The last of these is unlikely to affect most companies (as shipbuilding, coal and steel production tend not to be that prevalent in the SME market) but the first two are potentially of greater relevance.
As many of you out there will be aware a new cost burden in the form of the National Pension Scheme (NPSS) or Personal Account (as it is also confusingly called) will be imposed on employers in 2012; or will it?
Continue Reading...In a recent article by Mike O’Brien, the current Minister for Pensions Reform, on the Department for Work and Pensions’ website, some further details on the proposed changes to pensions in 2012 were outlined.
Essentially the Government’s view is that people are not saving enough for when they retire.
To tackle the problem of under-saving, from 2012, millions of people will be
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