EMPLOYMENT TAXES
Anne Gregory-Jones: haysmacintyre
Partner
0207 969 5520
email: agregory-jones@haysmacintyre.com
Employment Tax
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P11D and Dispensations
PAYE Settlement Agreements
Salary Sacrifice
Employment Status
Termination and Compromise
Agreements
P11D issues and Dispensation
P11D Issues
Responsibilities:
• Report to HMRC fully and accurately
• Maintain the appropriate records
• Meet statutory deadlines for
submission of forms and payments
• Provide copy forms to employees and
ex-employees if they request one.
P11D Issues
Where do you Start?
• Do you need to complete P11D’s
– Do you give your staff any benefits?
– Do you reimburse business expenses or
provide those services to your
employees?
P11Ds
Who needs a P11D
• Employers must report to HMRC expenses
payments, benefits and facilities provided to
directors and employees who earn at a rate of
£8,500 or more per year
• Employee information is reported on forms P11D
or a form P9D is used for directors or employees
who earn at a rate of less than £8,500 per year.
• Employers declaration and Class 1A NIC return is
form P11D(b)
• Statutory deadlines 6 July (forms) and 19 July
(Class 1A payment)
P11D Issues
What is reportable on a P11D
P11D Issues
Reportable items:
a) Assets transferred
b) Payments made on behalf of employee#
c) Vouchers and credit cards
d) Accommodation
e) Mileage allowance in excess of exempt assets
f) Cars and fuel
g) Vans
h) Interest free loans
i) Private medical
j) Relocation expenses
k) Services supplied
l) Assets used by employee
m) Others
n) Expense payments made to employee
P11D Issues
Expenses & Benefits
• Key area in employer compliance is
expense control and benefit management
• Ensure robust policies are in place
• Information must be readily available to
those preparing P11Ds
• Helps to have a consistent approach
• Tax and NIC treatment of certain costs can
vary – some costs will need to be
processed through payroll
P11D Issues
Expenses Policy
• What should it cover?
• Who, what, when, where and why
• Every organisation will have different needs
• Revise it as your activities, needs or other changes
require
• Make it readily available to staff, including revised
versions
P11D issues
Expense Claims
• Well designed claim form helps
• Enough detail to satisfy your needs and those of
HMRC
• Reason for expense
• Entertaining – staff or business?
• Cumulative mileage record for private car drivers
- Claim authorisation must be independent
• Paid through expenses or payroll
Employee P11D reporting
Dispensations
• P11D Reporting dispensation will remove the
need to report business expenses.
– If you have one check what it covers, or if not
– Consider applying for one
• Agreement in force until revoked by HMRC
• HMRC are likely to review every five years
P11D Dispensation
Typical items:
• Business travel
• Subsistence and accommodation payments
whilst travelling on business
• Business entertaining
• Professional subscriptions
• Business calls – home or mobile
PAYE SETTLEMENT AGREEMENT
‘PSA’
PAYE Settlement Agreement (PSA)
• Mechanism for paying some liabilities on
behalf of employees
• Types of expenses covered
• Annual Agreement
• Differences between tax and National
insurance
PAYE Settlement Agreement
• Apply for your agreement before the
beginning of the tax year if possible
• Calculations will be due on date given in
agreement, usually 31 July or 31 August
following tax year and
• Payment is due by 19 October or 22 October
if paying electronically
Salary Sacrifice
Salary Sacrifice
How the Scheme Works
• Employee and Employer agree to vary the employer’s
contract of employment
• Employee sacrifice/exchanges a portion of salary in
return for a benefit which is either exempt from tax
or tax efficient
• The result is that the employee suffers less tax
and/or NIC and the employer makes Class 1 NIC
savings
Salary Sacrifice
For a salary sacrifice to be effective two conditions
must be met
- The potential future remuneration must be
given up before it is treated as received for tax
or NIC purposes
- the true construction of the revised contractual
arrangement between employer and employee
must be that the employee is entitled to lower
cash remuneration and a benefit
Salary Sacrifice
• Tax and legal advice required
• An agreement must be put in place to vary the
contractual terms – does not necessarily have
to be in writing but it is advisable to do so for
the avoidance of doubt and to defend any
HMRC challenge
Salary Sacrifice
Effects Employee Needs to Consider
• Lower salary
• State pension and benefits
• Mortgage applications
• Employer pension
• Inadvisable to sacrifice below LEL for NIC
• Cannot sacrifice below NMW
Salary Sacrifice
Typical Benefits
• Childcare Vouchers
• Bike to Work Scheme
• Mobile Phones
• Work Related Training
• Workplace Parking
• Low Emission Cars
• Employee Pension Contributions
Salary Sacrifice
Employee Pension Contributions
• Tax relief on employee contributions but
suffer Class 1 NIC
• Employer Contributions suffer no Class 1 NIC
• Using salary sacrifice it is possible to convert
employee contributions into employer
contributions
Salary Sacrifice
Example Saving
• 25 employees
• Average salary £25,000
• 5% employee pension contribution
• Class 1 NIC employer and employee at 25.8%
• Annual NIC Savings £8,062
Salary Sacrifice
Pension Auto-Enrolment
• The government is intending to introduce new
legislation to make it compulsory for employers to
enrol eligible workers into a qualifying workplace
pension scheme and make contributions to that
scheme
• Employers can choose which scheme to use provided
it meets certain criteria or they can use the NEST
scheme
Pensions Auto-Enrolment Due to be implemented
between 1 October 2012 and October 2016
• 350-499 employees
1 Jan 2014
• 250-349
1 Feb 2014
• 240-249
1 April 2014
• 150-239
1 May 2014
• 90-149
1 June 2014
• 50-89
1 July 2014
• Less than 50
Varying dates from March
2014
Contributions
• Minimum contribution 8% of qualifying earnings between
£5,035 & £33,540 (QE) of which employer must pay a
minimum of 3%
• Minimum contribution levels phased in between Oct 2012
and Oct 2017
• Oct 2012 to Sept 2016 – total minimum of 2% of QE with at
least 1% from the employer
• Oct 2015 to Sept 2017 total minimum of 5% of QE with at
least 2% from the employer
• From Oct 2017 total minimum of 8% of CE with at least 3%
from the employer
Eligible Worker
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Is 22 years or older, but
Under State Pension Age (SPA):
Works or ordinarily works in Great Britain, and
Earns more than the income tax personal
allowance (£7,475 in 2011/12)
Opting Out
• Employees will be able to opt out of their employer’s
scheme if they chose not to participate
• Employees who give notice during the formal opt out period will be put back in the position they
would have been in if they had not become members
in the first place
• This may include a refund of any contributions taken
following automatic enrolment
Salary Sacrifice for Auto-enrolment
• It will be beneficial to use this scheme for
employees who are auto-enrolled
• Using a Smart salary sacrifice scheme can help
with administration
• Smart salary sacrifice schemes are similar to
the auto enrolment opt out, the employee will
be in the scheme unless they opt out
Employment Status
Employment Tax - Status
What is the status of the individual?
– Your Employee – Permanent
– Your Employee – Temporary/Casual
– Worker – Agency
– Freelancer, Self Employed
– Volunteer
– Voluntary Worker
– Intern
Employment Status
Overview
• Grey area
• Part of HMRC employer compliance
• Review
• Fact based
Employment Status
The tests
• Developed through tax and employment law
cases
• Qualitative not quantitative
• Interpretation
Employment Status
Consequences
• Employers liability
• PAYE and NIC for 4 years
• Interest + penalties
• Offset only in certain circumstances
Employment Status
Your obligations
• To determine employment status – employed or self
employed?
• Where employed pay through payroll
• Where self-employed
– Evidence self employed status
– Consider whether caught by NIC
• Categorisation of earners
• Periodic review of status as thing change
Employment status
Indicators
• Mutuality of obligation
• Integration
• Control
• Equipment
• Financial risk
• Number of other clients
• Substitution rights
Employment status
Indicator tool
• Developed for the construction industry
• Demonstrates due diligence
• Evidence
• Potentially provides inconclusive results
Hallmarks of Employees
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Obliged to turn up for work
Integrated into the employers organisation
Controlled by the employer
Provided with equipment
Paid a set rate, bears no financial risk
Cannot send someone else to perform the work
May have other jobs
Hallmarks of Self employed Status
• Individual not obliged to accept work and hirer not obliged to
offer it
• Should not be integrated into the organisation (see next slide)
• Should not be under the control of the hirer
• Should provide their own equipment
• Should be subject to some financial risk
• Helpful if they have other clients
• Substitution key indicator – sending someone else to perform
the service is indisputable evidence of self employed status
Intention of the Parties
• Tax case Ian Mitchell v HMRC
• Appeal against decision and determinations for NIC
and PAYE
• Taxpayer won
• Finely balanced case
• Intention of the parties swung decision in taxpayer’s
favour
• Put a contract in place!
Volunteer 1
• For the purposes of volunteering policies the
Cabinet Office defines volunteering and
volunteering opportunities as any noncompulsory activity which involves spending
time, unpaid, doing something which is of
benefit to others (excluding relatives), society
or the environment."
Volunteer 2
• Volunteers do not have any contract of
employment or contract to perform work or
provide services. They are not workers and
therefore are not covered by the National
Minimum Wage Act 1998. This means they do
not qualify for the national minimum wage
(NMW)
Voluntary Worker 2
• The difference between the volunteer and
voluntary worker is that voluntary workers
have the hallmarks of workers, there is an
expectation that they will perform the work
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Intern
• For the purposes of a charity an intern is a
voluntary worker
Volunteers, Voluntary Workers and
Interns – What’s the Issue?
• Retain voluntary worker status
• Do not compromise that by paying the individuals or
providing them with any form of reward
• Reimbursement of expenses incurred in the course
of the volunteering is fine
• Travel to and from the place of volunteering and
travel in the course of the volunteering
Termination
Termination packages
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resignation
redundancy
compromise agreement
tribunal/damages
Termination packages
• redundancy
• section 139 Employment Rights Act 1996
• HMRC – “reduction in need for employees”
• compulsory or voluntary
Termination payments
• Compromise Agreement
• breakdown of the employment relationship
• ensures against future claims in the courts
• separate document usually a separate
contract
• different elements of the payment
Termination payments
• tribunal/damages
– unfair dismissal
– wrongful dismissal
– discrimination
• compensation
• injury to feeling & personal injury
• Gourley principle
Termination packages
• the first £30,000 is tax-free!
• ex-gratia payments
• focus on the facts
• will this payment fall to be taxed elsewhere
Termination packages
• the first step examine payment by it’s component
parts
• Employment Income
• Restrictive Covenant
• Retirement – Non Approved and Employer
Financed Retirement Benefit Schemes
Termination packages
• PAYE/NIC implications - timing
• Payment in Lieu of Notice (PILON)
• Compromise Agreements
• Redundancy – statutory/enhanced
• Damages
Termination packages
• income tax
• continuing benefits
• reporting
Termination packages
• planning
• what are you trying to achieve
• implications of each element
• seek advice – tax and legal