A focus on key employment tax topics
In this article we look at elements of employment tax that can be overlooked, starting with National Insurance.
National Insurance contributions (NICs)
NI Employment Allowance
If a company has an annual employer’s National Insurance bill of less than £100,000, a claim can be made for an Employment Allowance of £5,000 to reduce its annual bill.
Where a company is successful and grows, it follows that it will employ more people and payroll costs will increase. When a company’s employer NIC liability reaches the threshold of £100,000 during a tax year, the Employment Allowance will not be available in the subsequent tax year. Although £5,000 is not a huge additional cost for a company to absorb, this is a good example of an increase in costs for a company regardless of how much profit the company makes.
NIC treatment when providing benefits to staff
Providing benefits as part of an employee’s remuneration policy has many advantages, not only for employees, but also for the company. As applies when paying cash to an employee, there is a NIC cost, which increases the company’s costs. Although the additional cost is expected and presumably well budgeted for, the real impact is the increased administration that comes with providing staff benefits.
Most, but not all, benefits are subject to Class 1A NICs, which is an employer-only liability (there is no employee element to 1A) charged at the same rate as secondary Class 1 at 13.8%. Unlike secondary Class 1 NICs due on payroll earnings, which is charged on a payments basis, Class 1A is payable annually.
The deadline for payment of a company’s Class 1A NICs is 19 July after the end of each tax year. It follows the submission of the employer’s annual Class 1A declaration which must be filed by 6 July after the end of the tax year.
Most benefits must be reported to HMRC either via the PAYE system, or using an annual P11D form, which must be filed with HMRC (and provided to employees) no later than 6 July after the end of the tax year.
Off-payroll working (OPW)
The off-payroll working (OPW) legislation was introduced for private companies in April 2021 and has been the topic of many of our articles. However, due to changes in legislation, there has been some confusion over who is responsible for making the employee versus contractor assessment. Changes were made and then reversed, so essentially we are back at the beginning. If you aren’t familiar with these rules, read this article for a detailed overview.
The OPW rules require companies who engage with contractors via the workers’ personal service company to fulfil certain obligations regarding the assessment of the contractors’ employment status for tax.
Once the assessment is complete, the employment status should be communicated to the contractor as well as to any other intermediary involved in the chain of engagement with the contractor.
If the status is judged to be akin to ‘employment’, the company is required to operate PAYE and is liable for employer’s Class 1 NICs due on payments to the contractor.
For companies that use a high number of contractors, the OPW rules can create a lot of administration in order to manage the risk. Companies that only hire contractors occasionally still need to be aware of the rules and designate responsibility for the process when a contractor is engaged. Many companies remain unaware of their obligations and so carry a compliance risk.
Share schemes
A large number of companies offer share schemes as a way to incentivise and reward their employees. There are many different types, often with differing sets of reporting rules.
Most share schemes need to be registered with HMRC when they are introduced. Some tax approved schemes also require notification to HMRC within a set time frame when shares are granted/awarded.
All schemes carry a requirement to file an annual employment related securities (ERS) return (often referred to as form 42) even if there are no transactions during the relevant tax year. ERS returns are complex and many companies overlook their obligation to file them. Failure to do so annually, by the deadline of 6 July following the end the tax year, carries a statutory penalty which increases the longer a return remains unfiled.
Apprenticeship levy
The apprenticeship levy is a 0.5% charge for which companies are liable when the wages they pay that are subject to Class 1 NICs exceed £3m per tax year. Technically all companies are liable to the levy but, due to a £15,000 annual levy allowance, in reality companies don’t start paying this until staff wages exceed £3m per year.
The levy was introduced to encourage companies to offer more apprenticeships. Following the scheme’s roll-out, many common qualifications have been redesigned to meet the specific criteria it requires. The levy is not a direct tax cost and, once paid, the funds remain available to the company to pay for staff training towards an approved apprenticeship qualification. Not only that, but the Government contributes 10% towards the apprenticeship training cost.
Incentives for companies who do not pay the levy (or who exhaust their levy fund) are significant, with the Government meeting 95% of the training costs.
There are limits and criteria for apprenticeships and, whilst the levy is used by many companies to help fund their training costs, many others do not access it at all and view the 0.5% levy only as an additional cost.
Gender pay gap (GPG)
Using the pay data to give the necessary information (and in ways that provide more explanation than the minimum required for the GPG report) can be a time consuming and admin-heavy exercise.
Some companies put significant time and effort into this (. others view it as just another task they have to complete in order to satisfy the UK Government and the regulators.
Senior accounting officer
By the time a company grows to a size where the senior accounting officer (SAO) rules apply, the management of tax risk should be on the board’s agenda and have significant resource devoted to it.
The company should already have a published tax strategy and is likely to have a dedicated team for managing the company’s tax affairs, obligations and relationships with tax authorities in the countries in which they operate.
If a company does not file the correct reports, the individual nominated as the SAO is personally liable for any fines.
The SAO regime impacts all taxes, not just employment tax. Find out more about the SAO rules here.
If you would like more information about any of the issues covered by this article, please contact Louise Fryer.