EMPLOYER ESSENTIALS June 2018

Transcription

1 EMPLOYER ESSENTIALS June 2018 Welcome to the June edition of Employer Essentials from BDO NI. In this edition we ll look at off-payroll working in the private sector, share plans, EMI tax reliefs, P11D guide, gender pay and short term business visitors. Off-payroll working in the private sector As Promised at Budget 2017, the Government has now published a formal consultation on improving tax compliance for off-payroll workers in the private sector. Although, the consultation document acknowledges that the issue is clearly linked to the ongoing consultation o employment status, the new consultation just focuses on better ways to enforce the current legislation (ie the IR35 rules ). Private Sector Options Extending the same rules to the private sector has always seemed like a natural choice for HMRC but the consultation also considers other options: however, there will be some frustration that several of these are dismissed as outside scope for relatively narrow reasons. The document cites some pressing reasons to address this issue, HMRC estimates that 90% of workers using personal service companies ( PSCs ) don t follow the IR35 rules properly. It estimates that a third of such workers should in fact be classed as employees and that this causes a tax and NIC short fall of 700m a year (rising to 1.2bn in 2022/23). While the consultation does ask what could be done to improve the compliance enquiry process to support enforcement of the current rules, it seems clear that more structural changes will ultimately be imposed. Public sector comparison Since April 2017, all public bodies who engage workers via PSCs have been required to assess whether or not a worker would be regarded as an employee if they had been engaged directly and, if so, apply PAYE and NIC to the offpayroll contract (or inform the intervening agency that it should do so) see Employer Essentials March A research report on implementation of the rules in the public sector has be published and, according to HMRC, shows they are working well and HMRC estimates that around 58,000 workers are paying a total of over 410m in additional PAYE and NIC per year.. HMRC says that only a minority of public sector employers have found that the new rules increased the cost of hiring workers: however, that minority was 28% of the public sector bodies contacted. The research also shows that the rules have made it harder to recruit suitable workers for 32% of central bodies.

2 Off-payroll working in the private sector continued Most of the consultation questions focus on how the lead option of extending the public sector rules to the private sector would affect businesses, how to incentivise compliance and limit this new administrative burden for engagers. If these rules are to be imposed on private sector businesses we suggest that much work needs to be done to make the process simpler, this should include as a minimum: A straightforward statutory employment status test to give certainty An upgraded CEST tool (few are convinced that the current tool is fit for purpose) Much more practical support from HMRC An exclusion for small businesses engaging workers Structural support to ensure efficient communication through supply chains of agencies/intermediaries (it is pleasing to see that the consultation envisages rules and penalties to enforce this) A staged approach to implementation allowing sufficient time to absorb lessons from the public sector and all the consultations arising from the response to the Taylor Report Review. The main alternative option focusses on the idea of requiring engagers to investigate the agencies that provide off-payroll workers to them to make sure that they apply the offpayroll rules correctly. Where the engager has a direct relationship with the PSC, HMRC suggest that the worker should effectively self- certificate their employment status by providing a copy of the CEST verdict on the contract to the engager (who would then check the facts entered against the reality of the contract). Although businesses are used to HMRC outsourcing its enforcement activities to them, this particular option does raise the spectre of large businesses setting up whole departments to monitor the agencies and worker they engage. The simplest option discussed in the consultation is the idea of a flat rate withholding tax applied by businesses to all payments under off-payroll engagements. It is disappointing that this option is simply dismissed as out of scope because HMRC would have to create a different kind of test or certification. It is difficult to see why such a system could not simply be applied in all cases where a contract involved the supply of labour. We suspect such a simple option is not attractive to HMRC because it would need to track payments, allocate them to workers/pscs and make refunds to PCS s/agencies after the end of the tax year. BDO comment This consultation was always going to be controversial because this is an area of uncertainty for all businesses. While a few exploit the rules to save on employer s NIC and NIC for the worker, the majority simply find it difficult to work their way through the employment status maze. Sadly, the solutions proposed will both increase the administrative burden for businesses and their bottom line costs. It seems unfair for the Government outsourcing its enforcement responsibilities to businesses in an area where it has allowed tax laws to become unworkable. There is no doubt that this problem needs to be addressed. However, it is vital that the other current consultation on employment status is completed first and businesses provided with a straightforward and reliable statutory test that allows everyone to quickly differentiate between employees and the selfemployed/genuinely independent PSC workers. Without such hard and fast rules, putting more enforcement burdens on businesses would just lead to chaos and a huge administrative burden for everyone except HMRC.

3 Your P11D guide for 2017/18 You may already be putting some benefits through the payroll but it is likely that you will still need to complete some P11Ds for your employees for 2017/18 and the clock is ticking down to the 6 July P11D filing deadline. But don t worry, BDO s annual step-by-step guide to completing P11Ds is now available, as is our popular P11D software. Changes for 2017/18 Aside from the usual increases in benefit charges for cars, vans and fuel for them, there were several key changes that will affect values recorded in P11Ds. The most important change is in the way benefit values are calculated where an employee agrees to a reduction in gross pay (salary sacrifice) in return for their employer providing a benefit of some kind. The new rules for Optional Remuneration Arrangements (OpRAs) apply to cash allowances (eg a car allowance), flexible benefit packages with a cash alternative, and standalone salary sacrifice and salary exchange schemes. Since 6 April 2017, where an employee has an OpRA, tax will be based on the higher of: The amount of pay given up by the employee, and The taxable value of the benefit in kind. This applies to all benefits in kind, including those currently exempt, although there are specific exclusions from the OpRA rules for employer pension contributions, pensions advice, childcare vouchers and employer-provided childcare, cycles and cyclists equipment under the Cycle to Work scheme, and cars with emissions of 75g CO 2 /km or less. There are currently transitional rules in place. Arrangements between an employee and employer, which are binding on both parties and entered into on or before 5 April 2017, are protected until the earlier of: Renewal, variation or modification of the arrangement, or 6 April 2018 for most benefits, or 6 April 2021 for cars, living accommodation and school fees. Therefore it is vital to keep track of renewal dates or changes to such benefit arrangements: if they changed before 6 April 2018, there may be a new benefit to include on the employee s P11D. A new tax and NIC exemption was introduced from 6 April 2017 to cover the first 500-worth of pension advice provided to or reimbursed by an employer to an employee in a given tax year. This replaces the old exemption of 150 per employee. To qualify for the new exemption, two criteria must be satisfied: Similar advice is offered to all the employees generally and to employees at a particular location These employees have reached the minimum qualifying age (under the employer s registered pension scheme) or meet the ill-health condition. From 6 April 2017, HMRC introduced a detailed method of calculating the taxable value (cash equivalent) of an asset provided to an employee which is made available for private use the guide explains this calculation in a step-by-step way.

4 EMI tax reliefs are back on track EMI (Enterprise Management Incentive) share options are designed to help trading companies recruit and retain employees. They are invariably the scheme of choice because of the enhanced tax treatment - particularly in relation to capital gains tax - for participating employees. But there was a surprise bulletin from HMRC on 4 April 2018 announcing that EU state aid approval of the EMI scheme would expire on 6 April It is not clear why EU state aid approval was not renewed in time for 7 April Happily, on 15 May 2018, the European Commission announced that State Aid approval for UK EMI schemes was renewed - without prejudice to any provisions of the [Brexit] Withdrawal Agreement. We are awaiting HMRC comment on the issue. Options granted before 6 April 2018 HMRC has already made clear that it will continue to apply tax relief for options validly granted as EMI share options before 6 April So, where any exercise or other event occurred between 6 April and 15 may this should mean the tax breaks continue. Options granted between 6 April and 15 May It is not clear if the approval was granted on a retrospective basis (ie back to 6 April 2018). Therefore, the position for new EMI options issued in this interim period remains uncertain until we have HMRC comment on the issue. Employers who have granted EMI options in this period in the hope that retrospective EU state aid approval will be given now have two options: 1. Wait for HMRC to provide further clarity on the treatment for the interim period 2. Cancel the options issued in the interim period and reissue new options that will now qualify for state aid approval. Clearly, expert advice must be taken whenever options are cancelled and reissued to ensure that any unintended consequences are avoided.

5 Share plan? Another return to do by 6 July At this busy time of year for HR and payroll departments, it could be easy to focus on P60s and P11Ds and put share plan year end returns to one side but that could prove expensive. All companies with any type of employee share plan or arrangement - collectively Employment Related Securities (ERS) - have been required to register them. Once registered, annual online returns are required for every ERS plan or arrangement even if they are nil returns. Informal plans, gifts, loan notes and share transfers You don t have to have a tax-advantaged share plan or highly engineered arrangement to trigger a filing obligation: virtually any employee or director share or security transaction can trigger the need to register a plan and submit a return. Penalties If a return for an ERS plan or arrangement is not submitted by the 6 July deadline a fixed 100 penalty will be charged. Further 300 penalties will be charged on 6 October, 6 January and 6 April if the return is still not filed. Daily penalties can then be applied. Penalties can mount up and failure to complete returns may also impact on HMRC s risk rating for the company and could subsequently result in an unwanted visit from HMRC. Worse still, HMRC can deny valuable tax reliefs for certain tax-advantaged share plans if those set up during 2017/18 are not registered and self-certified by 6 July Help and advice BDO can assist with the registration process and provide a comprehensive filing guide for clients.

6 Gender pay where are you now? Many employers will be breathing a sigh of relief that they successfully calculated and submitted their first Gender Pay Gap figures to the government website by the deadline of 4 April The spotlight of press scrutiny on this topic has dropped away for the time being but whilst this will undoubtedly return as we move towards next year s deadline, this might feel like job done for the time being. More risk next time around? The possibility for intensified media scrutiny is real since there will be first year figures for the press to compare to second time round, plus an expectation for the gender pay gap to narrow. However, the reality is that year 2 figures are unlikely to show much movement, if any, given that at the time of submission of the year 1 data, all the pay and bonuses for the following year would have already been paid. Apart from those organisations who were very focused on the issue well in advance, the majority of employers may not have given much thought to the following year s data. This year employers will have been busy calculating their first year data, ensuring that it was correct and producing a credible narrative. This is unlikely to have left much time for them to address the underlying policies and changes that might be needed to see improvements in their gender pay gap figures. The reality is that it may take a few years for changes in internal policies to filter through into measurable improvements in published gender pay data. Planning for 2018/19 and improving your future figures What are the advantages of making an early start on the calculation? Our experience indicates that many employers felt both under pressure and under resourced addressing their gender pay filing close to the deadline. The most obvious advantage of an early start will be the extra time it allows to spend analysing and comparing to the prior year figures, well before the second year s figures need to be published. It will also provide time to structure meaningful discussions with employees in advance of publication if only to manage expectations. Whether your gender pay gap is calculated internally or outsourced to an adviser, starting the gender pay process earlier the second time around will give the opportunity to do a deeper analysis of where the gender pay gap sits within an organisation. Where necessary, it will also allow time for an external independent review or audit of the figures and implementation of new pay and recruitment policies deemed necessary to narrow your gender pay gap. Being able to refer to new policies that you have already implemented in the narrative for the second year figures may be helpful if the raw data shows little improvement. BDO s advice: Start collating all your April 2018 pay data as early as possible Consider doing a deeper data dive (analysing by reference perhaps to role, location or age) to really understand where your gender pay gap sits Formulate robust policies that will focus on addressing and correcting the gap and implement them during 2018 Give extra thought to your narrative and how you can explain why there is little or no narrowing of the gap from the year 1 gender pay figures. If you would like help or advice on gender pay reporting, please get in touch with your usual BDO contact.

7 Short term business visitors a wider net? On 14 May 2018, HMRC launched a formal consultation to review the current rules for short term business visitors (STBVs) to simplify the tax treatment of STBVs from the foreign branch of a UK company, to ensure the UK is an attractive location to headquarter a business. Current rules Companies must operate PAYE in real time on the earnings of short term business visitors (ie employees of an overseas subsidiary, parent or other group company or organisation coming to work for 183 days or less in a tax year in the UK). Although, in many instances, there is a double tax treaty available (between the UK and the employee s home country) - which will mitigate the UK tax liability this can only be claimed once it is certain that the conditions for exemption have been met (usually after PAYE deductions should have started). HMRC recognises this problem for UK businesses by allowing the UK companies to enter a STBV agreement. Once an agreement is in place, it allows UK entities to make a judgement on whether or not their STBVs in the UK will meet the conditions to qualify for exemption from UK tax and not operate PAYE provided they track and monitor the days each spends in the UK. However, HMRC s view is that where no STBV agreement is in place, PAYE must be operated in all cases - even those where ultimately no UK tax will be due. Failure to comply can result in interest and penalties being levied on earnings paid by your overseas offices to their employees who are working in the UK company. However, there is not a level playing field for all UK companies: those who second employees from an overseas branch of a UK company to work in the UK for short periods are excluded as they are not seen as meeting the conditions for double taxation relief. Where the employee is seconded from a country which does not have a double tax treaty with the UK, or they are not eligible for double taxation relief, a different arrangement can be struck with HMRC if the individual will only be in the UK for 30 days or less. Under the PAYE special arrangement UK workday rule, the UK company need not apply the normal PAYE via the RTI rules but can instead make a single payment for the relevant PAYE tax year. Proposals The Government recognises that the current STBV rules are unfair to UK companies with an overseas branch; therefore, the consultation contains proposals to extend STBV agreements to such companies to reduce their administrative burdens. The consultation also proposes extending the PAYE special arrangement UK workday rule so that employees who work in the UK for 60 days or less can be covered by a one-off payment of PAYE for a year. However, the consultation also asks for statistical evidence of how many STBVs would have benefited from the PAYE special arrangement UK workday rule had it covered longer periods working in the UK (60, 90 or 120 days) so there is a possibility that a longer period may be the final outcome. It seems clear that, partly with Brexit in mind, the Government is committed to increasing the attractiveness of the UK as a head office location for international businesses. If implemented, one or both of these proposals would be welcome easements for international businesses.

8 CONTACT If you require more information on any of the topics discussed, please do not hesitate to contact us. GERALDINE BROWNE DIRECTOR T: E: LEANNE O HARA SENIOR PAYROLL MANAGER T: E: leanne.o hara@bdo.co.uk RENEE DAWSON SENIOR MANAGER T: E: renee.dawson@bdo.co.uk This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Northern Ireland to discuss these matters in the context of your particular circumstances. BDO Northern Ireland, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms. A list of partners' names is open to inspection at our registered office, Lindsay House, 10 Callender Street, Belfast, BT1 5BN. BDO Northern Ireland is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. June 2018 BDO Northern Ireland. All rights reserved.