Employment Tax. Spring Articles in this edition. chartered accountants & tax advisers. Termination payments. Employment status an update

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1 chartered accountants & tax advisers Employment Tax Spring 2018 Articles in this edition Termination payments Employment status an update Employment taxes calendar Tax Free Child Care PAYE Settlement Agreements National Minimum Wage Disguised remuneration 6 April 20 loan charge Auto enrolment gearing up to 6 April 20 1

2 Welcome to our Spring 2018 Employment Taxes Briefing. It is pleasing to see that we have some certainty following changes to the legislation in respect of PAYE Settlement Agreements and termination payments. The changes came into effect from 6 April Recent changes The changes to PAYE Settlement Agreements will help to make the process that much easier for employers to adopt and are clearly a step closer to a digitalised approach being introduced. However, it is the introduction of a charge to tax on post-employment notice pay in relation to termination payments which employers will need to consider especially where they are looking at reducing employee numbers. The charge will apply whether or not there is a contractual obligation to make a payment. Employment status Employment status and off-payroll working arrangements remain very topical issues. Last year we saw the publication of the Matthew Taylor Report which looked at how to bring greater fairness to the workplace. The Government published a consultation earlier this year to help consider the options available to help provide certainty regarding workers rights and working arrangements. As well as the Taylor Report it is the BBC s involvement in the use of personal service companies, recently considered by the First Tier Tribunal decision in the Christa Ackroyd case, which has enhanced the debate surrounding worker engagement. The position has been further mudded following the taxpayer s success in another First Tier Tribunal decision in MDCM Ltd v Commissioners for Revenue and Customs. Further developments are awaited with interest, especially the much anticipated consultation paper dealing with changes to the IR35 rules which will affect the private sector. National minimum wage The National Minimum Wage legislation is celebrating its 20th anniversary this year. The intention of the legislation is to help protect employees by ensuring that they receive a minimum hourly rate of pay. However, we continue to see employers being named and shamed. Whilst it may be surprising that a number of employers are not paying employees the minimum hourly rate, many employers are simply ignorant as to how the rules work. We can only expect the enforcement of the legislation will increase. We hope there is something of interest for everyone in this edition. We are expecting further developments, especially towards the end of the year when the Chancellor delivers his Autumn Budget. Should you have any questions, please do not hesitate to contact a member of the Employment Taxes team or your usual haysmacintyre contact. Nick Bustin, Director of Employment Taxes T M E nbustin@haysmacintyre.com 2

3 Contents 2 Termination payments 4 Employment status an update 6 Employment taxes calendar 8 Tax Free Child Care 9 PAYE Settlement Agreements 10 National Minimum Wage 12 Disguised remuneration 6 April 20 loan charge 13 Auto enrolment gearing up to 6 April haysmacintyre Employment Tax Briefing Spring

4 Termination payments After much deliberation and a couple of false starts changes to the tax treatment of termination payments have been introduced with effect from 6 April What are the changes? Prior to 6 April 2018, the tax treatment of a payment in lieu of notice (PILON) was dependent upon whether or not there was a contractual right to receive a PILON. Where the employment contract includes a clause binding the employer to make a payment on the employment being terminated, then for tax and National Insurance purposes it will be treated in the same way as general earnings (salary). However, some employment contracts do not make a provision for the payment of a PILON. Where this was the case and the employment contract was being prematurely terminated then a breach of contract had occurred. Under the pre- 6 April 2018 legislation the payment could be made tax free, up to a limit of 30,000, the excess will be liable to tax. However, no National Insurance liability was due on any part of the PILON regardless of the amount due to be paid. The following example helps to demonstrate the changes the new rules have introduced where a termination payment was paid before 6 April 2018 (table 1) and following the introduction of the new legislation, effective from 6 April 2018 (table 2). Summary of facts An employee has a termination payment made up of: Compensation for loss of office 20,000 Non-contraction PILON 15,000 They have a base salary of 60,000, a notice period of three months. No post termination benefits are provided. Employee will have a post-employment notice payment (PENP) of 60,000 x 90/365 = 15,000 (rounded) The new legislation imposes a charge to tax and National Insurance on post-employment notice pay, in other words the proportion of the termination payment based upon the notice period. The charge will apply whether or not there is a contractual obligation to make a payment. Fundamentally, the charge will only apply to basic pay. However, anti-avoidance provisions are in place to prevent the suppression of earnings, for example, changing basic pay into a bonus. Table 1 Position prior to 6 April 2018 Details Amount Summary Compensation for loss of office 20,000 30,000 exemption applies. PILON Non-contractual 15,000 Unused part of the 30,000 exemption is available. Total 35,000 Exemption 30,000 Tax due on 5,000 Table 2 Position post 6 April 2018 Details Amount Summary Compensation for loss of office 20,000 Amount paid in excess of the PENP. Treated as exempt for tax purposes. PILON Non-contractual 15,000 Subject to tax and National Insurance Total 35,000 Exemption 20,000 Tax and National Insurance due on 15, haysmacintyre Employment Tax Briefing Spring 2018

5 Injury to feelings The changes within the legislation will preclude any payment for injury to feelings from benefitting from any tax exemption. Foreign Service exemption The new rules have removed the entitlement to the Foreign Service exemption for employees who are UK resident (based upon the Statutory Residence Test) in the year in which the employment is terminated. Consequently, this will prevent an employee claiming relief for any part of the work undertaken overseas. The Government s intention is clear, they want all UK resident taxpayers being treated the same, regardless of whether the payment is in recognition of any duties performed overseas. However, the Foreign Service exemption will continue to apply where a payment relates to a change in the individual s duties or to a change in the earnings from the employment. Seafarers will not be affected by the changes to the legislation. National Insurance The proposed changes to the National Insurance treatment of a termination payment have been deferred until 6 April 20. The intention is for the employer to subject to a Class 1A National Insurance charge on any payments made in excess of 30,000. This is the same amount which is treated as exempt for tax purposes. Conclusions The changes to the tax treatment of termination payments came into effect from 6 April 2018 but the National Insurance changes will not apply until 6 April 20. However, to summarise the changes: All contractual PILONs will continue to be treated as earnings for tax and National Insurance purposes From 6 April 2018 the concept of PENP will apply, effectively calculating an amount of notice pay which will be subject to tax and National Insurance Foreign Services exemption is no longer available from 6 April 2018 The exemption will continue to be available for seafarers The intention is that from 6 April 20 National Insurance will be due in respect of any termination payments paid in excess of 30,000. The delay in implementing the changes for National Insurance purposes may provide some limited opportunities for employers who will be undertaking a reduction in headcount and the value of any single termination payment is going to be in excess of 30,000. It is proposed that the National Insurance payment will be due for payment via the payroll in the pay period it is due to be paid. It will be interesting to see if there are any further developments before the National Insurance Bill 2018 is published haysmacintyre Employment Tax Briefing Spring

6 Employment status an update Employment status or off-payroll working arrangements is currently one of the most topical issues the Employment Tax team at haysmacintyre deals with for a variety of clients. Why is this the case? Well, there are a number of reasons including, but not limited to: Businesses desire to reduce overheads The flexibility not employing people can offer The recent employment law cases involving high profile operatives such as the BBC and Pimlico Plumbers Challenges being raised as part of a due diligence The wide spread coverage received by the Taylor Report HM Revenue & Customs challenges. Whilst much of the press coverage has related to employment law issues, for example, the claimant s rights to holiday and sick pay, the public are now becoming exposed to terms such as the gig-economy, IR35 and personal service companies just to mention a few. There is greater public awareness of the issues surrounding how individuals are engaged following the publication of the Taylor Report in 2017 and the Christa Ackroyd case which also involved the BBC. Employment status It is important to remember there is no statutory definition for income tax or National Insurance purposes as to what is employment or self-employment. Consequently, it is necessary to take guidance from case law, provided by the Courts, which has helped to identify several key characteristics to be considered in determining whether a worker is employed or self-employed. The income tax and National Insurance treatment of individuals who are either employed, or self-employed can prove significant in terms of, for example: Date when the income tax is due for payment The class of National Insurance due for payment The payment of employer s National Insurance will create an additional cost for the employer/engager The nature of income tax deductible expenses which can be claimed. For example, for someone who is selfemployed the expenditure must be incurred wholly and exclusively in the performance of the trade; whereas for an employee, the expense must be incurred wholly, exclusively and necessarily in the performance of the duties of the employment. As well as the difference in the income tax and National Insurance treatment the engager is responsible for ensuring that, where appropriate, all individuals who are deemed to be employees are put on to the payroll. Failure to do so could expose the engager to paying any additional income tax and National Insurance as well as interest and penalty charges. There are various behaviours which the Courts will consider to help determine whether the correct income tax and National Insurance treatment is being applied to all workers engaged by the Engager. Control Consideration is given as to whether the individual is subject to the supervision, direction or control as to what they do, where the work is done and how the work is undertaken. Control points towards employment. Integration Is the individual involved with the core business of the engager? Are they seen as being part and parcel of the engager organisation? Alternatively, is the individual providing peripheral services to the engager s organisation? Integration points towards employment. Mutuality of obligation Is the worker obliged to offer their services and the engager organisation obliged to offer work? Where there is no mutuality of obligation present, its absence will suggest a contract for services, in other words one of self-employment. Financial risk This is present where the individual is truly in business on their own account and more entrepreneurial in behaviour. For example, they may: Purchase their own equipment, although HMRC does not consider the provision of small items such as a lap top or mobile phone as being sufficient examples Hire others to help them provide their services and be responsible for the payment of those services Carry any risk associated with the provision of the services, such as covering any loses which may be incurred or taking out public indemnity insurance cover Invest in the development of their business. Right of substitution The individual must have the unfettered right to provide a substitute including the responsibility for paying the substitute. This one of a number of issues considered in the Pimlico Plumbers case. The Courts have at various stages considered all of the above points. However, in an employment law case Autoclenz v Belcher & others, the Supreme Court [2011] UKSC 41 established that the relative bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed and the true agreement will often have to be gleaned from all haysmacintyre Employment Tax Briefing Spring 2018

7 the circumstances of the case, of which the written agreement is only a part. Consequently, it is of paramount importance to understand the true nature of the arrangements under which the services are being provided and not to assume any written agreement/ contract will take precedence. Government consultations Following the publication of Matthew Taylor s review of modern working practices, such as the gig economy, the Government published a consultation paper earlier this year to help consider the options available to help provide certainty regarding worker s rights and working arrangements. The Government is trying to understand the potential impacts and implications of establishing certain statutory definitions and possibly tests to help provide greater certainty. From a tax prospective the consultation considers the tests that define the boundaries between the tax and National Insurance treatment of employees and self-employed individuals. Personal service companies The tests set out above are also applied to determine whether an intermediary providing the services of an individual will be caught by the IR 35 rules. They have recently been considered recently by the First Tier Tribunal in two cases. The first case concerned Christa Ackroyd Media Limited v Commissioners of Revenue & Customs. This was the first case taken to the tribunal by HMRC for a number of years. HMRC demonstrated there were a number of significant factors present which, if one removed the corporate wrapper of the limited company, would have treated Ms Ackroyd as a direct employee of the BBC. The key factors identified included: The BBC ultimately had the right to specify what services the company provided The BBC, through the editor, retained control over the programme content The contract prevented Ms Ackroyd from providing services to other organisations in the UK without the consent of the BBC The Court found there was an obligation to provide services, and the BBC were similarly obliged to pay a monthly fees to the company for the services provided The company was prohibited from using a substitute for Ms Ackroyd. HMRC have recently lost an IR35 case before the First Tier Tribunal, MDCM Limited v Commissioners for Revenue and Customs. Although a construction industry case it did none the less identify a number of key issues, including whether there was control over the worker as he worked shift patterns and received instructions from the Project Manager. The tribunal took the view that the supervisor only visited the site occasionally and the worker performed his services as he saw fit. Other favourable factors included the fact that the taxpayer was paid a daily rate and incurred expenses such as accommodation and travel, which were indicators of selfemployment. Whilst neither tribunal decision will set a precedence the opposing views in these two cases clearly demonstrate the lack of certainty surrounding employment status. Furthermore, it is important to consider all of the facts of any engagement and not to assume there is one single factor which prevail. Presently, we are waiting for the Government to publish a consultation on extending the IR35 rules which were introduced within the Public Sector in April 2017, whereby any obligation to consider and apply the IR35 rules rests with the engager, not the personal service company. Under the public sector body rules the engager will need to consider the following: Identify all personal service company engagements Whether the IR35 rules apply Undertake periodic reviews of all engagements to ensure any decisions reached are still relevant Ensure details of all costs caught by the new IR35 rules are being paid via the payroll. We will need to see whether the rules will be extended to the private sector but the general consensus is that they will and probably with effect from April Conclusion Given the current and impending Government consultations, together with the likelihood of further rulings from the Courts, the question of employment status and off-payroll working arrangements will remain a hot topic for some time to come. Consequently, having established that the IR35 rules applied, Christa Ackroyd and her personal service company are now faced with settling outstanding liabilities in the region of 420, haysmacintyre Employment Tax Briefing Spring

8 Employment taxes calendar APRIL 2018 JULY National Living Wage (NLW) and National Minimum 6 Deadline for filing forms P11D and P11D(b) for 2017/18 Wage hourly rates uplifted. and to provide copies to relevant employees. 5 Notify changes in company car or fuel benefits for the quarter to 5 April, using electric form P46 (Car). 6 Deadline to finalise 2017/18 PAYE Settlement Agreement contracts. 6 First day of the 2018/ tax year. Auto-enrolment minimum employer and employee pension contribution of 5% to be paid. 6 Deadline for notifying HMRC of any redundancy and termination packages paid during 2017/18 where the total package exceeds 30,000. Deadline for postal payments to reach HMRC Accounts Office for any outstanding PAYE and Class 1 NICs for the 2017/18 tax year Last date for making RTI final submissions by means of FPS and EPS. Deadline for electronic payments to reach HMRC Accounts Office for any outstanding PAYE and Class 1 NICs for the 2017/18 tax year. Deadline for postal payments for month/quarter ended 5 July to reach HMRC Accounts Office. Deadline for postal 2017/18 Class 1A NIC payment to reach HMRC. Deadline for electronic payments for month/quarter ended 5 July to reach HMRC Accounts Office. Deadline for electronic 2017/18 Class 1A NIC payment to reach HMRC. MAY Notify changes in company car or fuel benefits for the quarter to 5 April, using printed form P46 (Car). 31 Submit 2017/18 PAYE Settlement Agreement computations to HMRC. AUGUST 2018 Deadline for postal payments for month ended 5 May to reach HMRC Accounts Office 2 Notify changes in company car or fuel benefits for the quarter to 5 July, using form P46 (Car). Last date for submitting RTI final submission for 2017/18 if late filing penalty is to be avoided. Deadline for postal payments for month ended 5 August to reach HMRC Accounts Office. 5 May to reach HMRC Accounts Office. 5 August to reach HMRC Accounts Office. 31 Last day to provide copy of P60 to employees. SEPTEMBER 2017 JUNE 2018 Deadline for postal payments for month ended 5 September to reach HMRC Accounts Office. Deadline for postal payments for month ended 5 June to reach HMRC Accounts Office. 5 September to reach HMRC Accounts Office. 5 June to reach HMRC Accounts Office haysmacintyre Employment Tax Briefing Spring 2018

9 OCTOBER 2018 FEBRUARY 20 Deadline for postal payments for month/quarter ended 5 October to reach HMRC Accounts Office. 2 Notify changes in company car or fuel benefits for the quarter to 5 January, using form P46 (Car). Final date for postal payments to reach HMRC for any outstanding tax and Class 1B NIC liabilities due under the 2017/18 PSA. Deadline for postal payments for month ended 5 February to reach HMRC Accounts Office. Deadline for electronic payments for month/quarter ended 5 October to reach HMRC Accounts Office. 5 February to reach HMRC Accounts Office. Final date for electronic payments to reach HMRC for any outstanding tax and Class 1B NIC liabilities due under the 2017/18 PSA. NOVEMBER 2018 MARCH 20 TBA The Chancellor s Spring Statement. 2 Notify changes in company car or fuel benefits for the quarter to 5 October, using form P46 (Car). Deadline for postal payments for month ended 5 March to reach HMRC Accounts Office. Deadline for postal payments for month ended 5 November to reach HMRC Accounts Office. 5 March to reach HMRC Accounts Office. TBA 5 November to reach HMRC Accounts Office. The Chancellor s Autumn Budget. DECEMBER 2018 Deadline for postal payments for month ended 5 December to reach HMRC Accounts Office. APRIL National Living Wage (NLW) and National Minimum Wage hourly rates uplifted. 2018/ tax year end Final FPS submission for the 2018/ tax year to be made on or before date of last payment to employees in the tax year. 5 December to reach HMRC Accounts Office. 6 First day of the 20/20 tax year. The disguised remuneration loan charge will apply. JANUARY Deadline for postal payments for month/quarter ended 5 January to reach HMRC Accounts Office. Deadline for electronic payments for month/quarter ended 5 January to reach HMRC Accounts Office. Revised date for submitting forms P11D and P11D(b) for certain internationally mobile employees where prior agreement has been reached with HMRC. Key Auto-enrolment minimum employer and employee pension contribution of 8% to be paid. Deadline for postal payments for month ended 5 April to reach HMRC Accounts Office. 5 April to reach HMRC Accounts Office. General Employment 2018 haysmacintyre Employment Tax Briefing Spring

10 Tax-Free Child Care The second phase of the Tax-Free Child Care arrangements has now come into effect from 6 April Tax-Free Child care gives eligible families up to 2,000 per child towards childcare costs for a child of up to 12 years of age, or 17 years of age where they are disabled. Following further representation being made to the Government the existing Childcare Voucher Schemes will continue to be made available to new participants until October The following table provides a high level overview of the two schemes and identifies the key-issues parents will need to consider leading up to 5 April and now October Childcare Vouchers Tax-Free Childcare Comment What is the maximum saving per year? Up to 933* per parent ( 1,866 per family). * The rates will reduce for higher rate and additional rate taxpayers. 20% on childcare costs of up to 10,000 per child or 20,000 for a disabled children. Savings will vary depending upon a number of factors including the parents income, entitlement to tax credits and whether they are employed or self-employed. Is it available to the self-employed? No, self-employed individuals are not eligible to participate in the scheme. Childcare Vouchers must be taken through PAYE salary deductions. Yes, Tax-Free Childcare is available to the self-employed. Making the Tax-Fee Childcare available to the self-employed is a significant difference in the two schemes. How much would I save? If you spend 100 on childcare you a basic rate taxpayer could save up to 32. If you spend 100 on childcare you could save 20 / 20% (based on a basic rate taxpayer). This depends on the individual s personal circumstances and the childcare costs incurred. How long can I claim this for my children? Childcare Vouchers are available to use for children up to the age of 15. Tax-Free Childcare will be available for children up to the age of 12 or 17 if disabled. The difference to the eligibility age of the child is something parents will need to consider. Can both parents claim if separated or divorced? Yes, the saving is per parent, so both households can claim Childcare Vouchers. No, the account is per child, so only one household can claim. Under the Childcare Vouchers Scheme both parents are eligible to claim the maximum level of vouchers based upon their earnings. What happens if I take Child Tax Credits? You are allowed to take both Childcare Vouchers and Child Tax Credits, but each individual s personal circumstances will dictate the best option available. You will have to opt out Child Tax Credits to take Tax-Free Childcare. Tax Free Childcare and universal credits cannot be claimed together. The position will be dependent upon each individual s personal circumstances. Must both parents be working? The provision of Childcare Vouchers is based upon the employee s relationship with their employer. There is a requirement that both parents are working to be eligible for Tax-Free Childcare. Families will need to review the personal circumstances especially as both parents are required to work to qualify for Tax-Free Childcare. Where is the scheme administered? Childcare Vouchers commonly overseen by the HR department who will liaise with the voucher provider. However, the scheme administration is undertaken via the payroll. Parents will be responsible through confirming their own eligibility which needs to be undertaken on a quarterly basis. This is done via their online account. This is an area where the two arrangements are very different. Childcare vouchers are provided as part of a salary package. However, Tax-Free Childcare is based upon a number of criteria being met haysmacintyre Employment Tax Briefing Spring 2018

11 PAYE Settlement Agreements Action points Where individuals are currently using vouchers and wish to change to the Tax-Free Childcare arrangements they can apply for the new scheme. Written notice will need to be given to their employer that they wish to leave the Childcare Voucher Scheme. However, given the last minute reprieve and extension of the deadline for new entrants to become eligible to take part in the Childcare Voucher Scheme we recommend that employers and employees both keep matters under review in case there are any further developments. PAYE Settlement Agreements (PSA) have been around since 99. However, for those employers who are unfamiliar with a PSA, an employer can pay the tax and National Insurance liabilities due in respect of taxable benefits or expenses where one of the following conditions are being met: The benefit is minor in nature It is provided on an irregular basis It is either impractical for the tax and National Insurance liabilities to be passed on to the employee It is impractical for the liabilities to be accounted for via the payroll of the P11D reporting process The payment is not in the form of cash or a cash voucher. Where one of the conditions is satisfied, an employer has historically entered into a contract with HMRC to pay the tax and National insurance liabilities due. Subtle changes to HMRC s interpretation of the words minor, irregular and impractical are going apply from 6 April However, the PAYE regulations have been amended to take into account the following changes: New Scottish income tax rates and deductions from state pension lump sums at UK tax rates; and Enduring agreements will come into effect from 6 April 2018, replacing the requirement for employers to renew annual agreements. We believe the above are interim measures, leading up to a digitalised approach being advanced by HMRC. However, all employers should review their existing arrangements to ensure they are compliant with the legislation and current HMRC guidance haysmacintyre Employment Tax Briefing Spring

12 National Minimum Wage The National Minimum Wage (NMW) legislation is celebrating its 20th anniversary this year. The intention of the legislation is to help protect employees by ensuring that they receive a minimum hourly rate of pay. The legislation was extended in April 2016 when the Government introduced the National Living Wage for those aged 25 years and above. For the purpose of this article NMW also refers to the National Living Wage. However, we continue to see employers being named and shamed ; a list including a number of well-known high street brands as well as a wide range of employers from both the corporate and Not-For-Profit sectors. The list is published periodically by the Department for Business, Energy and Industrial Strategy (who own the legislation) and is based upon NMW enquiries undertaken by HM Revenue & Customs (HMRC) (who police the legislation). A number of conclusions can be reached: There are employers who are not paying the minimum hourly rate of pay The legislation has a number of technical challenges The legislation is still comparatively new, in many ways different to the main taxes an employer will normally deal with Because the legislation is new, it is still evolving Many employers simply do not understand the legislation. The obligation to ensure the requirements of the legislation are be met sits squarely with the employer. The obligations not only place a requirement to ensure employees are paid at least the minimum wage they also expect the employer to be able to monitor the hours worked by an employee. A further point to bear in mind concerns the increase in the number of individuals claiming worker status who sit within the gig economy. The legislation defines a worker as being an individual who is at least 16 years old and works under: A contract of employment; or A contract which may be express, implied, oral or in writing, to personally perform work or services for someone else, as long as the other person is not a customer or client of a profession or business providing work undertaken by that individual. Currently, the NMW legislation does not apply to the selfemployed. However, it is clear that a mix of technical misunderstandings together with ignorance will eventually resulting in an employer falling foul of the legislation. The following highlights some of the areas where an underpayment of NMW can occur: Details Working time not being fully recognised Travel time Payroll deductions Work place deductions Sleeping allowances Comments Working time will include meetings before the day starts, for example, letting staff know what special offers are available, or providing them with updates. Where travel to a temporary work place is required, then it is necessary for the travel time to be included as part of the hours worked reconciliation. Certain deductions, such as administration charges should not be deducted for NMW purposes. Payments which are made for the benefit of the employer, such as providing clothing as part of the employees uniform. Some care sectors pay allowances to employees who are available on call. These payments are currently considered as forming part of the NMW calculation haysmacintyre Employment Tax Briefing Spring 2018

13 Has NMW been paid? Whether a worker is in receipt of NMW will be dependent on the average hourly rate of pay and the total number hours worked in the relevant pay reference period. Careful consideration needs to be taken in order to establish: The hours worked The rate of pay What has been paid to the worker What deductions have been made during the period What does not count towards NMW? The following can be ignored for the purposes of calculating pay for the purposes of the legislation: Benefits in kind Employer loans Advances of pay Pension payments Redundancy payments, including lump sum payments on retirement Tribunal awards and settlement payments On-call allowances, unless they form part of an employee s basic pay Travel costs where an employee is working at a temporary workplace Tips, gratuities and service charge Overtime and shift-allowances paid at a premium. Employers need to keep a detailed record of the various payments which are made to an employee, especially where any of the above are being excluded from the calculation for NMW purposes. Who may be outside the scope of the NMW legislation? Consideration needs to be given to any individuals who may not fall within the legislation. Volunteers Care needs to be taken with regards to volunteers, people who the Charity and Not-For-Profit sector rely upon significantly to help them provide many of their core services. Guidance published by HMRC considers the following points: has an arrangement with the organisation which does not entitle them to a financial reward or benefit in kind for work they perform under the arrangement there is not an expectation for them to come to work as they are not engaged through a contract they cannot be dismissed, sued for breach of contract or have payment or reward withheld if they fail to do the work or perform the services they were providing. However, someone may volunteer to do work to gain experience or in the hope that they will get a good reference. A promise to provide a contract or further work that will be paid may make the individual a worker for minimum wage purposes. This may give rise to the individual being entitled to a payment of NMW. Volunteers may be paid back reasonable out-of-pocket expenses. The payment of such expenses will not make them a worker for NMW purposes haysmacintyre Employment Tax Briefing Spring

14 HMRC have commented that calling an unpaid worker unpaid or a volunteer, even if the individual agrees to this, does not prevent them from qualifying for the NMW if they are entitled. Consequently, it is not how the individual may be seen within an organsiation but what contractual terms are in place and the expectations placed upon them to fulfil the work provided which will determine whether they are entitled to be paid NMW. Work experience The term work experience generally refers to a specified period of time that a person spends with, for example, a charity to help them better understand the aims and objectives of the charity or to prepare them for a particular calling. This may include the opportunity for someone to try their hand at particular tasks, others simply provide an opportunity to watch and learn. The nature and duration of any work experience placement can vary depending upon the organisation who provides a person with the opportunity. An entitlement to NMW will depend on whether the work experience offered makes the individual a worker in accordance with the legislation. Interns The term intern has no legal status under minimum wage law. Consideration needs to be given as to whether there is an entitlement to be paid NMW? As previously mentioned, it is not a matter as to what someone is called, the type of work they do and the profession or sector they work in. What matters is whether the agreement or arrangement they have with you makes them a worker for NMW purposes. What happens if you get it wrong? At the beginning of this article reference was made to naming and shaming which may be harmful for an employer s reputation. The financial consequences can be significant too: Penalties are calculated at a rate of 200% of the underpaid wages subject to a cap of 20,000 per underpaid worker Paying the short-fall of NMW to the affected employees. Any penalty is reduced by 50% if the unpaid wages and the penalty are paid in full within 14 days. Conclusion Whilst the legislation has been around for 20 years there remains a considerable lack of understanding as to the mechanics as to how it works. Employers need to consider matters very carefully in particular asking themselves: What are we paying our employees? What records of working hours are being maintained? Are you recognising travel or sleeping time? Are you using tips and gratuities to supplement employee wages? Do you have an accurate record of deductions made from an employees pay? NMW was introduced to protect low paid employees by guaranteeing them a minimum wage and given two Government Departments are responsible for the legislation it is here to stay haysmacintyre Employment Tax Briefing Spring 2018

15 Disguised remuneration 6 April 20 loan charge In April 20 all outstanding loans made available via disguised remuneration schemes will become subject to an income tax and National Insurance charge. The new loan charge was introduced in Finance Act (No 2) 2017 and will be applied to all outstanding disguised remuneration loans, typically provided via: An Employee Benefit Trust (EBT); An EBT sub-trust; or Via an Employer Funded Retirement Benefits Scheme (EFURB). The charge will apply to all loan or similar type of arrangements where: If the loan or payment had been made to an individual on 5 April 20 it would have fallen within the disguised remuneration rules and the company payment was made after 6 April 99 All or part of the loan, is still outstanding at 5 April 20. Under the legislation and subsequent guidance published by HMRC, all individuals who have received loans from such arrangements will be required to provide the following information to HMRC by 1 October 20: Personal contact details Case reference numbers, scheme reference numbers and other similar information which connect the loan to other HMRC enquiries, including open and on-going enquiries Loan balances and benefit calculations which also need to fully recognise details of any repayments, loan waivers and right-offs between the time the funds were first advanced and 5 April 20. A number of promoters made available schemes to employees, directors and self-employed contractors. Consequently, further reporting obligations will be required as follows: Companies must report the loan balances for employees and directors under PAYE Self-employed contractors who entered into a contractor loan scheme must report details as part of the 2018/ Self-Assessment Tax Return. Anyone who is a beneficiary of an EBT style arrangement, or participated in a contractor loan scheme must review his or her arrangements, especially as failure to comply with the legislation will result in HMRC issuing penalty notices. Auto enrolment gearing up to 6 April 20 The roll-out of auto enrolment for pensions, started in 2012, will complete in It is estimated that 10 million people will be newly saving or saving more into pensions as a result. The auto enrolment minimum was initially 2% of which at least 1% must be paid by the employer. In April 2018, this increased to 5% of qualifying earnings of which at least 2% must be paid by the employer, trebling the effective minimum employee contribution. Under current legislation from 6 April 20 the overall level of pension contributions will rise to again to 8% of qualifying earnings of which at least 3% must be paid by the employer. The table below summarises the position. If you haven t already done so, all employers must talk to their pension providers now, to plan for the immediate and future increases. Whilst the Department for Work and Pensions has been promoting the benefits of greater accessibility to employer provided pension schemes, many employees may not realise they will be required to fund the lion s share of the minimum level of contributions. For those employers who are not already doing so, consideration should be given to introducing a tax and National Insurance efficient salary sacrifice arrangement in respect of employees who are participating in a defined contribution scheme. These contributions are due on earnings over 113 per week up to an upper limit of 866 per week. Date Employer minimum Employee minimum Total minimum contribution contribution contribution Before April % 1% 2% April April % 3% 5% April 6 20 onwards 3% 5% 8% 2018 haysmacintyre Employment Tax Briefing Spring

16 haysmacintyre 10 Queen Street Place London EC4R 1AG T F E marketing@haysmacintyre.com About haysmacintyre haysmacintyre is an award winning firm of chartered accountants and tax advisers in the UK, based in central London. With 34 partners and over 250 staff, we are among only a few firms which bridge the gap between the largest firms which can accommodate most services but may lack the personal touch, and smaller firms which may be able to provide only a narrow range of services. International haysmacintyre is a member of MSI Global Alliance (MSI), which we co-founded over 20 years ago, with the aim that it would support our clients international business operations and growth plans. Now MSI is the seventh largest alliance in the world, involving over 250 medium sized legal and accounting firms based across more than 100 countries. Being part of MSI allows us to offer our clients expert guidance and support internationally through working with our alliance colleagues. Copyright 2018 haysmacintyre. All rights reserved. haysmacintyre is registered to carry out audit work and regulated for a range of investment business by the Institute of Chartered Accountants in England and Wales. A list of partners names is available for inspection at 10 Queen Street Place, London EC4R 1AG. Disclaimer: This publication has been produced by the partners of haysmacintyre and is for private circulation only. Whilst every care has been taken in preparation of this document, it may contain errors for which we cannot be held responsible. In the case of a specific problem, it is recommended that professional advice be sought. The material contained in this publication may not be reproduced in whole or in part by any means, without prior permission from haysmacintyre. 14