Employment Tax and RTI Susan Ball Audit Tax Advisory
2 Agenda Termination payments Status Salary sacrifice Real time information (RTI)
Termination payments
Termination Payments Oti-Obihara v HMRC apportioning a settlement payment which is to compensate an employee for both discrimination and termination of employment. Starting point is the amount that can be identified as the employment termination payment. Norman v Yellow Pages Sales Ltd - an employer has no implied duty to apportion a termination payment between taxable and non-taxable elements. Any dispute over the amount of tax payable is a matter for the employee, not the employer, to pursue with HMRC.
5 Termination payments To tax or not to tax that is the question Need to remember to consider each element separately S62 ITEPA 2003 - earnings S225-6 ITEPA 2003 restrictive covenants S393-400 ITEPA 2003 - Pension S401 ITEPA 2003 exemption
6 Termination payments Other exemptions: foreign service exemption - where an employee was both nonresident and not ordinarily resident in the UK; death, injury and disability exemption no tax is payable on payments of death benefits. See Horner V Halstead re injury or disability pension contributions payments of compensation or damages for personal injury payments of an employee's legal costs outplacement counselling
7 Termination payments Not asking the right questions or checking the paperwork Misunderstanding of the taxable amounts Unclear paperwork One lump sum rather than a break down of the payment Missing the HMRC reporting requirements
Status
9 Status Weight Watchers ordered to pay 23m in tax and NI Weight Watchers s fattening up with move to employ the 1,700 leaders Weight Watchers UK leaders who run weekly Weight Watchers meetings were found to be employed for tax purposes. The Supreme Court has upheld the Court of Appeal s decision that twenty car valeters were actually employees of Autoclenz Ltd and not self-employed as their employment contracts suggested Press coverage of student loan CEO/senior civil servants and use of Personal Services Companies (PSC s)
10 Employed or self-employed Onus is on employer to decide Question of fact, not choice No statutory definitions Various tests developed by courts No single test is conclusive Importance of test can vary from case to case Overall impression is what counts
Why is it important? Engager held liable in most cases if PAYE/NIC not deducted when it should be Remembering the answer can be different for employment law/tax employee/worker/self-employed. Contracts need to be bespoke Substitution clauses will only work if it really enables the worker to sub-contract Don t forget the HMRC status tool!? 11
Salary sacrifice
13 Salary sacrifice Reed Employment Plc & Others v HMRC - key aspects: the employment status of the temps and the type of contract held whether the salary sacrifice scheme was explained properly to the temps was a valid dispensation in place (did they disclose the full circumstances of the arrangements when they made the applications) an understanding of an employee s temporary and permanent workplace
14 Salary sacrifice - lessons Does an HMRC agreement exist - are there inconsistencies? Have you checked you have a valid agreement in place? Does the provision of benefits fully satisfy the conditions for the relevant tax exemption to apply? Have you any situations that may inadvertently trigger a charge to tax e.g. higher rate/s taxpayer, leavers, maternity, redundancy, etc? What about National Minimum Wage compliance checks? Have you considered VAT (vouchers, cycles..)?
15 Salary sacrifice - benefits Employers can save up to 13.8% NIC Tax-efficient perks offered via salary sacrifice include: bicycle loans childcare vouchers pension contributions work-related training health screening car parking and bus passes to travel to work etc. Other options: own goods, travel and subsistence payments, mobile phones, tax returns, insurance etc
Real Time Information (RTI)
17 What is it? Under RTI, employers and pension providers will tell HMRC about tax, NICs and other deductions when or before the payments are made So it is a change to reporting not calculating PAYE HMRC recognise there will be transitional compliance costs for employers. They result from: the need to check and amend data held on employees c 35 million training and familiarising staff with the new processes c 85 million updates to payroll software and processes has not yet been estimated
18 RTI Where are we now? New payroll process all employers need to be ready by April 2013 Data accuracy employers need to check the data they hold is correct. Over 500 returns claimed to employ AN Other in 2009/10 New alignment process to ensure HMRC and employers/pension providers have the same information Submissions must be made on or before the date of the payment New penalty provisions will be introduced from 2013/14 HMRC offer free basic software but only for those with less than nine employees
19 What are the main changes for PAYE? RTI brings together: The payment of earnings with the submission of information relating to tax and other deductions made from those earnings. Under RTI: Information will be sent to HMRC each time a payroll is run by way of a Full Payment Submission (FPS); http://www.hmrc.gov.uk/softwaredevelopers/rti/rti_initial_guidancev1.0.pdf Forms P35 and P14 will no longer be required; Where employers operate PAYE, they must report information about all employees including employees earning less than the LEL Working with employers, HMRC are overhauling the current processes for dealing with Starters and Leavers
20 What won t change? The way in which tax and NICs are calculated; The need to give employees End of Year Certificates on form P60; The need to submit P11Ds; The dates by which you must pay HMRC remain the same 19th or 22nd of the month (or quarterly equivalent). But you may need to return an Employer Payment Summary (EPS).
21 Data items for RTI Irregular payment indicator Payment method if BACS for hash tag Director's NI method e.g. annual or alternative Pay frequency Aggregated earnings indicator Tax week/month Passport number Payment date Number of earnings periods covered by payment e.g. holidays Partners details for ASPP 5 fields Starter s declaration e.g. P46 statements Payment after leaving indicator Normal hours worked: up to 15, 16-30, 30+ other
22 Types of submission Types of submission EAS FPS EPS EYU Employer Alignment Submission Full Payment Submission Employer Payment Summary End of Year Update
23 Where employers should be now? Make sure you know what it is and what it means for your organisation Talk to your payroll software provider or bureau Regularly check the HMRC RTI page to see what is new Consider rationalising payrolls and reducing frequency of payments Review your Human Resource, Finance, reward and payroll processes including information flow Review data sources does anything need changing? Ensure you can make a full payment submission on time, whether weekly or monthly Undertake a walkthrough test
24 Help and Support
25 Help and Support
What next?
27 Income tax and NICs reform The Government announced plans to consult on this issue. Consultation to come out after the Summer. A broad range of options for the operation of employee, employer and selfemployed NICs. This could result in the most significant change to the PAYE system since it was introduced in 1944, and impact some 29 million taxpayers. It is unlikely however that any change will see a move away from the contributory principle of NICs Significant changes to legislation could be required and we expect to see discussion on issues such as the aligning of the tax and NICs treatment of benefits in kind.
28 Controlling persons changes from April 2013 Consultation includes: Controlling persons who are integral to the running of an organisation must have PAYE and NICs deducted at source (Finance Bill 2013) Controlling person is someone who is able to shape the direction of the organisation having authority or responsibility for directing or controlling the major activities of the engaging organisation during the year Closing date for comments is 16 August 2012