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Overseas workday relief set to improve

Written by admin on . Posted in Employment Tax, Income Tax, PAYE. No Comments on Overseas workday relief set to improve

Employees coming to work in the UK should see an improvement in the new version of overseas workday relief set to be introduced from 6 April 2025.

Current system

Under the current system of overseas workday relief, earnings for employment duties performed overseas are exempt from UK tax if:

  • The employee is not domiciled in the UK;
  • The employee is taxed on the remittance basis; and
  • The earnings are not remitted to the UK.

Relief is available for a maximum of three tax years.

From 6 April 2025

From 6 April 2025, domicile – along with the remittance basis – will be replaced by a new regime based solely on residence. Overseas workday relief will then be available to an employee coming to work in the UK if they are a qualifying new resident:

  • They can claim relief for up to four tax years after arriving in the UK, with a separate claim required each year. The claim will be made on the employee’s self-assessment tax return.
  • As is currently the case, a claim will exempt remuneration for duties performed overseas. However, it will not make any difference whether or not this remuneration is remitted to the UK.
  • Relief will be capped (per tax year) at the lower of:
    • £300,000; and
    • 30% of the employee’s worldwide employment income.

A qualifying new resident is someone who was not UK resident for the ten consecutive tax years immediately before they arrived in the UK.

Under the current system, there is no entitlement to the income tax personal allowance and the capital gains tax annual exempt amount as a result of using the remittance basis. It will be the same under the new system, because a claim for overseas workday relief for a particular tax year will result in the loss of both allowances.

HMRC’s technical note on reforming the taxation of non-UK domiciled individuals (with overseas workday relief covered on pages 12 to 16) can be found here.

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Umbrella companies back in the spotlight

Written by admin on . Posted in Employment Tax, IR35, PAYE. No Comments on Umbrella companies back in the spotlight

Umbrella companies are often used to employ workers on behalf of recruitment agencies and end clients. However, HMRC is making changes from April 2026 to deal with umbrella companies who don’t comply with their tax obligations.

HMRC analysis shows that around 40% of umbrella companies engaging workers for 2022/23 failed to comply with their tax obligations.

It is relatively easy to create an umbrella company, so the individuals behind non-compliant businesses can quickly establish new companies and relaunch them into the umbrella company market.

Change in responsibility

From April 2026, responsibility for accounting for PAYE and national insurance contributions (NICs; including employer NICs) will move from the umbrella company to the recruitment agency that supplies the worker to the end client. Where there is no agency in a labour supply chain, responsibility will sit with the end client:

  • Recruitment agencies and end clients will still be able to contract with umbrella companies exactly the same as they do now.
  • However, if the umbrella company fails to remit the correct amount of tax and NICs to HMRC, the recruiter or the end client will in future be liable for any shortfall.
  • Workers should benefit, since, by avoiding being a party to non-compliant tax arrangements, they will not end up facing large, unexpected tax bills.

The logic behind the change in responsibility is that recruitment agencies and end clients can generally choose who they want to work with, so in future they will be careful not to deal with illegitimate operators.

Going forward

Smaller employment agencies will probably want to continue outsourcing the payroll function to umbrella companies. Given the potential cost of using a non-compliant company, agencies – and maybe end clients – should be more careful than ever in undertaking due diligence checks and/or having legal indemnities in place.

While the changes won’t take place until April 2026, it is advisable for updated systems should be in place well before then. Contracts will need to be scrutinised and fee arrangements re-evaluated.

HMRC’s policy paper explaining how it will tackle non-compliance in the umbrella company market can be found here.

Employment expenses pushed to paper

Written by admin on . Posted in Employment Tax, PAYE, self-assessment. No Comments on Employment expenses pushed to paper

Despite its digital ambitions, HMRC has recently reverted to paper-based claims for employees who want to make a claim for employment expenses. The change from an online basis has been made to reduce fraud.

Reports suggest that businesses are claiming expenses even when there is little, or no, business relevance in an attempt to counteract increasingly onerous tax burdens. Given HMRC’s move to paper-based claims for employment expenses, it seems as if some employees may have adopted a similar attitude. Tax refund companies have also misused the expenses system in order to obtain inflated tax repayments.

Form P87

Employees can claim tax relief for expenses through PAYE if they have not been reimbursed by their employer. From 14 October this year, claims must be made using a paper form P87 which is then posted to HMRC. Claims have to be supported by appropriate evidence. For example:

  • Professional subscriptions: receipt copy showing how much was paid.
  • Mileage allowance: mileage log copy, giving the reason for each journey; with start and finish points.
  • Subsistence: hotel or restaurant receipts copies.
  • Working from home: proof that an employee is required to work from home, such as a copy of the employment contract. An employee who simply chooses to work from home is not eligible for a claim.

Despite the change, online claims can still be made for flat rate expenses (uniform, work clothing and tools). HMRC expects the digital claim route to be available again from next April.

Self-assessment

An alternative to claiming via PAYE is to claim for employment expenses when submitting a self-assessment tax return. If employment expenses for the year exceed £2,500, this is the only permitted route.

Although there is no initial requirement to provide evidence when claiming employment expenses this way, HMRC will be extending the number of compliance checks on the eligibility of expense claims made. In such cases, they may request further evidence.

HMRC guidance on claiming tax relief for employment expenses can be found here.

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Tips and troncs – what does it mean for your business?

Written by admin on . Posted in Employment Tax, National Insurance Contributions, PAYE. No Comments on Tips and troncs – what does it mean for your business?

Since July, it has been illegal for employers to withhold tips from staff. The payment of tips will probably result in a national insurance contribution (NIC) cost for both employer and employees, but this extra cost can be circumvented if a tronc arrangement is used to distribute tips.

The new legislation applies mainly to those operating in the hospitality sector, and covers all tips, gratuities and service charges. It also brings the law into line with modern payment practices as it covers tips left via card payment.

NICs

Tips paid to employees are subject to both income tax and employee NICs. The NIC cost is at a rate of 8% where tips – when added to normal earnings – fall between £1,048 and £4,189 monthly. Employers pay NICs once a monthly threshold of £758 is reached, although their liability is normally reduced by the annual £5,000 employment allowance.

For example, if a restaurant pays out £25,000 worth of tips, the employer will probably be facing an additional NIC cost of nearly £3,500. The cost for the staff could be up to £2,000. This is where a tronc arrangement comes into play.

Troncs

A tronc is an arrangement used to distribute tips. It is run by a troncmaster.

Provided it is the troncmaster who decides how tips are to be distributed among staff, there are no employee or employer NICs on amounts paid out. It is still possible, however, for the tips to be included on the employer’s payroll.

The troncmaster will typically be a member of staff, although larger businesses might prefer to use the services of a specialist provider. There is no problem if the employer makes the decision on who to appoint as troncmaster; what is important is that the employer plays no part, directly or indirectly, in the allocation of tips.

HMRC’s detailed guidance on tips, gratuities, service charges and troncs can be found here.

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Small businesses top tax gap defaulters

Written by admin on . Posted in HMRC Investigations, Income Tax, Insolvency, PAYE. No Comments on Small businesses top tax gap defaulters

The tax gap increased in 2022/2023, to a record £39.8 billion, with small businesses being blamed for around 60% of uncollected taxes.

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and, , what is actually paid. Despite the record high receipts in monetary terms, the overall tax gap has fallen in percentage terms. It is now estimated that 4.8% of taxes are unpaid compared with 7.4% back in 2005/06.

Small companies

The worst offenders are small limited companies, with the amount of unpaid corporation tax now standing at £10.9 billion, nearly triple the £3.7 billion of five years ago. This means:

  • In percentage terms, the tax gap for small companies is a somewhat alarming 32.2%.
  • Some 45% of small businesses have submitted an incorrect corporation tax return containing an under-declared tax liability.

By comparison, the tax gap for mid-sized companies is 6.7%, and for large companies is 2.9%.

High tax take

Recently released figures also give a stark illustration of how much the tax take has increased:

  • The theoretical amount of tax liabilities has been growing at around 15% a year, increasing from £640.1 billion for 2020/21 to £823.8 billion in 2022/23.
  • The theoretical amount has nearly doubled since 2005/06.

Tax receipts as a proportion of GDP over the past 20 years have previously been steady at around 28% but now stand at just over 30%.

Behaviour

The two types of behaviour contributing most to the tax gap are:

  • failure to take reasonable care; and
  • criminal actions.

Failure to take reasonable care means not spending the time and effort to make sure reported figures are correct. Directors of limited companies are generally expected to exercise a higher level of reasonable care compared to small sole traders.

If you need help with your tax liabilities, please get in touch.

HMRC’s summary of the latest tax gap figures can be found here.

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HMRC and Provisional Liquidations via S.234 Insolvency Act 1986

Written by admin on . Posted in HMRC Investigations, Insolvency, PAYE. No Comments on HMRC and Provisional Liquidations via S.234 Insolvency Act 1986

We are seeing a marked increase in HMRC’s use of provisional liquidations particularly where umbrella companies are concerned. Some readers may have an opinion on umbrella companies and may argue that HMRC are on the right track, personally, and in the immortal words of the fictional Francis Urquart: “You might very well think that. I couldn’t possibly comment“. That said, anyone who has been directly involved in working these cases will know how draconian the granting of a provisional liquidation order can be on the directors and by extension, their families.

Such orders include the appointment of a liquidator who quite naturally is charged with preserving the assets of the company, investigating the conduct of the directors and retrieving company assets where there have been dispositions contrary to both company and insolvency law. Clients have had their offices and homes searched; business accounts frozen and limitations imposed on their ability to draw funds from these and in some instances, their personal bank accounts.

There are reasons why the insolvency act provides for a provisional liquidation and no doubt HMRC have genuine reasons for seeking the court’s consent to the grant of such an order. Trust me when I say that judges in these (ex-parte) cases are no walk overs and put up quite strenuous counter arguments to submissions made by HMRC and their counsel but there is no denying that there is usually a public interest argument for the consideration of the taking of the decision to intervene in the company in this manner.

If you’ve read this far then you won’t be surprised to learn that there is a reason for today’s blog on this subject. We have received yet another request from a client in dire need for assistance with their case and as I thrive off unusual and/or complicated cases, I’m more than likely going to say yes to taking their instructions. The thing is; despite the onboarding of colleagues to my team, I am nearing capacity, and besides this, I really could do with the input of a tax lawyer/investigator/specialist with experience in this area and thought I’d reach out to my LinkedIn contacts to see who might be interested in working with me on one of these cases – needless to say this would be on a consultancy basis.

So, sticking with my tv/film references, as Gabrielle Union once said, if you got it: “Bring It” (please!?!). Might be best to call, DM or email me for an initial chat.

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Another lesson learned in equal pay

Written by admin on . Posted in Employment Law, Equal Pay, PAYE, Tax. No Comments on Another lesson learned in equal pay

Having already paid out over £1 billion in equal pay claims, and now facing claims for further millions, Birmingham City Council’s financial crisis is a stark reminder of why it is so important to get equal pay right.

All employers will undoubtably know the basic principle that men and women must receive equal pay for doing equal work. However, it is possible for employers to be caught out by some complications of the rules:

  • Associated employers: equal pay applies across associated employers. This is not about overall control, but also where one organisation sets the pay and benefits for both entities.
  • Pay: equality extends to payment for holidays, overtime, redundancy, sickness and performance. Entitlement to benefits, such as company cars, must also be on an equal basis, along with pension funding and entitlement.
  • Terms and conditions: the whole employment package needs to be equal – not only salaries. For example, working hours and annual leave allowance must be equivalent.
  • Right to equal pay: it does not matter whether employees are full-time or part-time when considering equal pay; apprentices and agency workers are also included.

Equal work

Where equal pay rules become less black and white is in the arena of equal work. This is where Birmingham City Council came unstuck. The original dispute in 2012 arose because bonuses given to staff in traditionally male-dominated roles discriminated against female workers working in roles such as cleaners, teaching assistants and catering staff.

Comparisons are not necessarily on an exact like-for-like basis. It might be that the level of skill, responsibility and effort needed to do work are equivalent, or work might simply be of equal value, even if the roles seem different, such as comparing warehouse and clerical jobs.

Differences in pay

Although differences in pay terms and conditions are permitted, this must have nothing to do with gender identity. For example, someone in a similar role could be paid more if they are better qualified or are employed in a location where recruitment is difficult.

One way for employers to avoid equal pay disputes is to be transparent in regard to pay and grading systems. Job descriptions should be up-to-date and accurate.

The Advisory, Conciliation and Arbitration Service (Acas) has published guidance for employers on equal pay on its website.

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National Insurance Cut

Written by admin on . Posted in National Insurance Contributions, PAYE. No Comments on National Insurance Cut

Employee National Insurance cut announced in the Autumn Statement takes effect (from 6 January).

For many years, successive governments have been happy for the public to vaguely believe that national insurance contributions (NICs) are building up in some national benefit fund, rather than representing just another tax on income. While something called the National Insurance Fund does exist, as a House of Commons Library briefing noted back in 2019, “The Fund operates on a ‘pay as you go’ basis; broadly speaking, this year’s contributions pay for this year’s benefits.”

For politicians, the perceived difference between NICs and income tax made it possible to grab the headlines by reducing the basic rate of tax while receiving much less attention for maintaining or even increasing revenue by raising NICs.

Last November, the Chancellor appeared to have finally given up on the distinction-without-a-difference approach by proclaiming that his cuts to NICs for employees and the self-employed were tax cuts.

The changes

If you are an employee (but not a director, to whom special rules apply), the cut means your main NIC rate (on annual earnings between £12,570 and £50,270) fell from 12% to 10% from 6 January 2024. The extra amount in your pay packet is broadly the same as if a 2p cut had been made to basic rate tax (which covers the same £37,700 band of income). However, from the Chancellor’s viewpoint, the NICs cut was cheaper, as there was no ‘tax cut’ on pension or investment income, both of which are NIC-free.

The employer’s NIC rate did not change, remaining at 13.8% on all earnings above £9,100. If your earnings are below £50,270, the theoretical advantage of using salary sacrifice to pay pension contributions has been marginally reduced but remains attractive, as shown in the table below, based on a £1,000 sacrifice.

If you are among the growing band of higher or additional rate taxpayers, the financial advantage of salary sacrifice is unaltered. Either way, if you are not using salary sacrifice to pay pension contributions, it is still worth taking advice about the option. It is beneficial in most circumstances, but there are drawbacks to be aware of.

Personal contribution

 

 Salary sacrifice employer contribution (sacrificed amount + NIC saving)
Employee NIC rate 12% 10% 12% 10%
  £ £ £ £
Gross salary 1,000 1,000 Nil Nil
Employer pension contribution Nil Nil 1,138 1,138
Employer NIC   138 138 Nil Nil
Total employer outlay 1,138 1,138 1,138 1,138
Employee salary 1,000 1,000 Nil Nil
Less:

income tax

  

(200)

  

(200)
    Employee NICs    (120) (100)
Net pay = net pension contribution    680    700
Tax relief   170   175
Total pension contribution 850  875 1,138 1,138
Gain     33.9% 30.1%

 

Interest rate rises fuelling increased tax take

Written by admin on . Posted in Capital Gains Tax, Income Tax, PAYE. No Comments on Interest rate rises fuelling increased tax take

The Bank of England base rate increase is impacting on the government’s tax takes, with more taxpayers paying tax on savings income due to higher interest rates. Increased mortgage rates are contributing to rocketing capital gains tax (CGT) takings too.

The impact of savings on tax

National Savings & Investment is offering a 5% return on its one-year bonds, and some financial institutions are offering 6% for a similar investment. So, a higher rate taxpayer with £10,000 or more invested will easily exceed their £500 savings allowance. In fact, it is estimated that the number of taxpayers paying tax on their savings income for 2023/24 will be a million more than the previous year.

There are two options to minimise tax liabilities:

  • You could move savings into ISA accounts, up to an annual investment limit of £20,000. This limit could restrict the scope of such planning for some.
  • You could invest in tax-free premium bonds. Although not paying interest as such, the expected annual return for larger investments is 4.65% – equivalent to a gross 7.75% for a higher rate taxpayer.

It’s advisable to keep careful track of your savings income for tax purposes. If tax is owed, it will be paid through self-assessment or via a PAYE coding adjustment.

Why is capital gains tax revenue increasing now?

The substantial increase in CGT receipts reported recently is partly explained by the number of buy-to-let landlords who are selling up. A buy-to-let was a good investment choice when mortgage costs were low, property prices were increasing, and cash savings accounts offered a very poor return in comparison. But all three of these factors are now in reverse, and landlords will often be able to get a better return investing their funds elsewhere.

Uncertainty around possible future increases to CGT is also pushing landlords to sell sooner rather than later.

If selling up, landlords can keep CGT bills as low as possible by:

  • Making sure any qualifying expenditure is claimed, including any enhancement expenditure which hasn’t qualified as a deduction against property income.
  • Disposing of any other investments standing at a loss in the same tax year, because capital losses cannot be carried back to earlier tax years.
  • Putting property into joint ownership with a spouse or civil partner prior to disposal.

These measures can help alleviate some of the seemingly punitive rates of CGT.

HMRC information on the taxation of savings income on can be found here [savings interest] and we are always happy to advise you on your options.

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New PAYE process for High Income Child Benefit Charge

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One of the many criticisms aimed at the High Income Child Benefit Charge (HICBC) is that anyone caught by the charge needs to submit a self-assessment tax return even if all of their tax is collected under PAYE. However, this is set to change.

The government has announced that employed individuals will, in future, be able to pay the HICBC through their PAYE tax code without the need to register for self-assessment. The statement in July on draft Finance Bill legislation from Victoria Atkins, the Financial Secretary to the Treasury, didn’t give a date for the change, but said details would be released “in due course”.

The change will be particularly welcome for those earning just over £50,000 who have to go through the self-assessment process just to report and repay a small amount of child benefit.

Child benefit

For 2023/24, child benefit of £24.00 a week is paid for a first child, with £15.90 a week paid for each subsequent child. Child benefit is paid regardless of income, so the HICBC is the government’s way of reducing the amount paid to higher earners.

The charge

The HICBC can come into play when an individual – or their partner – receives child benefit and their annual income exceeds £50,000.

  • The charge removes 1% of child benefit for every £100 of income over £50,000.
  • Once income reaches £60,000, the charge is 100% so the amount of child benefit is essentially reduced to nil.
  • For those with several children, the HICBC can result in a high effective marginal tax rate.

For 2020/21, some 355,000 individuals were hit by the charge, with a high proportion having been subject to compliance checks by HMRC for failing to register for self-assessment. Despite the HICBC being in place since 2013 – and with HMRC running various publicity campaigns – there is still a general lack of awareness.

Although HMRC has adopted a more lenient attitude towards HICBC penalties in recent years, the maximum penalty can potentially be equivalent to the amount of HICBC owed.

Detailed government guidance on the HICBC can be found here.

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