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Employment tax compliance – HMRC kick off 2021 with an (early) spring clean

HMRC was still hard at work over the festive period and the new year has brought updates that will impact employment tax compliance.

Provision of bicycles

There has been an update to HMRC’s guidance relating to the benefit in kind exemption given to employers providing employees with bicycles – commonly relied upon for employers who use salary sacrifice Cycle2work schemes to provide bicycles to their employees.

The updated guidance focuses on the ‘main use’ test of the exemption which essentially says that the bicycle provided must be mainly used (more than 50% of use) for qualifying journeys; commuting to work and other business-related journeys.

Historically, HMRC’s guidance has instructed HMRC case workers to accept the test as being met, unless there was clear evidence to suggest it wasn’t met. The recent update to the guidance reflects the shift to homeworking throughout the pandemic, recognising home based employees are unlikely to be qualifying journeys.

The guidance instructs case workers to ignore the main use condition for bicycles first provided to employees on or before 20 December 2020 until April 2022 (assuming the bicycle is still being provided at that point). It then goes on to make the point that bicycles provided after this date need to meet all conditions for the exemption to apply; which suggests that will much greater scrutiny of the main use test for bicycles provided going forward, than we have historically seen.

National minimum wage (NMW) naming and shaming

After a pause of almost 24 months while the government undertook a review and overhaul of NMW, they have now resumed the naming and shaming of employers in breach of NMW. While there was a slight relaxation to the naming and shaming conditions introduced last year; with the threshold for naming an employer rising from £100 of total underpayments identified to £500, this is still a very low bar and most employer in breach of NMW will exceed this threshold.

The measures announced in the November spending review to increase both the national minimum and living wages from April 2021 and reduce the qualifying age for the national living wage to 23-year olds, will no doubt increase the number of employers breaching NMW. Even more concerning for employers is the potential exposure to NMW breaches from the government’s long term intention to increase the national living wage to two thirds of median earnings, or roughly £21,000 per annum for a fulltime employee, by 2024.

What was clear from the latest round of naming and shaming is that NMW continues to be an area of compliance that employers struggle to get right, with some of the UK’s largest and well-known employers, such as Tesco and Superdrug, being named and shamed. There clearly wasn’t an intention from these businesses to pay their employees below NMW, but it is the technicalities in the legislation that lead to employers being found to be non-compliant and with penalties as high as 200%, it can prove costly for employers both financially and reputationally.

Christmas holiday and the Job Retention Scheme

The latest HMRC guidance re-affirms the position on the job retention scheme covering period of annual leave. The guidance specifically states that claims made purely because an employee has taken holiday are not valid and the grant will only cover payments to employees during a period of holiday, where the employee had already been furloughed for covid related reasons.

In addition, the guidance also says that the starting point for any job retention scheme claim must be because the employer cannot “maintain your workforce because your operations have been affected by coronavirus”.

If the reason for the employee being furloughed is not primarily because of a disruption to the business caused by the pandemic, were HMRC to review your claim they would reject the claim and look to recover the grant, as well as potentially charging penalties up to 100% of the amount claimed.

In light of this guidance, we are likely to see HMRC scrutinise in more depth grant claims made for December and January, particularly where there is a noticeable spike in the amount being claimed which would be an indicator that an employee has simply been furloughed while of annual leave over the festive season.

Updates to HMRC’s approval lists

HMRC has published updates to both its list of approved qualifying overseas pension schemes (schemes that entitled to UK tax relief on contributions made into them) and list 3  – HMRC’s list of approved professional bodies and societies that qualify for a tax-deduction on membership fees.

Should you have any queries on any of these updates to employer compliance obligations, our Employer Solutions team would be happy to help.

FEATURING: Steve Ashworth
Before joining the Bristol office of PKF Francis Clark in July 2019, Steve started his career at HMRC over 30 years ago and then spent… read more
FEATURING: Scott Campbell
Scott joined PKF Francis Clark in 2014, he is a chartered tax adviser and tax director in the employer solutions team. He specialises in all… read more
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