Employment tax - update - PKF Francis Clark
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Employment tax – update

We are clearly in unprecedented times for employers, with the impact of Coronavirus having widespread impact on businesses. Appreciating there will be many difficult decisions to be made in the coming weeks and months, these FAQs have been put together to help employers consider the employment tax related impact of the actions employers maybe taking.

Relief for statutory sick pay (SSP) costs

As announced in the budget last week, the extension of SSP from day one for Coronavirus related illnesses and self-isolation (for up to 14 days), will create an additional cost for employers. However, employers with fewer than 250 employees, as at 28 February 2020, will now be able to recover 100% of the SSP costs, which is welcome news. There is no announcement on how the costs will be recovered except that the Government will be working with employers over the coming months to agree a repayment mechanism. Therefore, while it may be possible to reclaim the SSP paid, it will likely be delayed and could create a cash flow issue for employers.

Employment allowance increased

While only a small extension to an existing provision, it was also announced in the budget for those still entitled to claim the employers allowance, there is an additional £1,000 available from April meaning the total employment allowance is now £4,000.

IR35 changes delayed

The Government has also just announced a deferment of proposed IR35 changes to the private sector, which were due to come in for medium and large businesses. This really is good news and allows businesses to have access to a flexible workforce to help see them through these difficult times, without worrying about the tax implications of engaging them off-payroll. A word of caution on the delay to the IR35 changes; it is only a delay until April 2021, these changes will come into force in the not too distant future and the additional time should be used to make sure businesses are prepared for the changes.

Tax implications of termination payments

In these very difficult times, it is inevitable that at some point employers need to consider their staffing levels and this might lead to redundancies or termination of employees’ contracts. If this is the case, it’s important to be aware of the tax implications of termination payments. It is a notoriously difficult area of tax, particularly since the changes introduced in April 2018 for post-employment notice pay (PENP) and payments being made need to be considered on a case by case basis. Termination payments is an area which is often scrutinised by HMRC as part of their employer compliance visits and will undoubtedly be looked at more closely over the period in which Coronavirus impacts on the economy.

Some key things to think about when making termination payments are:

  • The £30,000 exemption from tax is not automatically available and will only apply if the payment is not subject to tax elsewhere within the income tax legislation.
  • It is important to understand what each element of the termination payment relates to and tax it accordingly. For instance, the tax treatment for notice payments, statutory redundancy payments, loss of office, ‘topping up’ of an employee’s pension, bringing forward bonus entitlement, payment on account of a restrictive covenant and ex-gratia payments should be considered and taxed separately according to where they sit within the legislation
  • There are some useful exemptions to consider for terminations, such as: making additional pension contributions into an employee’s pension fund, relief for a period of the employee’s service spent overseas and support with retraining, therefore consideration should be given to the structure of the payment
  • The timing of any payment will be important and could help to save the business from an additional employer national insurance charge, with changes due to come in from the 6th April, meaning national insurance could be due on payments that exceed the £30,000 exemption for ex-gratia payments
  • Extra care should be taken when making payments to those over the age of 55, as HMRC guidance suggests compliance officers should challenge employers on whether the payment represents an employer funded retirement benefit, which would be taxable

Minimum wage impact on terminating employees’ contracts with seasonal working patterns

Another consideration linked to termination is the national minimum wage impact. It’s clear that the Coronavirus has been particularly damaging for the leisure and hospitality industries, and may well be considering terminations. Given the seasonal nature of these industries, if the employees being terminated are currently salaried employees, there is potentially an additional payment that needs to be made on termination to account for the minimum wage not having paid for all the hours worked by employees who have a fluctuating or seasonal working pattern.

At its most basic, if a salaried employee paid at minimum wage has worked 80% of their annual hours at the point of termination, but only been paid nine months’ worth (75%) of their annual salary, then there would be an additional payment of the 5% work undertaken, to make sure minimum wage is paid to them.

Time to pay arrangements

Finally, it is worth highlighting the dedicated HMRC helpline that has been set up to help businesses who are suffering financially. The helpline exists to provide support to businesses to help them with outstanding tax liabilities and may be able to agree a bespoke ‘time to pay’ arrangement for the outstanding liabilities to delay the payments and help manage business cash flow. Businesses in need of such support, should call the helpline on 0800 0159 559.

If you have any further queries on this or any other employment tax issues, please do not hesitate to contact Steve Ashworth.

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
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