Employers must comply with increasingly complex regulations and requirements, which range from managing ‘real time’ reporting processes to navigating the obligations placed on them with respect to off-payroll workers, the Construction Industry Scheme and the National Minimum Wage. Our employment tax specialists can provide the proactive and practical support employers need to ensure that robust policies and processes are in place to manage risk and identify cost savings, while ensuring that the correct tax treatment is applied to all aspects of employee incentive, reward and remuneration.
How we can help
- Benefits: we help ensure that robust benefits and expenses policies are in place, assist with payrolling benefits and, working with our Employee Benefits Team, design a benefits package that is tax-efficient, cost-effective and appreciated by your employees
- Risk: we provide PAYE ‘health checks’ and compliance reviews and, for larger employers subject to the Senior Accounting Officer rules, we can provide a second pair of eyes to ensure that tax policies, processes and controls are robust and fit for purpose
- Enquiries: if you are preparing for a ‘Know Your Customer’ meeting with HMRC or are subject to a compliance review or enquiry, we help liaise with HMRC to resolve any queries it might have. If an error has occurred, we help you take remedial action and – where a disclosure is required – we support you to resolve the issue quickly and cost-effectively
- Compliance: we support businesses of every size with all aspects of payroll and benefit withholding, reporting and compliance. We manage payrolls, including shadow and ‘modified’ schemes, and assist with Forms P11D and PAYE Settlement Agreement registration and reporting
- Technical updates: we update our clients on the latest developments in tax policy, such as changes to the treatment of termination payments, as well as the wider issues impacting employers, including the impact of Covid, through regular updates, webinars and bespoke training
Frequently asked questions about employment taxes
How can we make year-end reporting processes more efficient?
Optimising processes, outsourcing where necessary and utilising tax technology solutions can all help make year-end reporting as painless as possible, without compromising on accuracy.
We help businesses of different sizes with their employer compliance in several ways.
Our experts assist clients with payroll operation as well as all aspects of year-end reporting for both UK and international employees, winning back time they would otherwise be spending on compliance.
We help refine processes to increase efficiency, from information gathering to completing final checks and making timely payments. This is also an area of increased focus from HMRC when carrying out employer compliance checks.
Tax technology plays an increasingly important role in efficiency. We support clients to implement new technology to enhance current ways of working, including process automation, data analytics and specialised tax solutions.
We also support clients by undertaking risk reviews, providing training, mapping processes and advising on the treatment of specific items, such as termination payments and equity awards.
How should I check employment status for tax?
Getting employment status for tax right is a complex area subject to increasing HMRC focus, not least due to the off-payroll worker rules introduced to the public sector in 2017 and extended to private sector organisations in April 2021.
When reviewing a contractor’s employment status, you need to look at the actual working practices, not just what it is in the written contract. There are a range of factors to consider. Some of the key areas to review include:
- who directs or controls how the work is done?
- is the worker obliged to accept work or are you obliged to provide work?
- is the worker allowed to hire someone else to do the work or provide substantial help?
- does the worker face significant financial risk in taking on a job?
Although the HMRC Check Employment Status for Tax (CEST) tool can be used to determine status, it does not deliver a decision in every case. HMRC will accept CEST determinations, provided that the information inputted into CEST is accurate. Furthermore, while it reflects HMRC’s view, this has been challenged successfully in recent First-tier Tribunal decisions.
We support clients in determining employment status, from carrying out individual reviews to providing training and guidance with respect to their off-payroll worker population.
What is IR35 and does it affect me?
What is known as IR35 relates to anti-avoidance tax legislation designed to tax ‘disguised’ employment and applies to medium or large businesses engaging workers who operate through personal service companies (PSCs).
Since 6 April 2021, medium and large-sized businesses have been required to review the employment status for contractors engaged through PSCs given they may be treated as employees for tax purposes.
The company benefitting from the services (the ‘end user’) is responsible for determining the deemed employment status of any individual engaged through a PSC and for communicating this in a written statement.
For engagements that are treated as employment under these rules, the entity that pays the PSC’s fees - either the end user or an agency - will need to operate PAYE withholding on all payments and pay employer’s NIC on the gross amount invoiced excluding VAT. Payments within IR35 will also be brought into Apprenticeship Levy calculations.
To avoid any penalties, businesses will also need to be able to show that they have taken reasonable care to comply with these rules: for example, by ensuring robust procedures are in place, reviewing engagements on a regular basis and seeking professional advice when needed.
You can read more about IR35 here.
What is the Construction Industry Scheme (CIS)?
The CIS requires businesses engaged in construction to file monthly returns and, in some cases, to deduct tax at source from payments to subcontracted construction workers.
The CIS affects contractors and sub-contractors engaged in construction operations, including construction, alteration, repair, extension, demolition or dismantling of buildings or structures, whether or not they are permanent.
A CIS mainstream contractor is a business that pays subcontractors for construction work. This would usually be a construction business such as a property developer, although businesses that do not usually operate in the construction industry can also be caught.
If a business makes payments under construction contracts averaging £1 million per accounting period over three years, it could become a ‘deemed contractor’ even if its main trade is not construction.
The key obligations of a contractor under CIS are:
- registering with HMRC
- verifying the identity of its subcontractors
- if subcontractors are not registered for gross payment, deducting tax from payments to sub-contractors and providing statements to sub-contractors to inform them of this
- making monthly returns to HMRC
CIS subcontractors are businesses that carry out construction work for contractors. including by sub-contracting to another person or entity. You can be both a contractor and a subcontractor.
Subcontractors must register with HMRC in order to be paid gross or, in some circumstances, net of 20% CIS income tax. If a subcontractor chooses not to register, the deduction would amount to 30%. These deductions count as advance payments towards subcontractors’ tax and national insurance liabilities.
Read more about property tax issues here.
Are termination payments taxable in the UK?
The tax treatment of termination payments should be reviewed before payments are agreed to ensure that tax is calculated correctly.
In some circumstances, a £30,000 exemption from income tax and national insurance contributions (NICs) may apply if a payment is for loss of employment. The starting point, however, is that any payment that is a reward for service should be subject to PAYE and NICs as normal. Whether or not the £30,000 exemption applies is often not clear-cut and HMRC may challenge the treatment of termination awards that have not been subject to tax and NIC.
Common risk areas that employers should be aware of include the following:
- new rules effective from April 2018 introduced the concept of taxable Post-Employment Notice Pay (PENP), the calculation of which can be complex. The rules aim to treat the equivalent of notice pay as fully taxable and subject to NIC, even where the notice period is not actually worked
- payments for restrictive undertakings are taxable in the same way as salary
- lump-sum payments to employees who then retire may well be treated as a taxable retirement benefit. Whether or not this treatment should apply at the point the award should be reviewed on a case-by-case basis
Any excess over the £30,000 exemption of a qualifying payment is taxable through the payroll and, since 6 April 2020, Class 1A employer’s NIC has also been due on the excess over £30,000.