Employment Tax and RTI - FruityCMS

Audit | Tax | Advisory

Employment Tax and RTI

Susan Ball

Crowe Clark Whitehill

Agenda

2

� Termination payments

� Status

� Salary sacrifice

� Real time information (RTI)

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.


Termination Payments



5

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

Other exemptions:

�foreign service exemption - where an employee was both non-resident 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



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� 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


Status

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� 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 useof Personal Services Companies (PSC’s)


Employed or self-employed

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� 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!?

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Salary sacrifice


Salary sacrifice

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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


Salary sacrifice - lessons

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� 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..)?


Salary sacrifice - benefits

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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)


What is it?

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� 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


RTI – Where are we now?

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� 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


What are the main changes for PAYE?

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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_Guidance-

v1.0.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


What won’t change?

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� 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).


Data items for RTI

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Irregular

payment

indicator

Director's NI

method e.g.

annual or

alternative

Partners’ details

for ASPP – 5

fields

Payment

after

leaving

indicator

Starter’s

declaration

e.g. P46

statements

Normal

hours

worked:

up to 15,

16-30, 30+

other

Payment datePay

frequency

Passport

number

Aggregated

earnings

indicator

Number of

earnings periods

covered by

payment e.g.

holidays

Tax

week/month

Payment

method if

BACS for

hash tag


Types of submission

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Types of submission

EAS

• Employer Alignment Submission

FPS

• Full Payment Submission

EPS

• Employer Payment Summary

EYU

• End of Year Update


Where employers should be now?

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� 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


Help and Support

24


Help and Support

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What next?


Income tax and NICs reform

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� 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 self-

employed 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.


Controlling persons changes from April 2013

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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

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