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Month: September 2021

Check you are paying the NMW

Check you are paying the NMW

The Government have recently named and shamed well-known employers who have fallen foul of the National Minimum Wage legislation. They have also published a list of ‘outrageous excuses’ cited by employers who have failed to pay the minimum wage.

Legal requirement to pay at least the minimum wage

As an employer, you have a legal requirement to pay a worker at least the statutory minimum wage for their age. Check that you are paying your workers the correct amount, and that you understand how to calculate the minimum amount that you need to pay the worker depending on the type of work that they do.

National Living Wage and National Minimum Wage

The National Living Wage (NLW) is the legal minimum that you must pay a worker who is aged 23 and over. The NLW is £8.91 an hour.

Workers under the age of 23 and above compulsory school age must be paid at least the National Minimum Wage (NMW) for their age. This is £8.36 per hour for workers aged 21 and 22, £6.56 per hour for workers aged 18 to 20, and £4.62 per hour for workers who have reached school leaving age and who are under the age of 18.

Apprentices

A separate NMW rate applies to apprentices. This is currently £4.30 per hour. The apprentice rate of the NMW should be paid to apprentices under the age of 19, and to apprentices over the age of 19 who are in the first year of their apprenticeship. You must pay apprentices aged 19 and over who have completed the first year of their apprenticeship at least the NMW for their age.

Despite the legal requirement to pay apprentices at least the relevant NMW, the Low Pay Commission found that only around 1 in 5 apprentices received the NMW. Mistakes made by employers include continuing to pay the apprentice rate to apprentices once they had reached the age of 19 and completed the first year of their apprenticeship, and failing to pay apprentices for their training time.

Accommodation offset

If you provide your workers with accommodation, you can reduce the minimum wage to provide for a contribution to the cost of the accommodation. The permitted reduction – the accommodation offset – is set at £58.52 per week (£8.36 per day).

Contact us

Speak to us if you are unsure whether you are complying with the NMW legislation.

September 20, 2021

Reclaiming SSP for periods of self-isolation

Reclaiming SSP for periods of self-isolation

The recent ‘pingdemic’ has resulted in large numbers of employees self-isolating. Where an employee meets the qualifying conditions, you must pay them SSP while they are self-isolating. As qualifying periods of self-isolation count as a Coronavirus-absence, if you are a small employer, you may be able to reclaim the SSP paid to self-isolating employees from HMRC under the Coronavirus Statutory Sick Pay Rebate Scheme.

Relaxation of the SSP rules for Coronavirus-absences

The SSP rules have been relaxed in respect of Coronavirus absences. The relaxations mean that if an employee is absent from work for a Coronavirus absence and qualifies for SSP, you must pay SSP from the first working day of the absence – the three waiting days which normally have to be served before SSP is payable are waived in relation to Coronavirus absences. However, there must be a period of incapacity for work (PIW) for SSP to be payable. This means that the employee must have COVID-19 or be self-isolating for at least 4 days, including non-working days, to create a PIW.

Period of self-isolation

The following periods of self-isolation count as Coronavirus absences:

  • periods of self-isolation where the employee is self-isolating because they live with someone who has Coronavirus symptoms or who has tested positive for COVID-19;
  • periods of self-isolation where the employee has been notified by the NHS or public health bodies that they have come into contact with someone with Coronavirus. This includes employees who are pinged and those contacted by NHS track and trace; and
  • employees who have been notified by the NHS to self-isolate before surgery.

However, a period of self-isolation following the return to the UK from a country on either the amber list or the red list does not count as a Coronavirus absence, and employees who are self-isolating for this reason are not eligible for SSP unless they qualify on other grounds.

Reclaiming SSP

If you are a small employer, you may be able to reclaim SSP paid to employees who are self-isolating for the reasons outlined above. You will be a ‘small employer’ for these purposes if you had a PAYE payroll scheme on 28 February 2020 and, at that date, you had no more than 250 employees on your payroll. If you have more than one PAYE scheme, the 250-employee limit applies across all of your PAYE schemes.

Under the scheme, you can claim a maximum of two weeks’ SSP per employee for Coronavirus absences. This means that if an employee has more than one period of self-isolation, you will need to meet the cost of some of the SSP that you pay to them while absent.

For 2021/22, the weekly rate of SSP is £96.35.

Claims for SSP rebates can be made online.

Talk to us

If you have been affected by the ‘pingdemic’, talk to us to find out whether you are eligible for an SSP rebate.

September 13, 2021

Basis period reform

Basis period reform

HMRC have been consulting on the reform of the basis period rules in preparation for the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), which comes into effect from April 2023. A consultation paper was published in July 2021, which sets out new simplified basis period rules. Comments were sought by 31 August 2021 on how best to implement the reforms.

Existing rules – the current year basis

Once an unincorporated business is established, it is taxed on the current year basis. Special rules apply in the opening and closing years of the business. Under the current year basis, the profits that are taxed for a particular tax year are those for the accounting period that ends in that tax year. Consequently, if the business prepares its accounts to 30 June each year, for the 2021/22 tax year, it will be taxed on its profits for the year to 30 June 2021, as this is the year that ends between 6 April 2021 and 5 April 2022.

Under the existing rules, some of the profits of the business may be taxed twice in the opening years. These profits are known as ‘overlap’ profits. Relief for the double taxation of these profits, known as ‘overlap relief’, is given when the business ceases, or earlier if there is a change of accounting date.

New rules – tax year basis

The reforms will mean that unincorporated businesses will be taxed on the profits arising in the tax year – i.e., the profits for the period from 6 April to the following 5 April. Where the business prepares accounts to 31 March, these will be deemed to correspond to the tax year (as will the preparation of accounts to any date between 31 March and 5 April).

If you prepare accounts to a date other than 31 March/5 April, you will need to apportion your profits so that they correspond to the tax year. For example, if you prepare your accounts to 30 June, for 2023/24, you will be taxed on 3/12th of the profit for the year to 30 June 2023 (covering the period from 6 April 2023 to 30 June 2023) plus 9/12th of the profit for the year to 30 June 2024 (covering the period from 1 July 2023 to 5 April 2024).

The tax year basis will apply from 2023/24, with 2022/23 being a transitional year.

Estimation of profits

If you have an accounting date late in the tax year and prepare accounts other than to 31 March/5 April, you may not have the second set of accounts available when you come to complete your tax return. For example, if you prepare your accounts to 28 February, for 2023/24 you will be taxed on 11/12th of your profit for the year to 28 February 2024 and 1/12th of your profit for the year to 28 February 2025. The accounts to 28 February 2025 will not be available by 31 January 2025, and you would be expected to file a provisional return, which would be amended later when the information is available.

This will create extra work, and HMRC are looking at alternative estimation approaches, such as making an estimate based on the profits for the quarterly updates submitted under MTD ITSA, extrapolating the profits for the ‘known’ part of the tax year, and allowing the final figures to be provided as part of the following year’s return.

To overcome this, you may prefer to change your accounting date and prepare accounts to 31 March/5 April. This will avoid the need for an apportionment calculation and reduce your workload.

Transitional rules

Transitional rules are needed to move from the current year basis to the tax year basis. The transition year is 2022/23.

For the transition year, the taxable profits for a business that does not have a 31 March/5 April year end will comprise the sum of:

  • the standard component (which is the profit assessable in 2022/23 under the current year basis); and
  • the transition component (which is the profit for the period from the end of the current year basis period to the end of the 2022/23 tax year).

Any historic overlap relief can be claimed in the transition year by deducting overlap profits from the result of the above calculation.

For example, if you prepare accounts to 30 June each year, for 2022/2023, you will be taxed on the profits for the year to 30 June 2022 (the basis period for 2022/23 under the current year basis) plus profits for the period from 1 July 2022 to 5 April 2023 (the transition component), less any overlap profits. The overlap relief will cover the period from the date on which the business started to the following 5 April.  

Spreading excess profits

In the transition year, your profits may be higher than normal. This will be the case if your transition component is more than your overlap relief. If you started your business some time ago, the impact of inflation may mean that your overlap profits are considerably less than the profits of the transition component, even if they both cover the same number of months. If your profits are higher than normal, your tax bill will also be higher, and you may pay tax at a higher marginal rate as a result.

To mitigate the effect of the transition year on cash flow, HMRC plan to allow businesses to elect to spread any excess profits in the transition year over five years.

Equivalence rules

As part of the simplification reforms, HMRC propose that the statutory rule which deems 31 March to be equivalent to 5 April in the first three years of a trade is extended so that it applies to all the years of the trade. This will mean that where accounts are prepared to 31 March, the business would not need to make small adjustments for the profits of the business to correspond to the tax year, which runs to 5 April. The consultation sought views on whether this equivalence rule should be extended to property businesses.  

We can help

Please talk to us about what the reforms will mean for your business, and what you need to do to prepare for the introduction of MTD ITSA.

September 6, 2021