Could you benefit from a free Government midlife MOT?

Our cars go through MOTs each year once they reach a certain age, but have you ever thought of giving yourself an MOT? The Government is offering a free midlife MOT for those in their 40s, 50s and 60s to help them make the right financial decisions for retirement.

The midlife MOT provides free online support to those in the private sector, and can be done face-to-face with Department for Work and Pensions staff in job centres for those looking for work. The aim is to ensure you are giving sufficient thought to your money, work and wellbeing as you head into the later stages of your life.

What’s involved?

The online midlife MOT provides a series of prompts to make you think more carefully about what you may need to do as you get older. For example, will you be able to continue in your current job as you get older? Or will you need to learn new skills to continue to provide for yourself and your family?

You are also prompted to consider whether you have enough money to live on to maintain your current lifestyle? Or whether you might need to examine your pension saving and put some extra aside to enjoy your retirement more comfortably.

The specific questions on the midlife MOT site are:

My work: Am I confident I can continue in my current job, or do I need to protect myself by reskilling? Will caring responsibilities or other priorities mean I need to work more flexibly?

My health: Am I taking the right steps to maintain or improve my health? Would workplace adjustments make it easier for me to stay in my job for longer?

My money: Do I have enough savings to maintain my current lifestyle? I’m confused about pensions, what are my options?

My work and skills: As your situation changes as you get older, you may find that flexible working arrangements can make a difference.

Source: https://www.yourpension.gov.uk/mid-life-mot/

Is this relevant to employers or just individuals?

There is a specific section of the website that highlights what employers can do to help their staff access the midlife MOT for their workplace. There are details on how this could work for both larger companies and smaller employers and you can also download toolkits to use within your business for relevant staff.

There are also a number of useful links within the YourPension.gov.uk/mid-life-mot/ webpage to help people navigate to the relevant information they need to check all aspects of their life are on track as they reach this point in their life.

Let us help you

Do you feel like you need a midlife MOT but would rather talk things through with someone than simply navigate this on your own? If so, then we can help you understand whether you are financially ready for the next chapter of your life. Just contact us and we will guide you through everything you need to know.

Check your PAYE code is correct for this tax year

Every employee working for a company has a Pay-As-You-Earn (PAYE) code which denotes how much tax you will pay in a year. If this code is incorrect, it could mean you are paying more or less tax than you should be, and may need to reclaim that money, or pay more. Neither is a good option, so spending a little time at the start of the tax year checking you have the right code could save a lot of hassle later on.

Why your tax code could be wrong

If you have changed jobs recently, got a pay rise, or gone on maternity leave, you could find your tax code hasn’t kept up with the changes in your life.

Your employer and HMRC are not responsible for ensuring you have the right tax code, and while they do their best to ensure you are paying the right tax, ultimately it is your responsibility to make sure your code is correct. They are computer generated by HMRC, so failing to check could mean you have the wrong tax code for an entire year or more.

The question is, how do you check? Helpfully, you can find out what the different parts of your tax code mean online. There are a few things to look for. For example, most people – with the exception of very high earners who have their personal allowance reduced once they reach annual earnings of £100,000 – can earn £12,570 this year before they need to pay any tax at all.

If you don’t have any benefits in kind from your employer, such as a company car, or a season-ticket loan, then you will most likely have the tax code 1257L. The ‘L’ in this code simply means you are entitled to the normal personal allowance.

However, let’s say you have transferred 10% of your personal allowance to your spouse under the Marriage Allowance transfer. In this case, you will have an ‘M’ at the end of your tax code.

A full list of tax code information and what you should expect to see can be found on the Gov.uk website. If you aren’t sure what your tax code should be, then discuss this with your employer or, if you work for a larger company, you can speak to your HR department.

We can help you meet your obligations

If you are still struggling with your PAYE code and want to be sure you are paying the right amount of tax, then contact us and we will go through this for you to make sure everything is correct.

Should your business declare the cost of the Christmas party?

Christmas parties or even regular summer BBQs, or annual team building events may need to be declared to HMRC for the current 2022/23 tax year if they do not meet certain rules, so you need to be sure you meet all the relevant rules for the exemption.

The key conditions are that the party should be exclusively for business purposes, be open to all employees and cost less than £150 a head to qualify. You can offer more than one regular event to employees over the year, but the combined cost of each must be no more than £150 per person, otherwise the employer may have a National Insurance liability. One-off events do not qualify.

Events costing more than £150 per head across the year

However, if you hold several regular events in a year and the total combined cost of these is more than £150 per person, then you would need to report it as a benefit-in-kind and a tax and National Insurance charge may apply.

For example, if your company has a Christmas party at £100 per head and then a summer party which is £80 per head, these combined breach the £150 limit. So, you would have to choose which you want to be exempt. It makes more sense to exempt the Christmas party which had the higher per head value.

If an event exceeds this £150 limit, then the tax and NI charge applies to the entire amount of the benefit provided, not just the excess. You can include close family members as guests in the party, but the cost of their food, drink, accommodation and so on as part of the party must still not exceed £150, the same as any of the employees.

Events not open to all employees

If there is a specific regular event that is only open to a smaller number of staff, such as directors of the company only, then this would not be exempt under this legislation, and the cost of this would need to be declared to HMRC as a benefit and the relevant tax and NI paid.

Do the same rules apply to virtual functions?

If your staff are in a variety of locations, or primarily work from home, then some employers might have decided to provide a virtual Christmas party. This is fine, and it would in theory work in the same way and with the same caveats as an in-person Christmas party.

You would still not be able to exceed a total cost of £150 for each employee attending, and you would also need to ensure that all staff have been offered access to the party, virtual or otherwise. If this is the case, then you should be able to provide the party without any additional tax or NI liabilities.

The complication here is how to ensure your employees are provided with, say, food and drink for the virtual party without the employer simply giving money to the employee. It could be difficult to prove to HMRC that this money was solely used for the party if an audit was undertaken. So, instead the employer should consider providing the food and drink in a specific way to all employees attending, which would allow the cost to be identified centrally.

This could be done by, for example, sending a food and drink parcel or hamper to every employee in advance of the event to be consumed while everyone is at the online party.

You can find out more about what needs declaring on Gov.uk.

We can help you

If you have concerns about whether your annual Christmas party or summer BBQ needs to be declared to HMRC, then speak to us and we will work with you to ensure you do not fall foul of the rules.

PAYE round-up – what’s new and what you need to know

Dealing with PAYE is one of the main roles of any accounts department, and HMRC has been busy in this area over the past month, meaning there is plenty for businesses to know for the months ahead. One of the most pressing issues is that PAYE Settlement Agreements are due to be completed by October 22 – or October 19 if you want to file and pay by post – and there is a new digital form to help employers meet their obligations.

Employers need to complete this form if they have employees who have “minor, irregular or impracticable” benefits according to HMRC. These could include incentive awards for long-service, telephone bills, non-business expenses for travelling overnight or staff entertainment.

What does this new form do?

The new PAYE Settlement Agreement form (PSA1) has been designed to make it easier for employers to file digitally, which is the preferred method for HMRC. The form provides standardised reporting, improved accuracy, faster processing times which should all result in fewer queries, again according to HMRC.

The new form should create a more streamlined process for employers who need to file returns for employees in this position. For example, in the past a separate paper form would need to be filled in for each employee in a different location. But the new digital form allows you to file a single form for all employees no matter where they are.

Tell HMRC what you need to pay

Using the form means it is also easier for you to tell HMRC what you need to pay. Remember, if you do not do this, then HMRC will do the calculation and you could end up paying more. If you have not got access to the new PSA1 form, then you should contact HMRC as soon as possible and it will tell you what the process is so you can use the new form, which should make filing much simpler.

Don’t be late

It is important to be sure you calculate any money due under the PSA1 and make the payment before the October 22 (or October 19 for paper returns) deadline. If you are late filing, you could face a penalty and pay interest on any amount owed. In the current climate, where energy prices and higher inflation is affecting not just households but also businesses, you should make sure you are not facing any additional charges as a result of poor admin. These are fees that can be completely avoided with the relevant planning.

Pay your PAYE bill through a new variable direct debit plan

Employers can also now take advantage of a new variable direct debit plan which will be available from September 19 onwards. Once it has been set up, you can pay bills including your Full Payment Submission, your Employer Payment Summary, the Construction Industry Scheme, the Apprenticeship Levy, Class 1A National Insurance, and the Earlier Year Update.

Remember to leave yourself enough time for the payments to be taken the first time. You need to leave five working days for the first direct debit to be taken, and then three days for each subsequent direct debit payment. So, get in touch with HMRC as soon as you can if you want to benefit from this plan.

Contact us

If you need any assistance with your PAYE, then contact us and we will give you all the help, support and information you need.

Payroll a pain heading into summer? Here’s what to do

We have all been there. The rising number of employees off over the summer months – especially now the kids have finished school until September – means some departments will be lacking in numbers and some work could get left behind.

One area you cannot afford to let this happen in is the back office, and especially payroll. Employees will forgive a lot of things, but not having their wage hit their accounts at the right time is not one of them. Not only would it mean many people missing mortgage or rent payments for that month, it would also create a mistrust between employees and management. Once trust is lost, it is not easy to get back.

Ensuring you have enough staff to cover all areas is difficult during these months, and with sick leave and particularly Covid continuing to be an issue with staff needing to take time off, you really need a back-up plan.

Emergency cover

While you may never need to use it, you should ensure you have some emergency cover in place just in case you are facing a crisis at short notice. You can do this by training staff to do a different job within the office so they can step in if needed, or you can speak to your accountant and find out if they could give you the assistance you need for the short term if things went wrong.

Never underestimate the importance of admin staff

There is no getting away from the fact that your back-office and admin staff are key to running your business efficiently. Without them, all sorts of problems would arise that could create some costly errors for the company as a whole.

So, make sure they have all the back-up they need as you come into a period where many staff are off on their holidays and the workload becomes a bigger burden for those left behind.

We can help you meet your obligations

If you think you may have difficulties covering all of your admin and back-office roles over the summer, then please get in touch and we can help to suggest solutions for you.

Are you claiming everything you are entitled to from the taxman?

Tax is something that is a certainty in life, as former US President Benjamin Franklin said, but there are lots of ways you can reduce the amount of tax you have to pay by claiming for expenses you may not realise you could.

Those of us who are self-employed or own businesses are more likely to claim the majority of costs and expenses against tax that we can. But what many PAYE employees do not realise is that they can also claim certain expenses if they are not covered by their employer, and they are specifically relevant to their work.

What can be claimed?

For example, let’s say you are a nurse, an engineer, a psychologist or simply an employee who happens to use their car for work purposes sometimes. In each of these cases, there are likely to be things that you are paying for that you could claim if your employer is not repaying you for them.

It could be fees you pay to be a part of a professional institution, or professional indemnity insurance, or uniforms that you need to buy yourself, shoes, books you need to study for your work, toys that you may need to use to encourage children to talk to you in the case of a child psychologist, for instance. The list would include anything and everything that you need to buy yourself that solely relates to your work.

While many of these may be relatively small amounts individually, they will soon add up, and if you consider how much they add up to over a long period of time, there is every reason to reclaim that money.

How do you claim them?

Understandably, many people are nervous about dealing with the taxman because they think automatically that it is going to end up costing them money. But that is not always the case. Reclaiming these amounts that are legitimate allowances could put a significant amount of money back into your pocket.

To claim these, you would need to do a self-assessment form. This is something many people who pay tax through PAYE would not be familiar with. You can speak to your accountant for more information if you need it, or you can ask HMRC directly about how you claim for these costs on your self-assessment.

Don’t be nervous, and go back as many years as you can

You do not need to be nervous when dealing with the tax office as you are not doing anything wrong. This is money you are owed, and you would be doing yourself a disservice by not getting this money back into your own pocket.

If you have not been claiming this money back before, then you can go back up to four previous tax years. This means you can reclaim overpaid tax from 2018/19 if you make the claim before April 5, 2023. If you had an average of £1,000 that you could have reclaimed for each of these years, then you would get a £4,000 rebate from the taxman by making the claim.

In the current economic climate, even relatively small amounts that you can reclaim will make a difference. But remember, you must have proof of the purchases you made. Usually these would need to be receipts, but if you do not have these, then you can prove any payments made using bank statements if you need to. If you bought anything online, you may have records there in your email or, say, an Amazon account.

We can help you

If you are unsure about whether you can claim some of the expenses for your work or want to know you have claimed everything that it is possible to claim, then please get in touch with us and we will help you through the process.

Change in National Insurance contribution levels in July

A change in National Insurance contribution (NICs) levels comes into force at the beginning of July, which should save around 30m people £330 each, according to the Government.

From July 6, the amount you can earn before you start paying NICs will increase, which means the amount of overall tax – since NICs is a tax in all but name – will reduce.

What are the new thresholds?

From July 6, the threshold for Class 1 NICs, which are paid by those who are employed, and Class 4 NICs, which are paid by the self-employed, rises from £9,880 to £12,570. This means you can earn an additional £2,690 before you need to start paying NICs.

The new NICs threshold is now in line with the starting point for income tax, but the NICs rate you will pay has not changed and still includes the 1.25% addition for the Health and Social Care Levy made earlier this year. So, everything you earn between £12,570 and £50,270 will be charged NICs at 13.25%. Anything above this higher threshold will be charged at 3.25%.

Part of a £15 billion package of assistance

The additional savings we will see in our pockets thanks to this change will help considerably with the cost-of-living crisis. In fact, along with the council tax rebate that has been announced, energy bills assistance worth at least £400 and support for the most vulnerable households of at least £1,200, this should go some way to easing the problems associated with the current high inflation.

Inflation reached 9.1% in May according to figures from the ONS, up from 9% in April and 7% in March. The current rate is the highest level of inflation since 1982.

BoE base rate rises to 1.25%

The Bank of England increased the base rate to 1.25% in June, taking rates to the highest level in 13 years. While this is good news for savers who are likely to see more interest being paid on their accounts, it is potentially bad news for some people with mortgages. If you are on a fixed rate mortgage that is still within the fixed-rate term, then you will not see any change in your mortgage payments. But you may find it is more expensive to borrow when you come to change your mortgage in future.

If you are on a tracker rate, then you will automatically see the interest rate you are paying rise, which could be a considerable cost depending on how much you have borrowed.

How much will you save?

However, if you want to find out how much more money you will have in your pocket thanks to the change in the NICs thresholds, the Government has created a handy calculator that you can use to determine what you will save on the Gov.uk website. But if you are self-employed, this calculator will not work for you, so you are best to contact your accountant to find out what the change means for you.

Contact us

If you are an employer, employee or self-employed, and want to know more about how the NICs changes affect you and what you can expect to pay, then contact us and we will give you the information you need.

Spring Statement round-up

The Chancellor’s Spring Statement on March 23 was limited on giveaways, but there were some measures designed to help people struggling with the highest rates of inflation in 30 years.

The Office for Budget Responsibility (OBR) has forecast that inflation will average 7.4% this year, and there are many people who are already struggling with everything from filling their cars with fuel to keeping the heating on.

Fuel Duty cut but NI increase

One cut came in the form of a 5p a litre reduction in the price of fuel thanks to a fall in fuel duty to help offset the spiralling cost of oil.

Yet despite many experts imploring the Chancellor to postpone the 1.25% hike in National Insurance for 2022/23 – the Health and Social Care Levy – Rishi Sunak refused to do this. The one change he made was raising the NI threshold by £3,000 rather than the planned £300, to bring it in line with the £12,570 personal allowance. He described this as a “£6 billion personal tax cut for 30 million people”.

Employment Allowance increase for small businesses

The Employment Allowance will increase to £5,000 for small business, which is a tax cut of £1,000 for around 500,000 firms which starts in April.

Businesses can also expect to benefit from tax cuts on business investment during the Autumn Budget, and there will be an increase in business research and development tax credits to boost productivity.

Income tax cut in 2024

The basic rate of income tax will fall from 20% to 19% from April 2024, the first cut in this tax in 16 years according to the Chancellor. But he refrained from bringing this cut in for the coming tax year as there is too much uncertainty in the economy.

We can help you

Even if you or your business did not see anything in the Spring Statement to help you, there are likely to be ways you can benefit from existing tax efficiencies to maximise your money. Get in touch with us to find out how.

SSP changes

To help employers affected by the spread of the Omicron variant of COVID-19, the Statutory Sick Pay (SSP) rebate scheme for small employers is being reintroduced. In addition, the period for which an employee can self-certify a sickness absence is increased temporarily from seven days to 28 days.

SSP rebate scheme

The SSP rebate scheme for small employers allowed employers who had fewer than 250 employees on their payroll on 28 February 2020 to reclaim up to two weeks’ SSP per employee in respect of Coronavirus absences. Normally, employers must meet the cost of any SSP paid to an employee in full. The original scheme applied in respect of Coronavirus absences prior to 30 September 2021, with a deadline for making rebate claims of 31 December 2021.

To help employers affected by staff absences as a result of the surge in COVID-19 cases following the emergence of the Omicron variant, the SSP rebate scheme for small employers is being resurrected. You will be able to use the scheme if you are based in the UK and you had a PAYE scheme with fewer than 250 employees as of 30 November 2021. As previously, you will be able to claim back the cost of up to two weeks’ SSP paid to an employee for Coronavirus-related absences. The claim period is being reset; consequently, a claim can be made in respect of SSP paid to an employee, regardless of whether a claim was made under the original scheme. Claims under the resurrected scheme can be made retrospectively from mid-January 2022.

Self-certification

The period for which an employee is able to self-certify an absence for SSP purposes has been increased temporarily from seven days to 28 days. This means that rather than needing a Fit Note from a GP for absences of more than seven days, employees will only need a Fit Note once they have been absent for 28 days. This will reduce the pressure on GPs.

Regulations have been introduced to give statutory effect to the relaxation, which applies for periods of sickness which begin on or after 17 December 2021 and end on or before 26 January 2022. Thereafter, the self-certification period will revert to seven days.  

Speak to us

To find out more about how to make a claim under the SSP rebate scheme, or to learn more about the temporary self-certification rules, please speak to us.

Seasonal gifts to employees

Christmas is a time of giving, and you may wish to give your employees a small token of your appreciation for their work during the year. To prevent the gift being accompanied by an unwanted tax liability, you can take advantage of the trivial benefits exemption to keep the gift tax-free.

Scope of the exemption

Where you provide an employee with a low-cost benefit, the employee is not taxed on the provision of that benefit as long as the following conditions are met:

• the benefit is not cash or a cash voucher;
• the cost of the benefit is not more than £50;
• the benefit is not made available to the employee under a salary sacrifice arrangement or under a contractual obligation; and
• the benefit is not provided in recognition of particular services being performed, or in anticipation of them being performed.

Benefits that meet these conditions are known as trivial benefits.

Where the conditions are met, if the recipient is a director of a close company, the total value of tax-free trivial benefits that they can enjoy in the tax year is capped at £300. Otherwise, there is no limit on the number of trivial benefits which can be given to an employee tax-free each year.

Application of the exemption to Christmas gifts

The trivial benefits exemption can be used to ensure that gifts typically given to employees at Christmas, such as chocolates, wine, a turkey or a hamper, can be given tax-free. The key is to keep the cost below £50.

It will normally be straightforward to work out the cost of an item, but where it is difficult to determine the individual cost, the average cost can be used instead.

Lavish gifts

The trivial benefits exemption only applies if you give modest gifts costing £50 or less; lavish gifts will fall outside the exemption. The £50 limit is not a tax-free allowance, and if the cost of the gift is more than £50, the full amount will be taxable, not just the excess over £50. For example, if you give your employees a Christmas hamper costing £200, the taxable amount is £200, not £150 (the excess over £50).

If you do wish to give your employees an expensive Christmas gift, you may wish to pay the associated tax on their behalf by including it within a PAYE Settlement Agreement.

The gift card trap

To enable employees to choose their own gift, you may prefer to give a gift card or access to an app which lets them choose a treat. However, it is necessary to tread carefully here. If an employee uses an app or is given a gift card which may be topped up, the cost of the benefit is the total cost in the tax year, not the cost each time the app or gift card is used. This may mean that while each individual item purchased from the app or gift card costs less than £50, if the annual cost is more than £50, the benefit will not be a trivial benefit, and the exemption will not be available.

Speak to us

To check whether your Christmas gifts fall within the scope of the exemption, please get in touch.

Paying employees early at Christmas

Under Real Time Information (RTI), you must report payments made to employees and associated deductions to HMRC on a Full Payment Submission (FPS) at or before the time at which you make the payment to your employee. However, special rules apply which modify this rule if you pay your employees earlier than usual over the Christmas period. This may be the case if you shut down over Christmas and New Year.

Use your normal payday

Even if you pay your employees earlier than usual in December, you should use the normal payday as the payment date on the FPS, and submit the FPS by this date. In this instance, the FPS may well be submitted after the date that you paid your employees. However, as the submission deadline is the normal payday, as long as you send your FPS in by that date, it will not be treated as being late.

For example, if you normally pay your employees monthly on the 28^Th of the month, but in December you are shut for two weeks and pay them on 17 December 2021 instead, when you send the FPS to HMRC, you should still enter ’28 December 2021’ as the payment date. You must ensure that you send the FPS to HMRC by 28 December 2021; although it will probably be more convenient to send it on 17 December 2021 when you do your payroll and pay your employees, you do not have to submit the FPS by this date.

Impact on Universal Credit

It is important that you follow the rules set out above if you pay your employees early at Christmas to ensure that any employees who receive Universal Credit will receive the correct payments. You should also use the normal payment date if you pay employees early because the usual payday falls on a bank holiday. Following these rules prevents two months’ payments being taken into account in one Universal Credit assessment period and none in another assessment period, and stops Universal Credit claimants losing out on the work allowance. This is an amount of earnings that the claimant is able to keep before earnings start to be deducted from their Universal Credit entitlement.

As Universal Credit is a means tested benefit, the amount paid is reduced when income rises.

Court of Appeal decision

In November 2020, the Court of Appeal issued a judgment in the case of Johnson and Others. Following the case, where people are paid monthly and as a result of a payment being made earlier than usual (for example, at Christmas), two payments are made in one assessment period and none in another, one set of earnings is taken into account in each assessment period so that the claimant does not lose the work allowance.

The reallocation of earnings only happens where people are paid monthly. Where people are paid weekly, fortnightly or four-weekly, there will always be assessment periods where additional payments of earnings are taken into account. For example, employees who are paid four-weekly will normally only receive one payment in a Universal Credit assessment period, but in one period each year, two payments of earnings will be taken into account as employees who are paid four-weekly receive 13 payments each year. Moving earnings to another period would simply change the assessment period in which two payments are taken into account.

Contact us

If you will be paying your employees on a day other than your usual payday in December and are unsure how and when to report the payments to HMRC, please get in touch. We can help.

National Insurance rises and the Health and Social Care Levy

On 8 September 2021, the Prime Minister outlined the Government’s plans for health and social care, including a new funding strategy designed to meet social care costs. A new tax, the Health and Social Care Levy, is to be introduced from 2023. However, as a temporary measure prior to its introduction, National Insurance contributions will rise for 2022/23 only. This will affect you if you are employed, self-employed or an employer.

Temporary National Insurance increases

For 2022/23 only, the rates of primary and secondary Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions will all rise by 1.25%. The revenue raised as a result will go directly to support the National Health Service and equivalent bodies across the UK. From 6 April 2023, the rates will revert to their 2021/22 levels consequent on the introduction of the new Health and Social Care Levy.

Primary Class 1 National Insurance contributions

Employees currently pay primary Class 1 National Insurance at the rate of 12% on their earnings to the extent that they fall between the primary threshold (currently £184 per week) and the upper earnings limit (currently £967 per week). For 2022/23 only, the main primary rate will increase to 13.25%.

Employees also pay primary Class 1 National Insurance contributions at the additional rate on any earnings in excess of the upper earnings limit. For 2021/22, the additional rate is set at 2%. This will increase to 3.25% for 2022/23 only.

Contributions payable by an employee cease when the employee reaches state pension age.  

Secondary Class 1 National Insurance contributions

Employers pay secondary Class 1 National Insurance contributions on the earnings of their employees to the extent that they exceed the secondary threshold or the relevant upper secondary threshold, as appropriate. Contributions are payable at the secondary rate. For 2021/22, this is set at 13.8%. For 2022/23 only, the secondary rate will increase to 15.05%.

For 2021/22, the secondary threshold is set at £170 per week.

Where the employee is under the age of 21, an apprentice under the age of 25, or an armed forces veteran in the first year of their first civilian job since leaving the armed forces, employer contributions are only payable to the extent that the earnings of the employee or the apprentice exceed the relevant upper secondary threshold. For each of these groups, the relevant upper secondary threshold is set at £967 per week for 2021/22. From 2022/23, employers in Freeport tax sites will only pay secondary Class 1 employer contributions on the earnings of new Freeport employees to the extent that these exceed a new upper threshold for Freeport employees. This is to be set at £25,000 a year.

Unlike employees, employers continue to pay secondary contributions on the earnings of any employees who have reached state pension age.

Class 1A National Insurance contributions

Class 1A National Insurance contributions are employer-only contributions, payable on most taxable benefits in kind, and also on taxable termination payments in excess of £30,000 and taxable sporting termination payments in excess of £100,000.

The Class 1A rate is the same as the secondary rate of Class 1 National Insurance contributions, payable by employers on employees’ earnings. Consequently, this is set at 13.8% for 2021/22. It will increase to 15.05% for 2022/23 only.

Class 1B National Insurance contributions

Class 1B National Insurance contributions are payable by employers on items included within a PAYE Settlement Agreement (PSA) in place of the Class 1 or Class 1A liability that would otherwise be due. They are also payable on the tax due under the PSA.

The Class 1B rate is also aligned with the secondary Class 1 rate, at 13.8% for 2021/22, rising to 15.05% for 2022/23 only.

Class 2 and 4 National Insurance contributions

There are two Classes of National Insurance contributions payable by the self-employed – Class 2 and Class 4. Class 2 are flat rate contributions. Class 4 are payable on profits where these exceed the lower profits limit, set at £9,568 for 2021/22. Class 4 contributions are payable at the main Class 4 rate on profits between the lower profits limit and the upper profits limit, set at £50,270 for 2021/22, and at the additional Class 4 rate on profits in excess of the upper profits limit. For 2021/22, the main Class 4 rate is 9%. For 2022/23 only, it will increase by 1.25% to 10.25%. The additional Class 4 rate is currently 2%. It will increase by 1.25% for 2022/23 only, to 3.25%.

Class 2 National Insurance contributions are not affected by the temporary increase applying for 2022/23.

Class 3 National Insurance contributions

Class 3 National Insurance contributions are voluntary contributions which a contributor may choose to pay to make up for a shortfall in their National Insurance record. Class 3 National Insurance contributions are unaffected by the temporary increase in National Insurance contributions applying for 2022/23.

Health and Social Care Levy

A new tax, the Health and Social Care Levy, is to be introduced from April 2023. Funds raised from the levy will be ring-fenced to support UK health and social care bodies.

The levy is set at 1.25%. It will be payable on the earnings on which an employee, an employer or a self-employer person is liable to pay a qualifying National Insurance contribution. Qualifying National Insurance contributions are Class 1, Class 1A, Class 1B and Class 4. However, unlike National Insurance contributions, the Health and Social Care Levy will be payable on earnings and profits of individuals who are above state pension age.

The new Health and Social Care Levy will operate in the same way as National Insurance contributions for administrative purposes.

Get in touch

We can explain what the National Insurance increases and the new Health and Social Care Levy will mean for you.

Kickstart Scheme

You may be able to benefit from funding under the Kickstart Scheme if you are looking to create new jobs for young people. Information on the scheme can be found in the Kickstart Scheme Employer Prospectus.

Nature of the scheme

The scheme aims to create jobs for young people who are unemployed. The job must be a new job and must be for at least 25 hours a week for six months. The job cannot replace existing or planned vacancies, or cause existing employees, apprentices or contractors to lose their jobs or to have their hours reduced. In addition, you must help the young person to become more employable, for example, by helping them to develop their skills in the workplace or providing support with job applications and interview preparation.

Funding

Employers using the scheme can apply for funding, which will cover:

• 25 hours at the National Living Wage or National Minimum Wage appropriate for the person’s age;
• any associated employer’s National Insurance;
• minimum automatic enrolment pension contributions; plus
• a grant of £1,500 to cover set-up costs and employability support.

Apply online

Applications can be made online or via a Kickstart Gateway.         

Find out more

If you would like to know more about the scheme and whether it is for you, we can help.

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.

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.

Back to the office

Now that the ‘work from home if you can’ guidance has been lifted, employees are returning to the office. If, following their return, you allow employees to keep their homeworking equipment for personal use, there may be tax consequences to consider.

Employer-provided equipment

If you provided homeworking equipment to your employees to enable them to work from home, no tax charge arose on the provision of the equipment, as long as you retained ownership of it. However, there may be tax to pay if you allow the employee to keep the equipment for their personal use when they no longer need it to work from home. The nature of the tax charge depends on whether ownership of the equipment is transferred to the employee.   

Ownership transferred

A tax charge will arise if you transfer ownership of the equipment to the employee, unless the employee pays at least the market value for the equipment. The amount charged to tax is the market value at the date of the transfer, less any amount paid by the employee.

No transfer of ownership

If, instead, you retain ownership of the equipment but allow the employee to use it for their personal use, the tax charge is based on the ‘annual value’ of the equipment. This is 20% of the market value of the equipment at the date on which it is first made available for the employee’s personal use.

You may have chosen to adopt a flexible working policy under which employees continue to work from home some of the time. Where this is the case, as long as the homeworking equipment remains available predominantly to allow the employee to work from home, no tax charge will arise on insignificant private use.

Employer-reimbursed equipment

At the start of the pandemic, many employees were required to work from home at very short notice. In many cases, it was easier for the employee to buy the equipment that they needed to work from home, and claim the cost back from the employer.

If you took this route and reimbursed employees for the cost of homeworking equipment, as long as the ownership of the equipment was not transferred to you, there is no tax to pay if the employee retains the equipment for personal use when they return to the workplace.

Contact us

If you are unsure whether a tax charge arises in respect of retained homeworking equipment when your employees return to the office, please get in touch to discuss this with us.

NMW reminder for summer staff

If you take on temporary staff over the summer, you will need to pay them at least the National Living or Minimum Wage appropriate to their age.

Workers aged 23 and over

Workers aged 23 and over are entitled to be paid at least the National Living Wage (NLW). This is set at £8.91 per hour.

Workers under the age of 23

Workers under the age of 23 are not entitled to the NLW; instead, you must pay them at least the National Minimum Wage (NMW) for their age. This is set at £8.36 per hour for workers aged 21 and 22, at £6.56 per hour for workers aged 18 to 20, and at £4.62 per hour for workers aged under 18 but over school leaving age.

Get in touch

Talk to us if you are unsure whether you are complying with the National Minimum Wage rules.

NIC relief for employers of armed forces veterans

A new relief has been introduced for employers of armed forces veterans which allows them to benefit from a zero rate of secondary National Insurance contributions on the earnings of the veteran up to a new upper secondary threshold. However, while the relief applies from 6 April 2021, for 2021/22 employers must pay secondary contributions as normal and claim the relief retrospectively from 6 April 2022.

Nature of the relief

To encourage employers to employ armed forces veterans, no secondary Class 1 National Insurance contributions are payable on the veteran’s earnings during the first 12 months of their first civilian employment since leaving the armed forces, unless their earnings exceed a new upper secondary threshold. The new upper secondary threshold for veterans will be set at the same level as the existing upper secondary thresholds for employees under the age of 21 and apprentices under the age of 25. For 2021/22, this is £967 per week, £4,189 per month and £50,270 per year. The threshold is also aligned with the upper earnings limit applying for primary (employee’s) Class 1 National Insurance purposes.

If earnings exceed the new upper secondary threshold, employer’s contributions are payable as normal on the excess at the usual rate of 13.8%.

The relief applies from 6 April 2021. Where the veteran’s first civilian employment after leaving the armed forces started after 6 April 2020 but before 6 April 2021, the relief will apply from 6 April 2021 until the first anniversary of the start date.

Subsequent and concurrent employers will also be able to benefit from the relief during the relief period.

Who counts as a veteran?

For the purposes of the relief, an armed forces veteran is someone who has served at least one day in the regular armed forces. This includes someone who has undertaken at least one day of basic training.

Giving effect to the relief

The relief is available from 6 April 2021 and applies for 2021/22, 2022/23 and 2023/24 (although the Treasury have the power to extend the relief to later tax years). However, the way in which the relief is given depends on the tax year. HMRC have published guidance for employers who hire armed forces veterans explaining how the relief works.

2021/22 only

For 2021/22 only, employers who take on an armed forces veteran in the first year of their first civilian employment since leaving the armed forces will need to pay secondary Class 1 National Insurance on the veteran’s earnings as usual to the extent that they exceed the secondary threshold (set at £170 per week, £737 per month and £8,840 per year for 2021/22). Employers will be able to claim the relief retrospectively from 6 April 2022.

2022/23 onwards

For 2022/23 and 2023/24, employers will be able to apply the relief in real time through the payroll, as is the case for the reliefs available to employers of employees under the age of 21 and employers of apprentices under the age of 25.

Talk to us

Talk to us to find out whether you are able to benefit from the relief, and how much it is worth to you.

Paying CJRS grants back

As the Coronavirus Job Retention Scheme (CJRS) enters its final months, now is the time to review grants that you have claimed under the scheme, and pay back any amounts claimed in error. You may also choose to repay voluntarily funding that you have received under the scheme if your business does not need it. Some notable large companies in the retail and hospitality sectors have opted to do this.

Recap: CJRS

The CJRS allows employers to claim grants to pay employees who are furloughed or flexibly furloughed. Under the scheme, the employee must be paid 80% of their usual pay for their unworked hours, subject to a cap of £2,500 a month or equivalent. The employer can claim some or all of this back from the Government under the CJRS. If the amount that you have claimed is less than the amount you need to pay the employee (as will be the case for July, August and September 2021), you must make up the shortfall.

Repayment options

If you have claimed too much or you want to make a voluntary repayment, you can either:

• correct the overpayment in your next claim; or
• get a payment reference from HMRC and repay the money within 30 days.

HMRC have published guidance which explains how to make a repayment.

Making a correction in your next claim

If you still have employees who are furloughed or flexibly furloughed and you will be making another claim under the CJRS, you can correct the overclaim when you do your next claim. If you have another claim to make, you should adjust that claim rather than making a repayment direct to HMRC.

To correct an overclaim, you should initially work out your next claim as usual. If you are sending a file containing your claim details, you should prepare this as normal without taking account of the amount overclaimed.

You will then need to work out the amount you have overclaimed, and deduct this from the amount that you are claiming this time. The result is the amount that you will need to enter in the ‘claim amount’ box on the claim form. You will also need to enter the amount that you have overclaimed in the ‘overclaim’ box. For example, if you are making a claim for July 2021 for £20,000 and you have realised that you overclaimed £2,000 for June 2021, you will need to enter ‘£18,000’ in the claim box. This is the net amount that you are claiming for July 2021 after adjusting for the overclaim. You will also need to enter ‘£2,000’ in the overclaim box.

Paying HMRC back

You should only make a payment direct to HMRC if you do not have further claims to make and are not able to repay the amount that you owe by adjusting a subsequent claim. Before making a payment, you will need to get a payment reference from the online service. It is important that you use the correct reference.

Payments can be made to the following HMRC account using faster payments, CHAPS or Bacs:

• sort code: 08 32 10;
• account number: 12001039;
• account name: HMRC Cumbernauld.

Payments can also be made by debit card or using a corporate credit card (but not a personal credit card).

Deadlines

If you have overclaimed, you must tell HMRC by the later of:

• 90 days after the date on which you received the money to which you were not entitled; and
• 90 days from the date on which you ceased to be eligible to keep the grant because your circumstances changed.

To avoid being charged a penalty, you will need to notify HMRC and repay the overclaimed grant within this time frame.

We can help

Get in touch to find out how we can help you sort out any mistakes you have made when claiming grants under the CJRS.

Claim tax relief for expenses of working from home

If you are an employee and you are, or have been, working from home as a result of the COVID-19 pandemic, you may be able to claim tax relief for the additional household costs that you have incurred as a result. HMRC are now accepting claims for the current (2021/22) tax year.

Nature of the relief

You can benefit from the relief if you are an employee and you were told by your employer to work from home as a result of the COVID-19 pandemic and, as a result of working from home, your household costs have increased. For example, your electricity bill may be higher because you are using your computer all day and your gas bill may be higher because you have the heating on while you are working.

You can also claim the relief if you work from home other than because of the pandemic, as long as the nature of your job requires you to work from home. However, you are not able to claim the relief if you simply choose to work from home rather than at your employer’s workplace.

If your employer has met the cost of your additional household costs (to which a separate tax exemption applies), you are not entitled to claim the relief as well.

Amount of the relief

A claim for tax relief for additional household costs of £6 per week (£26 per month) can be made without the need to provide evidence to support the claim. The claim is worth £62.40 a year if you pay tax at the basic rate, £124.80 a year if you pay tax at the higher rate, and £140.40 a year if you pay tax at the additional rate.

If your household bills have risen by more than £6 per week as a result of working from home, you can claim tax relief based on the actual additional costs. However, you will need evidence, for example, copies of bills showing how costs have increased, to back up your claim.

Making a claim

You can claim relief via the dedicated HMRC portal.

Relief is given for the whole tax year, regardless of the number of weeks for which you worked from home. Once HMRC have approved your claim, they will amend your tax code to take account of the relief.

If you worked from home as a result of COVID-19 during 2020/21 and have yet to make a claim for tax relief for your additional household costs, it is not too late – HMRC will accept backdated claims for up to four years.

Get in touch

Why not get in touch to find out whether you can claim tax relief for the additional costs of working from home.

Amending a PSA for COVID-19 benefits

You can use a PAYE Settlement Agreement (PSA) if you wish to settle the tax liability arising on the provision of a benefit-in-kind or an expense on an employee’s behalf. This can be useful if you wish to preserve the goodwill nature of a particular benefit.

Nature of a PSA

Where a PSA is in place, the employer pays tax and Class 1B National Insurance contributions on the items included within the PSA, while the employee enjoys the benefit free of tax and National Insurance.

A PSA is not suitable for all benefits-in-kind. To qualify for inclusion, the benefit must fall within one of the following categories:

• it is minor;
• it is provided irregularly; or
• it is provided in circumstances where it is impractical to apply PAYE or to apportion the value of a shared benefit.

As payment of tax on an employee’s behalf is itself a taxable benefit, the amount of tax that you must pay on items included within your PSA is grossed up to reflect the marginal rates of tax of the employees to whom the benefits are provided. The relevant Scottish and Welsh rates are used for employees who are Scottish and Welsh taxpayers.

You must also pay Class 1B National Insurance contributions at 13.8% on items included within your PSA in place of the Class 1 or Class 1A liability that would otherwise arise, and also on the tax due under the PSA. The tax and Class 1B National Insurance must be paid by 22 October if you make the payment electronically, or by 19 October if you pay by cheque.

Setting up a new PSA

If you do not already have a PSA in place and want to set one up for 2020/21, you need to do this before 6 July 2021. Guidance available on the Gov.uk website explains what you need to do.

An enduring agreement

Once you have set up a PSA, it remains in place until it is cancelled or amended by you or by HMRC. Therefore, if you already have a PSA set up, you should review it to make sure that it is still valid. This should be done in sufficient time for any changes to be made before 6 July 2021.

Adding in COVID-19 benefits

The COVID-19 pandemic changed the way in which many employees worked, and you may have changed the benefits that you provided to your employees during the 2020/21 tax year as a result. If you have provided taxable benefits as a result of the pandemic, and you want to include them within your PSA, you will need to do this by 6 July 2021.

To amend your PSA, you will need to send details of the changes that you would like to make to the HMRC office that issued your PSA. Normally, HMRC will send you a revised P626 (the PSA). However, where the changes relate only to benefits provided as a result of the COVID-19 pandemic, they will instead add an appendix to your existing PSA.

Remember, you do not need to include exempt benefits within your PSA. There are a number of time-limited exemptions for Coronavirus-related benefits, such as those for employer-provided and reimbursed antigen tests.

Speak to us

Talk to us about whether a PSA is for you, and about what you need to do if you want to meet the tax liability on benefits provided to employees during the COVID-19 pandemic.

Reporting expenses and benefits for 2020/21

If you are an employer and you provided taxable expenses and benefits to your employees during the 2020/21 tax year, you will need to report these to HMRC on form P11D, unless all benefits were payrolled or included within a PAYE Settlement Agreement. You will also need to file a P11D(b). Both forms must reach HMRC by 6 July 2021.

Form P11D

A form P11D is needed for each employee to whom you provided taxable expenses and benefits in the 2020/21 tax year (which ended on 5 April 2021) and which you need to report to HMRC. You do not need to include any benefits or expenses which have been dealt with through the payroll, or those which you have been included within a PAYE Settlement Agreement. Likewise, you do not need to report any benefit or expense that is fully exempt. However, remember that an exemption only applies if all the associated conditions have been met.

The information that you will need to provide depends on the nature of the benefit. Some sections of the P11D are relatively brief, requiring only details of the cost of providing the benefit, any amount made good by the employee, and the taxable amount, while more information is required in respect of certain benefits, most notably company cars and employment-related loans.

Taxable amount: the cash equivalent value

Where the benefit is made available to an employee other than through a salary sacrifice or other optional remuneration arrangement (OpRA), the taxable amount is its cash equivalent value. The calculation of the cash equivalent value depends on the particular benefit. Some benefits have their own benefit-specific rules for calculating the cash equivalent value. Where the benefit or expense is of a type for which there is no specific rule, the cash equivalent value is calculated in accordance with the general rule. This is the cost to the employer, less any amount made good by the employee.

HMRC produce working sheets that can be used to calculate the cash equivalent value for some benefits in kind.

Taxable amount: alternative valuation rules

Where the benefit or expense is made available through an optional remuneration arrangement (OpRA), such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. Under the alternative valuation rules, the taxable amount of the benefit is determined by reference to the salary given up, less any amount made good by the employee, where this produces a value that is higher than the cash equivalent value. The alternative valuation rules have the effect of negating any associated exemption. They do not apply to childcare and childcare vouchers, pension contributions and advice, employer-provided cycles and cyclists’ safety equipment, and low emission cars with CO2 emissions of 75g/km or less. These benefits continue to be taxed according to their cash equivalent value and retain the associated exemptions where the qualifying conditions are met.

Under transitional arrangements, the alternative valuation rules do not apply for 2020/21 to living accommodation, school fees or cars with CO2 emissions of more than 75g/km which are provided under an arrangement that was in place on 5 April 2017 and was not renewed, varied or amended prior to 6 April 2021. Variations as a result of the COVID-19 pandemic are ignored for these purposes. The transitional arrangements came to an end on 5 April 2021, and the alternative valuation rules apply for 2021/22 and later years.

Making good

Any amount that the employee is required to contribute (‘make good’) to the cost of the benefit is taken into account in calculating the taxable amount, as long as the amount is ‘made good’ by 6 July 2021. This can be done by deducting the relevant amount from the employee’s salary, or by the employee making a payment direct to you.

Form P11D(b)

You must file a P11D(b) by 6 July 2021 if you provided taxable expenses to your employees in the 2021/22 tax year which have either been payrolled or reported to HMRC on your employees’ P11Ds. Form P11D(b) serves two functions – it is your declaration that all required P11Ds have been submitted to HMRC, and also your Class 1A National Insurance return. You will need to file a P11D(b) even if you have no P11Ds to file because you have payrolled all taxable benefits and expenses that you provided to your employees during the 2020/21 tax year. Payrolled benefits need to be taken into account in working out your Class 1A National Insurance liability.

If you did not provide any taxable benefits in 2020/21, but have been sent either a paper P11D(b) or a reminder letter to complete one, you will need to make a nil declaration online to avoid being charged a penalty. This may be required if you provided taxable benefits in 2019/20 as HMRC’s expectation is that they were also provided in 2020/21.

Filing options

There are various ways in which you can file forms P11D and P11D(b). They can be filed online using HMRC’s Online End of Year Expenses and Benefits Service, HMRC’s PAYE Online Service (up to 500 employees only), or via a suitable commercial software package. You can also complete paper forms and send them to HMRC by post.

Forms for the 2020/21 tax year must reach HMRC by 6 July 2021. You must also give your employees a copy of their P11D (or details of the taxable expenses and benefits provided to them in 2020/21) by the same date.

You must pay your Class 1A National Insurance by 22 July 2021 if you make your payment electronically. If you opt to pay by cheque, this must reach HMRC by 19 July 2021.

We can help

We can help you meet your filing obligations and help you minimise the risk of receiving a penalty for late or incorrect returns.

Taxation of company cars in 2021/22

If you are an employee with a company car, you will be taxed on the benefit derived from the car being available for your private use. If you are an employer who makes company cars available to your employees, they will be taxed on the associated benefit. The amount that is charged to tax depends predominantly on the list price of the car and its appropriate percentage. There are some changes to the appropriate percentages for 2021/22.

You can find details of the appropriate percentages applying for 2021/22 here.

Electric company cars

For 2020/21, it was possible to enjoy the benefit of an electric company car tax-free as the appropriate percentage for zero-emissions cars was set at 0%. The appropriate percentage for zero-emission cars is increased to 1% for 2021/22. Although a tax-free company car is no longer an option for 2021/22, an electric company car remains a very attractive benefit. The cash equivalent value (the amount on which tax is charged) for an electric car with a list price of £30,000 is only £300 for 2021/22, costing a higher rate taxpayer £120 in tax and a basic rate taxpayer £60 in tax. If you are an employer, your Class 1A National Insurance hit will be £41.40.

Cars first registered on or after 6 April 2020

The way in which CO2 emissions are measured changed for cars first registered on or after 6 April 2020. From that date, the car’s CO2 emissions are determined using the Worldwide harmonised Light Vehicle Test Procedure (WLTP). For cars first registered prior to that date, the car’s CO2 emissions were determined in accordance with the New European Driving Cycle (NEDC).

For 2020/21, the appropriate percentage for cars first registered on or after 6 April 2020 (and whose CO2 emissions are determined using the WLTP), was two percentage points lower than that for cars first registered prior to 6 April 2020 (and whose CO2 emissions were determined using the NEDC).

The differential is reduced by one percentage point for 2021/22. This means that, subject to the maximum charge of 37%, the appropriate percentage for cars first registered on or after 6 April 2020 is one percentage point higher than its 2020/21 level. Thus, where the appropriate percentage was, say, 15% for 2020/21, it is 16% for 2021/22. The increase will mean that if you have a company car which was first registered on or after 6 April 2020, you will pay slightly more tax in 2021/22 than in 2020/21.

The diesel supplement remains at 4% for diesel cars not meeting the RDE2 emissions standard (subject to the maximum charge of 37%).

Cars first registered before 6 April 2020

There is no change to the appropriate percentages for cars first registered prior to 6 April 2020. This means that if you have a company car that was registered before this date, your tax bill for 2021/22 will be the same as for 2020/21.

Talk to us

If you are thinking of changing your company car or making changes to your company car fleet, we can help you understand the associated tax costs.

Family companies and the optimal salary for 2021/22

If you run your business as a personal or family company, you will need to decide how best to extract profits for your personal use. A typical tax-efficient strategy is to pay yourself a small salary and then extract any further profits as dividends. Where this approach is adopted, you will need to determine your optimal salary level of 2021/22.

Benefits of paying a salary

Unless you already have the 35 qualifying years needed for the full single-tier state pension when you reach state pension age, paying yourself a salary that is at least equal to the lower earnings limit for Class 1 National Insurance purposes (set at £6,240 for 2021/22) will ensure that the year is a qualifying year for state pension and contributory benefit purposes. A further benefit of this approach is that employee contributions between the lower earnings limit and the primary threshold (set at £9,568 for 2021/22) are payable at a zero rate (although employer contributions are payable on earnings in excess of the secondary threshold (set at £8,840 for 2021/22)).

Determining the optimal salary level

The optimal salary level (from a tax and National Insurance perspective) for 2021/22 will depend on whether your personal allowance remains available, and also on whether your company is able to claim the National Insurance Employment Allowance. The Employment Allowance is set against your employer’s Class 1 National Insurance liability.

The Employment Allowance is not available to companies where the sole employee is also a director. This means that if you operate as a personal company where you are the only employee and director, you will be unable to claim the allowance. However, if you operate as a family company and have more than one employee (or the only employee is not also a director), you should be able to claim the allowance. The allowance is set at £4,000 for 2021/22. It is not available where the Class 1 National Insurance bill for 2020/21 was £100,000 or more.

Optimal salary where the Employment Allowance is unavailable

If you are operating a personal company or if the Employment Allowance is otherwise unavailable, assuming that you have not used your personal allowance elsewhere, your optimal salary for 2021/22 is one equal to the primary threshold of £9,568. Remember, that as a director, you have an annual earnings period for National Insurance purposes. However, if you opt to pay yourself a monthly salary, the equivalent is £797 per month.

As the secondary threshold for 2021/22 is lower than the primary threshold, employer’s National Insurance contributions will be payable to the extent that your salary exceeds £8,840. If you pay yourself a salary of £9,568 for 2021/22, your company will need to pay employer’s National Insurance contributions on that salary of £100.46 (13.8% (£9,568 – £8,840)).

Although it is possible to pay a salary equal to the secondary threshold of £8,840 free of tax and National Insurance, it is worthwhile paying a higher salary of £9,568. The salary and the associated employer’s National Insurance contributions are deductible in calculating your company’s taxable profits for corporation tax purposes. As the rate of corporation tax at 19% is higher than the rate of employer’s National Insurance at 13.8%, the corporation tax relief obtained on the higher salary outweighs the cost of the employer’s National Insurance. However, once your salary exceeds the primary threshold of £9,568, you will need to pay primary contributions on the excess at the rate of 12%. As the combined National Insurance hit at 25.8% outweighs the rate of corporation tax relief (at 19%), this is not worthwhile.

Optimal salary where the Employment Allowance is available

The Employment Allowance reduces your employer’s Class 1 National Insurance bill by up to £4,000. Where this is available, your optimal salary for 2021/22 is one equal to your personal allowance. This will normally be £12,570.

As the Employment Allowance will offset any employer’s Class 1 National Insurance contributions that would otherwise be payable to the extent that your salary exceeds £8,840, you will not need to pay any tax or National Insurance until your salary level reaches the primary threshold of £9,568. Once this level is reached, it is worth paying additional salary of £3,002 for the year to take your salary up to the level of the personal allowance of £12,570. Although you will pay employee’s National Insurance contributions of £360.24 (£3,002 @ 12%) on the additional salary, as the salary is deductible for corporation tax purposes, you will reduce the corporation tax payable by your company by £570.38 (£3,002 @ 19%), delivering a net saving of £210.14.

However, once your salary exceeds the personal allowance of £12,570, tax will also be payable at the basic rate of 20%, meaning the pendulum swings the other way and the combined tax and employee’s National Insurance payable on any further salary will outweigh the associated corporation tax deduction.

Get in touch

Your optimal salary will depend on your individual circumstances. We can help you decide on your 2021/22 salary level.

CJRS extended until 30 September 2021

The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline for many employers and employees during the COVID-19 pandemic. The scheme was due to come to an end on 30 April 2021. However, at the time of the 2021 Budget, the Chancellor, Rishi Sunak, announced that the scheme would, once again, be extended. It will now run until 30 September 2021.

Nature of the scheme

The CJRS allows employers to furlough or flexibly furlough employees, and to claim a grant for the usual hours that they do not work. The employee receives 80% of their normal pay for their unworked hours, subject to a cap equivalent to £2,500 a month. The employer can claim some or all of this amount, depending on the month to which the claim relates. Where an employee is flexibly furloughed, the employer must pay the employee for the hours that they work at their usual rate.

Final phase of the scheme

The final phase of the scheme runs from 1 May 2021 to 30 September 2021. The amount that the employer can claim under the scheme remains unchanged for May and June, but reduces from July onwards once lockdown restrictions are lifted. Guidance on changes to the scheme from July can be found on the Gov.uk website.

Grant claims – May and June 2021

For May and June 2021, employers can continue to claim 80% of the employee’s pay for their unworked hours, up to the monthly cap of £2,500 (reduced proportionately where the employee is not fully furloughed for the full month). The employee must continue to be paid in full for any hours that they work, and also 80% of their pay up to the level of the cap for any usual hours that are unworked in the month.

Grant claim – July 2021

From July onwards, the employer is required to contribute to the payments made to furloughed and flexibly furloughed employees for their unworked hours.

For July 2021, the amount that the employer can claim under the CJRS for the employee’s unworked hours is reduced to 70% of their usual pay for those hours, subject to a cap of £2,187.50 per month (reduced proportionately where the employee is not fully furloughed for the full month). However, the employee will continue to receive 80% of their usual pay for their unworked hours, subject to the monthly cap of £2,500. This means that the employer must make up the difference of 10% (capped at £312.50 per month) between the amount claimed under the CJRS and the amount paid to the employee.

Grant claims – August and September 2021

The amount that the employer can claim is further reduced in the final two months of the scheme. For August and September 2021, the employer can claim a grant of 60% of the employee’s usual pay for their unworked hours, subject to a cap of £1,875 per month (proportionately reduced where the employee is not fully furloughed for the full month).

The employer must continue to pay the employee 80% of their usual pay for their unworked hours. Consequently, the employer must top up the grant claimed from the Government, contributing 20% of the employee’s usual pay for their unworked hours (up to £625 per month).

We can help

We can help you work out what support you can claim for your employees as lockdown restrictions are eased and the CJRS is wound down.

Budget 2021 – Employment

The Coronavirus Job Retention Scheme (JRS)

The current JRS allows an employer to place an employee on furlough and apply for a grant to cover wage costs for the time an employee is on furlough. The employer:

• can claim 80% of ‘usual salary’ for hours not worked, up to a maximum of £2,500 per employee (pro-rated for hours not worked) per month
• needs to fund employer National Insurance contributions (NICs) and the minimum employer automatic enrolment pension contributions.

In December 2020, the Chancellor extended the scheme until the end of April 2021.

Further extension of JRS

In Budget 2021 the Chancellor has further extended the scheme to 30 September 2021.

The level of grant available to employers under the scheme will stay the same until 30 June 2021.

From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of furloughed employees’ wages. To be eligible for the grant an employer must continue to pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.

The reduction in the level of the grant means that the percentage recovery of furloughed wages will be as follows:

• for July 2021 70% of furloughed wages up to a maximum of £2187.50 and
• for August and September 2021 60% of furloughed wages up to a maximum of £1,875.00.

Employers will need to continue to fund employer NICs and mandatory minimum automatic enrolment pension contributions.

The Chancellor has also extended eligibility for the scheme. For periods starting on or after 1 May 2021, employers can claim for employees who were employed on 2 March 2021, as long as a PAYE Real Time Information (RTI) submission was made between 20 March 2020 and 2 March 2021, notifying a payment of earnings for that employee.

Apprenticeships and traineeships

High quality traineeships for young people

The government will provide an additional £126 million in England for high quality work placements and training for 16-24 year olds in the 2021/22 academic year. Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.

Payments for employers who hire new apprentices

The government will extend and increase the payments made to employers in England who hire new apprentices. Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.

This is in addition to the existing £1,000 payment the government provides for all new 16-18 year-old apprentices and those aged under 25 with an Education, Health and Care Plan, where that applies.

Supporting apprenticeships across different employers

The government will introduce a £7 million fund from July 2021 to help employers in England set up and expand portable apprenticeships. This will enable people who need to work across multiple projects with different employers to benefit from the high quality long-term training that an apprenticeship provides.

Off-payroll working in the private sector

New tax rules are soon to come into force for individuals who provide their personal services via an ‘intermediary’ to a medium or large business. The new rules apply to payments made for services provided on or after 6 April 2021.

The off-payroll working rules apply where an individual (the worker) provides their services through an intermediary (typically a personal service company) to another person or entity (the client). The client will be required to make a determination of a worker’s status and communicate that determination. In addition, the fee-payer (usually the organisation paying the worker’s personal service company) will need to make deductions for income tax and NICs and pay any employer NICs.

The legislation uses an existing statutory definition within the Companies Act of a ‘small company’ to exempt small businesses from the new rules. A small company is one which meets two of these criteria:

• a turnover of £10.2 million or less
• having £5.1 million on the balance sheet or less
• having 50 or fewer employees.

If the business receiving the work of the individual is not a company, it is only the turnover test that will apply.

The Status Determination Statement (SDS) is a key part of the status determination procedure. The client must provide the SDS to the worker and should include not only the decision of the client but also the reasons underpinning it. The client must take ‘reasonable care’ in coming to its conclusion. If it doesn’t, the statement is not a valid SDS

In the Budget the government announced minor technical changes to improve the operation of the rules, in response to feedback from stakeholders, which will be legislated for in Finance Bill 2021. The government will make changes to the rules regarding provision of information by parties in the labour supply chain.

These changes will make it easier for parties in a contractual chain to share information relating to the off-payroll working rules by allowing an intermediary, as well as a worker, to confirm if the rules need to be considered by the client organisation.

National Living Wage (NLW) and National Minimum Wage (NMW)

The National Living Wage will increase by 2.2% and will be extended to 23 and 24 year olds for the first time. For workers aged under 23, the government has announced smaller increases in NMW in recognition of the risks to youth employment which the current economic situation poses.

From 1 April 2021, the new hourly rates of NLW and NMW are:

• £8.91 for those 23 years old and over
• £8.36 for 21-22 year olds
• £6.56 for 18-20 year olds
• £4.62 for under 18s
• £4.30 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

The extension of the NLW to 23 and 24 year olds may catch out some employers. Employees in this category, if they are on the NMW rate, are currently being paid £8.20 an hour.

Enterprise Management Incentives (EMI) scheme

At Budget 2020, the government announced a review of the EMI scheme to ensure it provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme.

As part of this review the government is publishing a consultation alongside the Budget.

Van benefit charge nil-rating for zero-emission vans

From 6 April 2021, a nil rate of tax applies to zero-emission vans within the van benefit charge. In 2020/21 such vans have a van benefit charge at 80% of the standard flat rate of £3,490.

A zero-emission van is a van which cannot in any circumstances emit CO₂ emissions when driven. Governments have provided varying amounts of discounts from the van benefit charge for zero-emissions vans since 2010. We are now back to the policy which applied from 2010 to 2015 when there was no charge.

Temporary changes to legislation resulting from coronavirus

Easement for employer-provided cycles exemption

The government will legislate in Finance Bill 2021 to introduce a time-limited easement to the employer-provided cycle exemption to disapply the condition which states that employer-provided cycles must be used mainly for journeys to, from, or during work. The easement will be available to employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020.

The change will have effect on and after Royal Assent of Finance Bill 2021 and be in place until 5 April 2022, after which the normal rules of the exemption will apply.

Employer-reimbursed coronavirus tests

The government will legislate in Finance Bill 2021 to introduce a retrospective income tax exemption for payments that an employer makes to an employee to reimburse for the cost of a relevant coronavirus antigen test for the tax year 2020/21. Legislation will extend this exemption for the tax year 2021/22.

The change will have effect on and after Royal Assent of Finance Bill 2021. The corresponding NICs disregard is already in force and this will also be extended for the tax year 2021/22.

Extension of income tax exemption for COVID-19 related home office expenses

The government will, by secondary legislation, extend the temporary income tax exemption and Class 1 NICs disregard for employer reimbursed expenses that cover the cost of relevant home office equipment. The extended exemption will have effect until 5 April 2022.

Budget 2021 links:

• Business
• Capital taxes
• Employment
• Personal tax
• Other matters

Updating PAYE codes for 2021/22

The 2021/22 tax year starts on 6 April 2021. If you employ staff, you will need to update their tax codes before you pay them for the first time in the new tax year. However, remember to finalise the 2020/21 tax year before updating your payroll software and data for 2021/22.

Tax codes from 6 April 2021

The tax code that you will need to use for an employee from 6 April 2021 will depend on whether or not HMRC have sent you a notification of a new tax code to use from that date.

The personal allowance is increased to £12,570 for 2021/22. As a result, the PAYE starting threshold will increase to £242 per week (£1,048 per month). The emergency tax code for 2021/22 is 1270L.

Employees with a new tax code

If HMRC issue a new tax code for an employee, you will receive either a paper form P9(T), ‘Notice to employer of employee’s tax code’, or an internet notification of coding if you are registered for HMRC’s PAYE Online Service. To access your code online, you will need to:

1. Go to the login page for PAYE online and select ‘Sign in’.
2. Sign in to the service using your Government Gateway User ID and password.
3. From your Business Tax Account home page, select ‘Messages’ and then select ‘PAYE for employers messages’.
4. Select ‘View your tax code notices’.
5. From the tax year drop down menu, select ‘2021/2022’.

You should use the form P9(T) or the online tax code notification with the most recent date if you have received more than one for 2021/22, and discard any previous notifications. You should update your 2021/22 payroll to reflect the tax code shown in the notification for that employee.

Employees without a new tax code

If HMRC have not issued a tax code notification for an employee, you will need to update their 2020/21 tax code to reflect the increase in the personal allowance to £12,570 for 2021/22. To do this, you should:

• add 7 to any tax code ending in L;
• add 8 to any tax code ending in M; and
• add 6 to any tax code ending in N.

For example, 1250L will become 1257L.

You should not carry over any ‘week 1’ or ‘month 1’ markings.

Scottish and Welsh taxpayers

Scottish taxpayers are identified with an ‘S’ prefix and Welsh taxpayers are identified with a ‘C’ prefix. Check any Scottish or Welsh employees (those living, respectively, in Scotland or in Wales) have the correct tax codes, including the prefix.

More information

You can find more information on tax codes to use from 6 April 2021 in HMRC’s P9X(2021) guidance.

Get in touch

Please get in touch if you need assistance in updating your employees’ tax codes for the 2021/22 tax year.

Furloughing staff unable to work due to school closures

The Coronavirus Job Retention Scheme (CJRS) provides grant support to enable employers to continue to pay staff who are fully or flexibly furloughed. The scheme can be used for staff who have been furloughed because they have caring responsibilities.

School closures

On 4 January 2021, the Prime Minister, Boris Johnson, announced that England would enter its third national lockdown the following day. Unlike the last lockdown, schools are also closed, other than for the children of key workers and for vulnerable children. This places a caring responsibility on parents, who need to look after their children and undertake home schooling.

If you have employees who need to care for and home school their children and who are unable to work as a result, you are able to furlough them and claim a grant under the CJRS. Likewise, where an employee needs to work fewer hours in order to fulfil their parental responsibilities while schools are closed, you can flexibly furlough the employee and use the CJRS to claim a grant for the employee’s usual hours that they do not work.

Eligible caring responsibilities

In their guidance on the CJRS, the Government have confirmed that an employee can be furloughed if their caring responsibilities mean that the employee is unable to work (including being unable to work from home) or can only work reduced hours. The guidance cites caring for children who are at home as a result of school or childcare facilities closing as an example of caring responsibilities that might arise as a result of COVID-19.

Claiming the grant

You can claim a grant of 80% of the employee’s usual wages for their unworked hours, to a maximum of £2,500 a month. Claims must be made for each calendar month by the 14^th of the following month (or the next working day if this falls on the weekend).

Talk to us

If your employees are struggling to juggle childcare and their job, talk to us about the option of furloughing or flexibly furloughing them and claiming a grant through the CJRS.

Virtual Christmas parties and tax-free gifts

The COVID-19 pandemic has meant that the traditional Christmas party could not happen in 2020. If, instead, you held a virtual event, you will be pleased to know that this too can benefit from the tax exemption for annual parties and functions. There is also good news if you opted to give your staff a seasonal gift, as this may fall within the scope of the trivial benefits exemption.

Virtual Christmas parties

The tax exemption for annual parties and functions means that your staff can enjoy a Christmas party without having to worry about an associated benefit-in-kind tax charge as long as the cost per head (including VAT) is £150 or less and the event is open to all staff (or all staff at a particular location).

The COVID-19 pandemic has meant that large in-person events are off the menu this year. If, like many other organisations, you chose not to forgo the Christmas party entirely and held an online event instead, your virtual event will fall within the scope of the exemption for annual parties and functions, as long as the associated conditions have been met. HMRC have confirmed that where the event is provided using IT, the exemption will cover the costs of the event, including the provision of equipment, entertainment and refreshments, as long as they are provided principally for the enjoyment or consumption by employees during the event.

If a virtual event is not for you, the exemption will also apply if you delay the Christmas party and hold a later event instead, as long as it is held before the end of the current tax year.

Where the conditions for exemption have been met, you do not need to report the virtual event to HMRC on your employees’ P11Ds, or include it within a PAYE Settlement Agreement.

Seasonal gifts

If, as a gesture of goodwill, you gave your employees a Christmas gift, as long as the cost of providing that gift is not more than £50, it will fall within the scope of the trivial benefits exemption. This is good news; there is no tax to pay and you do not need to report the gift to HMRC.

The choice of gift is up to you, and traditional seasonal gifts, such as a turkey or a hamper, can be given within the scope of the exemption, as long as they do not cost you more than £50 to provide. If you provide gifts to a number of employees and it is impracticable to work out the individual cost, the average cost can be used instead.

There are, however, some points to watch. The exemption does not apply to gifts of cash or cash vouchers, or to those given as a reward for the provision of services or where the employee is contractually entitled to the gift. Care must also be taken when giving gift cards if these can be topped up; in this case, HMRC regard the cost to be the total cost in the tax year, rather than the cost of each individual top-up. Similar considerations apply to the use of apps to buy goods and services and to season tickets.

Get in touch

Talk to us to find out whether your Christmas events and gifts for employees are exempt from tax.

CJRS extended until March 2021

The Coronavirus Job Retention Scheme (CJRS) was due to come to an end on 31 October 2020, being replaced from 1 November 2020 with a new scheme – the Job Support Scheme. However, the second national lockdown in England changed all that. The CJRS has been reprieved and will now continue to run until 31 March 2021, while the Job Support Scheme has been put on hold.

Eligibility under the extended scheme

You will be able to claim a grant for eligible employees who are fully or flexibly furloughed under the extended scheme if you had a UK PAYE scheme on 30 October 2020 and have a UK bank account. You do not need to have made a claim previously to be eligible to claim for periods starting on or after 1 November 2020

You can make a claim in respect of an employee, if the employee was on your payroll at 11.59pm on 30 October 2020 and you had made an RTI submission in respect of that employee between 20 March 2020 and 30 October 2020. Employees who are made redundant or who left on or after 23 September 2020 can also benefit from a grant under the scheme if you re-employ them, as long as you had made an RTI submission in respect of them between 20 March 2020 and 23 September 2020.

You do not need to have previously furloughed an employee and made a claim under the scheme on their behalf to claim a grant for them under the extended scheme.

Amount of the claim

The good news is that for the first phase of the extended scheme, which runs from 1 November 2020 to 31 January 2021, you can once again claim the full 80% of the employee’s usual wages for their furloughed hours (subject to the cap, set at £2,500 a month) – there is now no obligation for you to top up the amount claimed, as was the case for October and September.

As previously, the employee will receive 80% of their usual pay for their furlough hours (up to the cap). You must pass on the full amount of grant to the employee. Where the employee is flexibly furloughed, you must continue to pay them at their usual rate for the hours that they work, in addition to payment of the CJRS grant.

The amount of support that will be provided under the scheme for February and March 2021 has yet to be set; the Government are to review this in January 2021.

Calculating the claim

The amount that you can claim in respect of an employee’s furloughed hours depends on the usual hours that they work and their usual rate of pay. This can be complex. Guidance on working out what you can claim is available on the Gov.uk website.

Tax and National Insurance

You must deduct PAYE tax and employee’s National Insurance from grant payments that you make to your employees. You must also calculate and pay employer’s National Insurance on grant payments. Unfortunately, you cannot claim this back from the Government and must meet this cost yourself.

Making the claim

As previously, you will need to make your claim online via the claim portal. Claims must be for a minimum period of seven consecutive days and must start and finish in the same calendar month. If you use an authorised agent to file your RTI submissions, they can make the claim on your behalf.

You should be aware that tighter deadlines apply for making claims under the extended scheme – for pay periods starting on or after 1 November 2020, claims must be made by the 14^th of the following month. Where this date falls on a weekend, the deadline is the following Monday. The following table shows the claim deadlines for making claims under the extended scheme.

The money should reach your account within six working days of the day on which you made your claim, so remember to allow sufficient time so that you have the money available to pay your employees on time.

Claims for July to October 2020 had to be made by 30 November 2020.

Job Retention Bonus

The extension of the CJRS means that you will now not be able to claim a Job Retention Bonus in February 2021.

Can we help?

Speak to us if you are unsure whether you are able to make a claim under the extended scheme or if you need help in working out what you can claim.

Job Support Scheme

The Job Support Scheme replaces the Coronavirus Job Retention Scheme from 1 November 2020. The scheme, which has already evolved since it was originally announced to provide a greater level of support, will run for six months until 30 April 2021. The Government will review the level of support provided under the scheme in January 2021.

Nature of the scheme

The Job Support Scheme provides grants to eligible employers to enable them to pay employees who are working reduced hours as a result of the impact of the COVID-19 pandemic, or who are unable to work because the business has been required to shut as a result of lockdown restrictions. There are two strands to the scheme – one for open businesses and one for closed business.

Support for open businesses

The Job Support Scheme for open businesses allows you to claim a government grant to top-up the wages of your employees who are working at least 20% of their usual hours. You must pay the employee for the hours worked at their contracted rate. To be eligible to claim a grant, you must also pay the employee for 5% of their usual hours that are unworked, again at the contracted rate. Your contribution for unworked hours is capped at £125 per month. You can claim a grant for 61.67% of the employee’s unworked hours from the Government. The Government will pay those hours at the employee’s usual rate, subject to a cap of £1,541.75 per month. The cap will apply where the employee earns more than £3,125 per month.

Your employee will receive pay for the hours worked and for two-third of their usual hours that they are not able to work. The percentage of their normal pay that an employee receives depends on the proportion of their usual hours that they work. An employee who works 20% of his or her usual hours will receive 73% of their pay, whereas an employee who works one-third of their usual hours will receive just under 78% of their pay.

The level of support now available under the scheme is higher than was originally announced. Under the original proposals, employees had to work at least one-third of their usual hours to be eligible for a grant, with the employer paying one-third of the unworked hours and the Government paying a further third (capped at £697.62 per month). The reduction in the hours worked requirement, and the substantial reduction in the employer contribution, are to be welcomed. In its original format, the costs imposed on the employer would have meant that for many businesses struggling to survive, the scheme was not viable.

Amounts paid to employees benefitting from the Job Support Scheme are liable to tax and National Insurance, as for usual payments of wages and salary. You must account for these as normal through your payroll and pay the deductions over to HMRC, with your employer’s National Insurance. You will be required to meet the full cost of the employer’s National Insurance on the total payment made to the employee, including the grant element – you cannot claim this back from the Government. Pension contributions under auto-enrolment must be paid as normal, as must the apprenticeship levy.

More details of the scheme, together with examples of how it will work in practice, can be found in the factsheet published by the Government.

Support for closed businesses

The Job Support Scheme for closed businesses provides a higher level of support to business which are required to close as a result of local lockdown restrictions, such as pubs not serving substantial meals in Tier 3 lockdown areas. If your business is restricted to delivery or collection services only as a result of lockdown restrictions, you will also qualify for the scheme for closed businesses.

If you are forced to close due to lockdown restrictions imposed by one of the four governments in the UK, you will be able to claim a grant with which to pay your employees, as long as your employees are instructed to cease work for at least seven consecutive days, and actually do so. You cannot claim a grant for employees who are working from home.

Unlike the open scheme, you do not need to pay the employee for any unworked hours. Instead, you can claim a grant of two-thirds of the employee’s usual pay, subject to a cap of £2,100 per month. The grant will cover wages paid to employees who are unable to work. The scheme will mean that workers who are not subject to the cap will receive two-third of their usual pay. You can top up your employees’ pay if you want to, but there is no obligation to do so.

You will, however, have to pay employer’s National Insurance on grant payments, and also any employer pension contributions and the apprenticeship levy as normal. You must deduct PAYE tax and employee’s National Insurance contributions from payments made to employees, and report pay and deductions to HMRC under RTI.

The Government factsheet on the scheme for closed businesses provides more details.

Eligible employers

You will be eligible to claim a grant under the relevant Job Support Scheme if you have a UK bank account and a UK PAYE scheme which was registered, and in respect of which an RTI submission had been made, on or before 23 September 2020. You do not need to have used the Coronavirus Job Retention Scheme to be eligible to use the Job Support Scheme.

Under the scheme for open businesses, a financial impact test applies to large businesses with 250 or more employees. If you fall into this category, you will have to demonstrate that your turnover is not above the level that it was before you experienced difficulties as a result of the COVID-19 pandemic.

If you claim under the Job Support Scheme, you will still be eligible to claim the Job Retention Bonus, as long as the qualifying conditions are met.

Claiming the grant

Grants are payable in arrears. Unfortunately, this means that you must pay the money to your employees before you receive it back from the Government, and report the payments and deductions to HMRC via RTI. While this will limit fraudulent claims, it may cause cash flow problems for businesses who have either been forced to close or are operating at reduced capacity. You may need extra funding to cover the first month. Grants payable to businesses in Tier 2 and 3 lockdown areas may help bridge the gap.

Claims must be made online via the dedicated portal, which is due to open on 8 December 2020. Claims will be paid on a monthly basis.

Speak to us

Speak to us to find out what help may be available to you under the Job Support Scheme.

Back to the office – what about homeworking equipment?

When your employees return to the office, they may no longer need the homeworking equipment that enabled them to continue to work during lockdown and beyond. Are there any tax implications if they return the equipment or if they keep it?

Employer provided the homeworking equipment

If you provided equipment to enable your employees to work from home, as long as you retained ownership of that equipment, there are no tax implications if the employee returns the equipment to you when they come back to the office.

For many, the experience of working from home has highlighted the benefits of flexible working. You may want your employees to be able to continue to work from home on a more flexible basis once the office is open, and for them to keep their homeworking equipment to enable them to do so. As long as you have not transferred ownership of the equipment to the employee, and the equipment continues to be provided predominantly to enable them to work from home, the provision remains tax-free – there is no taxable benefit and nothing to report to HMRC.

Should your employees no longer need to work from home and you let them keep the homeworking equipment for personal use, a tax charge will arise. The employee is taxed on the market value of the equipment, less anything that they pay for it. The benefit must be notified to HMRC on the employee’s P11D. However, if the employee buys the equipment from you for at least its current market value, there is no taxable benefit and nothing to report to HMRC.

Employer reimbursed homeworking equipment

The requirement to work from home where possible was implemented at very short notice. Consequently, it may not have been feasible for you to provide your employees with the equipment that they needed to work from home.

If, instead, your employees purchased homeworking equipment and you reimbursed them, there is no tax for them to pay on the reimbursed amount, as long as the equipment was purchased to enable them to work from home. Unless you required the employee to transfer ownership of the equipment to you, the equipment remains the employee’s equipment. Consequently, there is no tax charge if they keep it for personal use once they return to the office.

Employee buys the homeworking equipment

It may have been the case that your employees bought whatever they needed to be able to work from home and you did not meet the costs. In this situation, the equipment belongs to the employee and this remains the case if they keep it for personal use when they return to the office. There are no tax implications of employees keeping their own equipment.

Guidance on the tax treatment of homeworking equipment can be found on the Gov.uk website.

Speak to us

We can help you to determine the tax implications surrounding the future of homeworking equipment once your employees return to the office.

Off-payroll working back on the horizon

The extension to the off-payroll working rules was put on hold as a result of the COVID-19 pandemic. However, the legislation has now been implemented and the new rules will come into effect from April 2021 – one year later than originally planned. As the Coronavirus Job Retention Scheme draws to a close and businesses assess their future staffing requirements, the impact of the off-payroll working rules cannot be overlooked.

Scope

The extended off-payroll working rules only apply to ‘medium’ and ‘large’ private sector organisations. The definitions are taken from the Companies Act 2006.

An organisation is medium or large for these purposes if at least two of the following apply:

• annual turnover of more than £10.2 million;
• balance sheet total of more than £5.1 million;
• more than 50 employees.

A simplified turnover test applies to organisations which are not a company, a limited liability partnership, an unregistered company or an overseas company. Such organisations are within the rules if their turnover is more than £10.2 million.

Obligations under the rules

The new rules impose a number of obligations on medium and large private sector organisations that engage workers who provide their services through a personal service company or other intermediary.

If you fall within this category, from 6 April 2021, you must determine whether the off-payroll working rules apply. This is the case where the worker would be an employee if they provided their services to you directly, rather than through an intermediary. You can use HMRC’s Check Employment Status for Tax (CEST) tool to check a worker’s status.

Once you have reached your determination, you must give a copy of it to the worker, and to any other parties in the chain. You must also provide them with the reasons for reaching the decision that you reached. Giving the worker a copy of the CEST output will tick this box. You must also keep a copy of the determination and the reasons for reaching it for your records.

If your worker does not agree with the determination, you must consider their reasons for this. If, after reconsideration, you feel that the original determination is correct, you must let the worker know. If, on reflection, you feel that the original determination was incorrect, you must issue a new determination.

It is important that you make a determination of the worker’s status and give it to the worker. If you fail to make a determination, you will be liable for tax and National Insurance on payments made to the worker’s intermediary, even if the engagement is one that would fall outside the off-payroll working rules.

Off-payroll working rules apply

If the determination is that the worker would be an employee if they provide their services to you directly, the off-payroll working rules apply. Where this is the case, you (or the fee payer if this is different) must:

• calculate the deemed direct payment to account for employment taxes and National Insurance contributions associated with the contract;
• deduct income tax and employee’s National Insurance contributions from the payment to the worker’s intermediary;
• pay employer’s National Insurance contributions;
• report the payments and associated tax and National Insurance to HMRC under real time information; and
• apply the apprenticeship levy and make any payments necessary.

Off-payroll working rules do not apply

If the determination is that the off-payroll working rules do not apply, you can continue to make payments to the worker’s intermediary gross, without deducting tax and National Insurance.

Small private sector organisations

The extended off-payroll working rules do not apply to small private sector organisations. Consequently, if you are an organisation that is categorised as small, and you engage workers who provide their services via a personal service company, you do not need undertake a status determination. Instead, you continue to pay the worker’s intermediary gross without deducting tax and National Insurance.

In this situation, the IR35 rules continue to apply; the worker’s intermediary is responsible for deciding whether the rules apply, calculating the deemed payment and accounting for tax and National Insurance if they do.

Plan ahead

Speak to us to find out what you need to do to ensure that you are ready for the extended rules when they come into force in April 2021.

Benefit-in-kind charge on electric vans

A tax charge arises under the benefit-in-kind rules where an employee enjoys unrestricted private use of a company van. The taxable amount is a set amount, with a reduced charge applying to electric vans. However, the charge for zero-emission vans is to be reduced to zero from 6 April 2021.

Taxation of company vans

Employees who enjoy the private use of a company van are taxed for the privilege. For 2020/21, the standard charge is set at £3,490. The charge does not apply where the ‘restricted private use’ condition is met. This is the case where private use, other than home to work travel, is insignificant.

A lower charge applies to electric vans.

The charge is reduced to reflect periods of unavailability and payments for private use.

Electric vans

Since 2015/16, the charge for a zero-emission van has been a percentage of the full charge. That percentage has been steadily increasing. For 2015/16, zero-emission vans were charged at 20% of the standard charge; by 2020/21 it had reached 80% of the standard charge and was due to increase to 90% for 2021/22 before being aligned with the standard charge from 2022/23.

For 2020/21, the benefit-in-kind charge for an electric van is £2,782 (80% of £3,490). By contrast, an employee can enjoy the benefit of an electric company car tax-free.

At the time of the 2020 Budget, it was announced that the tax charge for zero-emission vans would be reduced to zero from 6 April 2021 to encourage employers to move to using electric vans. This change has now been enacted.

A move to electric vans will benefit your employees, who from 2021/22 will not pay any tax if the van is available for private use. You will also benefit as there will be no employer’s Class 1A National Insurance to pay either.

Is it a car or is it a van?

For the purposes of the benefit-in-kind legislation, a vehicle is a ‘van’ if it is a mechanically propelled road vehicle which is a goods vehicle and which has a design weight not exceeding 3,500 kilograms, and which is not a motorcycle.

However, as the long-running Coca-Cola case has demonstrated, just because something looks like a van does not mean that it is, at least for tax purposes. The Court of Appeal have held that modified crew-cab vehicles are cars rather than vans for the purposes of the benefit-in-kind legislation, and as such the taxable benefit should be worked out using the company car rules rather than van benefit rules. In this case, the vans in question were panel vans with a second row of seats behind the driver’s seat.

Separate charge for fuel

If an employer meets the costs of fuel for private journeys in a company van, a separate fuel benefit charge arises. The benefit is valued at £666 for 2020/21.

However, HMRC do not regard the provision of electricity as a ‘fuel’ for these purposes. Consequently, no tax charge arises if the employer meets the cost of electricity for the private use of an electric van.

Help and advice

We can help you work out the benefit-in-kind charge on company vans and plan ahead for the changes to come.

Expenses and Benefits Returns for 2019/20

Employers who provided taxable expenses and benefits to their employees during the 2019/20 tax year will, as usual, have to tell HMRC about these by 6 July 2020. This obligation is unchanged despite the COVID-19 pandemic.

Form P11D

Form P11D is used to tell HMRC about taxable benefits and expenses provided to employees where these have not been payrolled or included within a PAYE settlement. If the employer has payrolled some benefits but not others, only those benefits which have not been payrolled should be included on the P11D.

Exempt benefits

Benefits and expenses which are covered by a tax exemption do not need to be shown on the P11D. However, exemptions are only available if all the associated conditions are met. Remember, where provision is made via an optional remuneration arrangement, for most benefits the exemption is lost and thus the benefit should be notified on the P11D.

Taxable value

The taxable value of the benefit is its cash equivalent value, unless provision is made via an optional remuneration scheme. Where a benefit-specific rule exists, as is the case for company cars and employment-related loans, the cash equivalent value is calculated in accordance with the relevant rules; where there is no specific rule, the general rule applies. This is the cost to the employer less any amount made good by the employee (which must be by 6 July after the end of the tax year). HMRC produce worksheets which can be used to work out the cash equivalent value for some benefits. These can be found on the Gov.uk website.

If the benefit is made available under an optional remuneration scheme, such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. In this case, the taxable amount is the ‘relevant amount’. Broadly, this is the salary foregone where this is more than the cash equivalent value. The alternative valuation rules do not apply to pensions or pensions’ advice, childcare, employer-provided cycles and cyclists’ safety equipment under cycle to work schemes, and cars with CO2 emission of 75g/km or less, and transitional rules apply in certain cases.

P11D(b)

The P11D(b) is the employer’s declaration that all required P11Ds have been filed, and also the Class 1A National Insurance return. Remember to take account of payrolled benefits when working out the Class 1A National Insurance liability.

A P11D(b) is still required even if you have no P11Ds to file because all benefits have been payrolled.

If you provided benefit and expenses in 2018/19 but not in 2019/20, you may need to make a nil declaration. This will be required if HMRC sent you either a P11D(b) or a reminder letter. The notification can be made online.

How and when to file

Expenses and benefits returns (P11D and P11D(b)) can be filed online using HMRC’s Expenses and Benefits Online Service, PAYE for Employers or commercial software. Paper returns can also be submitted.

Returns for 2019/20 must reach HMRC by 6 July 2020. Employees must be given a copy of their P11D or details of the information that it contains by the same date.

The Class 1A National Insurance liability must reach HMRC by 22 July 2020 where payment is made electronically. Where payment is made by cheque, the deadline is 19 July; however, as this falls on a Sunday this year, the cheque must be with HMRC by Friday 17 July.

How we can help

Discuss with us what you need to do in order to meet your filing obligations during these challenging times.

Statutory redundancy pay and furloughed employees

The Coronavirus Job Retention Scheme (CJRS) comes to an end on 31 October 2020. As the scheme winds down and employers start meeting some of the associated costs, they will face difficult decisions as to whether they can bring employees back to work or whether they need to make some employees redundant. New legislation has been introduced to ensure that furloughed employees do not lose out on certain statutory entitlements, including the right to statutory redundancy pay.

Nature of statutory redundancy pay

Employees who have at least two years’ continuous employment with their employer at the date on which they are made redundant are entitled to statutory redundancy pay. Where an employer operates a contractual redundancy pay scheme, they must pay employees redundancy pay which is at least equal to the statutory amount.

Where an employee has been placed on furlough prior to being made redundant, the time that the employee was furloughed counts as continuous employment in determining their entitlement to statutory redundancy pay.

The cost of statutory redundancy pay is met by the employer. From the employee’s perspective, it is tax-free as long as the £30,000 tax-free threshold for termination payments remains available.

How much is statutory redundancy pay?

An employee’s entitlement to statutory redundancy pay depends on the length of their service, their age and how much they are paid when they are made redundant. They are entitled to:

• one-and-a half weeks’ pay for each full year of service for which they were 41 or older;
• one weeks’ pay for each full year of service for which they were 22 or older but under 41; and
• half a week’s pay for each full year of service that they were under 22.

Service is capped at 20 years for the purpose of the calculation and counted backwards from the date of redundancy. Pay, too, is capped for the purposes of the calculation. For 2020/21, the cap is set at £538 per week, meaning that the maximum amount of statutory redundancy pay that must be paid in 2020/21 is £16,140 (20 x £538 x 1.5).

Where an employee’s pay varies, statutory redundancy pay is calculated by reference to average weekly pay for the 12 weeks prior to the date on which the employee was made redundant.

Pay and furloughed employees

During the COVID-19 pandemic, the CJRS allowed employers to place employees on furlough and to claim a grant with which to pay them from the Government. The grant was set at 80% of the employee’s pay to a maximum of £2,500 per month.

When calculating statutory redundancy pay for an employee who has been made redundant after a period of furlough, the employee’s ‘usual’ pay should be used, rather than the reduced pay that they may have received while on furlough. This will normally be the pay used to calculate the grant payable under the CJRS, typically their pay for February 2020 or, where their pay varies, their average pay for the 2019/20 tax year. Thus, if an employee whose normal pay is £300 per week is furloughed prior to being made redundant and receives £240 per week (80% of £300) while on furlough, the employee’s usual pay of £300 per week is used to calculate their statutory redundancy pay.

Contact us

We can help you work out whether your employees are entitled to statutory redundancy pay, and the level of pay which should be used to calculate their entitlement.

Correcting claims under the CJRS

HMRC have moved into the next phase of their compliance activity in relation to the Coronavirus Job Retention Scheme (CJRS) and have written to 3,000 employers who they believe may have either claimed more under the scheme than they were entitled to or who did not meet the conditions for making a claim.

Legislation introduced in the Finance Act 2020 provides HMRC with the authority to recover amounts overpaid under the CJRS.

Correcting incorrect claims

If you have made an incorrect claim under the CJRS, the onus is on you to correct the claim. HMRC have published guidance setting out what you should do if you have claimed too much or not claimed enough under the scheme.

What to do if you have claimed too much

The action that you need to take if you have claimed too much under the CJRS depends on when you made the claim and whether you will be making further claims under the scheme.

There is a limited window of 72 hours in which a claim can be deleted from the online claim service. Once this period has elapsed, if you have claimed too much under the scheme, you need to tell HMRC. If you will be making another claim under the scheme, this can be done in your next claim by adjusting that claim for the amount that you have over-claimed. Where this route is taken, you will need to keep records of the adjustment that you have made for six years. If you do not have another claim to submit, you should contact HMRC on 0300 322 9420 to arrange how to pay the money back.

Deadline for telling HMRC about an overpaid grant

To avoid being charged a penalty, you must tell HMRC about any overpaid grants under the scheme by latest of:

• 90 days from the date on which you received the grant to which you were not entitled;
• 90 days from the date on which you were no longer entitled to keep a grant that you had claimed because your circumstances had changed; and
• 20 October 2020.

Repaying any overpaid grant within this time frame will prevent a potential tax liability in respect of the over-claimed amount from arising.

What to do if you have not claimed enough

If you have made a mistake in working out your claim under the CJRS, you may have claimed too little. Where this is the case, you should contact HMRC by telephone on 0800 024 1222 to amend your claim. You should note that even if you have not claimed the full amount to which you are entitled back from HMRC, you must pay your employees the correct amount. Where a claim is increased, HMRC may carry out additional checks on the validity of the claim.

Recovery of overpaid amount

HMRC may recover the full amount of any overpaid grant which has not been repaid by making an assessment to income tax. The amount assessed must be paid no later than 30 days from the date of the assessment. Interest is charged if the amount is paid late. Late payment penalties may also be charged if the amount remains outstanding 31 days after the due date.

If an assessment is not made, the overpaid amount should be included on your corporation tax return or your 2020/21 self-assessment return, as appropriate.

Penalty for failing to tell HMRC about an overpaid grant

If you do not tell HMRC about an overpaid CJRS grant by the notification deadline, you might be charged a failure to notify penalty. The amount of the penalty will depend on whether you knew you had been overpaid and whether you attempted to hide it.

HMRC have stated that they will not charge a penalty if you did not know that you had been overpaid at the time, or if your circumstances changed so you stopped being entitled to the grant, as long as it is repaid by 31 January 2022 (sole traders) or within 12 months from the end of your accounting period (companies).

HMRC have published a factsheet which explains how they recover overpaid grants under the CJRS.

We can help

Speak to us about how we can help you check claims that you have made under the CJRS and correct any mistakes that you might have made.

Coronavirus Job Retention Scheme extended

The Chancellor, Rishi Sunak, announced on 12 May that the Coronavirus Job Retention Scheme would be extended until 31 October 2020. The scheme enables employers adversely affected by the COVID-19 pandemic to furlough staff rather than making them redundant, and to claim a grant from the Government for 80% of their wages up to £2,500 a month. It was due to finish at the end of June. It will now continue in its current form until 31 July 2020, with changes being made from August as part of the gradual withdrawal of the scheme.

As at 17 May 2020, 8 million jobs had been furloughed by 986,000 employers who had, in total, claimed grants totally £11.1 billion.

Current support

In its current form, employers can furlough staff and claim a grant from the Government for 80% of the furloughed employee’s wages, capped at £2,500 a month. The grants, which must be paid over in full to the employee, are liable to tax and National Insurance as usual, and must be reported to HMRC as normal under Real Time Information. However, the employer can claim the associated employer’s National Insurance, together with minimum employer contributions where these are due under auto-enrolment, from the Government as part of the grant.

Employers can only claim a grant if the employee is furloughed for a minimum of three weeks. Employees are not currently allowed to undertake work for their employer while on furlough (although they can work for someone else if their contract allows).

Changes from August

Support provided under the scheme is to be withdrawn gradually. While the scheme will continue to be available for a further three months from 1 August, employers will have the flexibility to bring furloughed employees back part time from that date. Employees will continue to receive 80% of their salary (capped at £2,500 a month), but employers will be required to meet some of the cost. The Government are to publish more details of how the scheme will operate from 1 August 2020 to 31 October 2020.

Guidance

Guidance on the operation of the scheme can be found on the Gov.uk website. Speak to us to find out how you can use the scheme to help you maintain your workforce during the pandemic.

Expenses and benefits provided to employees during the COVID-19 pandemic

HMRC have recently published guidance for employers on how to treat certain expenses and benefits which may be provided to employees during the COVID-19 pandemic. The guidance is available on the Gov.uk website.

They have also relaxed the rules for a limited period where an employer reimburses an employee for the cost of equipment purchased to enable them to work from home.

Mileage costs

Particular issues can arise where an employer supports employees who are undertaking volunteer work during the pandemic, such as delivering prescriptions or PPE.

Volunteers driving a company car

If the employee has a company car and you refund the fuel costs where the car is used for volunteer duties using the advisory fuel rates, this will be a taxable benefit as the reimbursed mileage is not business mileage. If you wish to meet the tax and National Insurance on behalf of your employees, you can include it within a PAYE Settlement Agreement. If not, the reimbursement is taxable and liable to National Insurance.

If, as an employee, you pay for the petrol when undertaking volunteer duties using you company car, you are not able to claim tax relief as the expense is not incurred wholly, exclusively and necessary in the performance of your job.

Volunteers driving their own car

Where an employee undertakes volunteer driving using their own car and, as measure of support, you reimburse the cost using the approved mileage allowance rate, again, this will be taxable and liable to National Insurance. However, you can instead settle the associated liability on behalf of your employees by including it within a PAYE Settlement Agreement.

If the employee pays the mileage costs associated with volunteer driving, they cannot claim mileage allowance relief as the journeys are not business journeys.

Company car availability

During the lockdown many employees have been furloughed or are working from home. As a result, if they have a company car, they may be using it only rarely or not at all.

A taxable benefit arises in respect of the provision of a company car when that car is ‘available’ for private use – it does not matter whether the car is actually used or not, it is the ‘availability’ that triggers the tax charge. HMRC have confirmed that during the lockdown, a company car should still be treated as being ‘available for private use’, even if the employee has been:

• instructed not to use the car;
• asked to keep a record of the mileage to prove the car has not been used (i.e. photographs of the mileage at the start and end of the period); and
• unable to return the car or arrange for its collection.

However, where it was not possible for the car to be handed back or collected as a result of the restrictions on movement, where the contract has been terminated, HMRC will accept that the car ceased to be available from the date that the keys (including tabs or fobs) are returned to the employer or relevant third party. If the contract has not been terminated, the car will be treated as unavailable after a period of 30 consecutive date from the date on which the keys have been returned. HMRC accept that where the employee no longer has access to the keys, they cannot drive the car, even if the car remains at their home.

The company car tax rules are strict and it important to appreciate the difference between a car being available for use and a car actually being used by the employee when it comes to calculating the taxable benefit.

Homeworking relaxations

An employee may have purchased office equipment to enable them to work at home. HMRC have, temporarily, relaxed the rules where the employer reimburses the cost. Under the normal rules, where an employee purchases a capital item, such as computer, to enable them to work from home, any reimbursement by the employer is taxable. Likewise, the employee is unable to claim tax relief.

However, where an employee has purchased equipment to work at home because of Coronavirus, if the employer reimburses the costs on or after 16 March 2020 and before the end of the 2020/21 tax year, the reimbursement will be tax-free. If the employee purchases equipment in this period and the cost is not met by the employer, the employee can claim a tax deduction, either on form P87 or via their self-assessment return. They should retain evidence of the expenditure

HMRC have also confirmed that employees can claim tax relief for additional household expenses of up to £6 per week (£26 per month) without the need for supporting evidence.

Other benefits

HMRC’s guidance also covers other benefits that may be provided to employees during the pandemic. We can help you ensure that these are provided in a tax-efficient manner.

Coronavirus Job Retention Scheme

The online claim portal for the Coronavirus Job Retention Scheme (CJRS) went live on 20 April 2020, allowing employers who have furloughed staff as a result of the COVID-19 pandemic to claim grants from the Government equal to 80% of the employee’s wages (capped at £2,500 per month). Employers can also claim the associated employer’s National Insurance contributions and the minimum employer pension contributions required under auto-enrolment. More than 67,000 employers made a claim under the scheme within the first half hour of the portal opening.

Who can claim?

The CJRS aims to help employers affected by the COVID-19 pandemic to maintain their workforce rather than lay-off staff. It is open to any employer with a UK payroll as long as they:

• had a UK payroll in existence as at 19 March 2020 in respect of which RTI submissions had been made by that date;
• are enrolled for PAYE online (employers not enrolled for PAYE online as at 19 March can do so after that date); and
• have a UK bank account.

What employees are covered?

Claims can only be made in respect of employees who have been furloughed – i.e. laid off from work temporarily. Employers must confirm in writing to the employee that they have been furloughed and make any necessary changes to the employee’s contract of employment. An employee must be furloughed for a minimum of three weeks for a claim to be made.

The employee must have been on the employer’s payroll on 19 March 2020 and the employer must have made an RTI submission in respect of the employee by that date. This may mean that employees who were taken on after the February payroll or who missed the February payroll cut-off date fall outside the scheme, even if they had done some work for the employer prior to 19 March. Claims can, however, be made in respect of employees who were on the payroll as at 28 February 2020 and who were made redundant or stopped working for the employer before 20 March 2020 if the employer puts them back on the payroll and furloughs them. This can be done after 19 March 2020. To qualify, an RTI submission must have been made in respect of the employee by 28 February 2020.

It does not matter what type of contract the employee has – the scheme applies to full-time workers, part-time workers and to those on flexible or zero-hours contracts. Claims can also be made by directors of personal and family companies (but only in respect of their PAYE income).

However, furloughed employees cannot do any work for the employer that generates income while furloughed. This means that claims cannot be made for workers who are on reduced pay or reduced hours. Company directors can, however, continue to fulfil their statutory duties. Apprentices can also be furloughed under the scheme and can continue to train whilst furloughed.

What can be claimed?

Employers can claim 80% of a furloughed worker’s wages, plus the associated employer’s National Insurance and the minimum pension contributions that the employer is required to make under auto-enrolment. Amounts claimed in respect of an employee’s wages must be paid over to the employee in full. Employers can, if they so choose, top up the employee’s wages above the 80% covered by the grant. Grants are pro-rated where the employee is only furloughed for part of the pay period and should be made from the date that the employee starts furlough.

For the purposes of the scheme, wages are the regular payments that the employer is obliged to make to the employee and include:

• regular wages payable to the employee;
• non-discretionary overtime;
• non-discretionary fees;
• non-discretionary commission payments; and
• piece rate payments.

However, the following payments should not be included as wages for the purposes of a claim:

• payments made at the discretion of the employer or a client where there was no contractual obligation to pay, such as tips, discretionary bonuses or discretionary commission payments;
• non-cash payments;
• non-monetary benefits, such as benefits in kind (for example, company cars and private medical insurance).

Calculating the wage claim

For full and part-time employees on a salary, the employer can claim 80% of their salary for the last pay period to 19 March, capped at £2,500 per month (proportionately reduced where the employee was not furloughed for the whole period).

Where an employee’s pay varies and the employee has been employed for at least 12 months, the claim cam be made either by reference to the same pay period in 2019 or by reference to the employee’s average monthly earnings for 2019/20. If the employee has worked for less than 12 months, their average monthly earnings since they started work should form the basis of the claim.

Claiming employer’s National Insurance

Grant payments paid to employees are liable to PAYE tax and National Insurance (employee’s and employer’s) as for normal payments of wages and salary. However, employers can claim the employer’s National Insurance due on grant payments from HMRC. The guidance on the Gov.uk website explains how this is calculated.

Claims cannot be made for employer’s National Insurance covered by the employment allowance. While there is no obligation to claim the allowance from the start of the tax year, it is possible that HMRC may regard delaying claiming the allowance until after the end of the scheme as tax avoidance.

Claiming pension contributions

Where the furloughed employee is within auto-enrolment, the employer will need to pay pension contributions at the minimum level of 3% on earnings above £520 per month (2020/21).

How to make a claim

Claims can be made online.

The claim can be made by the employer or by an agent authorised to act for the employer for PAYE purposes. However, claims cannot be made by agents who are only authorised to file RTI returns on the employer’s behalf.

When making a claim, the following information is required:

• UK bank account and sort code;
• employer PAYE scheme reference number;
• the number of employee’s being furloughed;
• the National Insurance number for each furloughed employee;
• the employee’s payroll number (although this is optional);
• the start and end date of the claim;
• the full amount of the claim, including employer National Insurance contributions and pension contributions;
• contact name and phone number;
• the employer’s corporation tax unique tax reference, self-assessment unique tax reference (as appropriate) or the company registration number.

Claims can be backdated to 1 March 2020. The money should be paid into the employer’s bank account within six working days of the date on which the claim was made. Claims can be made prior to the payroll date so that the employer has the money available to pay furloughed employees.

It should be noted that HMRC will undertake checks for fraudulent claims.

Further help

Speak to use to find out whether you are eligible to make a claim and for help in working out what you can claim. Read more about the scheme on the Gov.uk website.