As HMRC intensifies its crackdown on National Minimum Wage (NMW) noncompliance, it’s vital to make sure you don’t fall foul of NMW laws. Compliance can have more complexities to it than many assume, and the risks of getting it wrong are significant.
HMRC is focusing on SMEs
It seems that HMRC are targeting SMEs. For instance, they have recently targeted SMEs in regions including Belfast, Liverpool, East Anglia, Watford, and the North East. They have plans to expand to additional areas over time.
What are the areas of compliance to watch?
Clearly it is important to make sure that you are using the correct rates of NMW pay. However, compliance isn’t just about paying the correct hourly rate. There are a few areas that you need to be aware of to make sure that you comply with the laws.
- What category is the worker? Under NMW laws, workers are categorised in four different ways – salaried, time-based, output-based, or unmeasured. The category a worker belongs to can alter the method for calculating NMW.
- How much time does the worker work? If you have salaried staff, then you need to monitor the excess hours they work. A salaried worker is entitled to receive NMW for the total hours they work over a year, called their ‘calculated year’. Excess hours could include their turning up early, staying late, working through some of their lunch break, logging on outside of their normal office hours, and business travel. Payments to staff may need to be uplifted to avoid falling foul of the regulations.
- Does a non-employee count as a worker for NMW purposes? In some situations, someone who would not be considered an employee under PAYE may count as a worker under the NMW laws. For instance, paying volunteers beyond expenses, or offering non-cash benefits, could inadvertently classify them as workers under NMW rules.
- Could an after-tax deduction bring a worker below NMW? Deductions from wages, such as those made for benefits or savings schemes, can create unintended problems. A recent tribunal case highlighted that a scheme which was well-intentioned still resulted in noncompliance because it reduced pay below the NMW threshold.
- Are your records complete and accurate? In the event of a dispute where an employee says they have provided time records, but you have not kept a record, HMRC will side with the staff and calculate any arrears based on the information provided by the worker.
The consequences of non-compliance
HMRC’s enforcement process includes a three-stage approach, that starts softly and becomes heavier when the business fails to put things right. Continued noncompliance can result in penalties of up to 200% of arrears and public naming and shaming on the government website. Such exposure can damage a business’s reputation, affecting recruitment, supplier relationships, and overall growth.
Proactive steps for compliance
To mitigate risks, you should conduct periodic and thorough reviews to check that you are complying. This includes assessing potential areas of noncompliance, updating your policies, and ensuring that employment contracts are aligned with NMW regulations. Communication with staff and line managers is also critical to ensure that any issues are flagged promptly.
Our payroll team are skilled at applying the NMW rules, so if you have questions on any particular situation, please feel free to contact us and we would be happy to help you.
Companies House has confirmed that its online services will move to the GOV.UK One Login beginning this Autumn.
The GOV.UK One Login is becoming an increasingly important way of accessing government digital services. It means that you only need one account, one username, and one password to access a range of government services.
The Login is already used for a number of government services, including those related to being an apprenticeship provider, finding and applying for grants, and in Wales to manage fishing permits and catch returns.
Ultimately, the GOV.UK One Login will be used to access all GOV.UK services, which eventually would include tax services. Companies House services moving across will be a major step towards this goal.
The find and update company information service will be the first to move across, with the Webfiling service being moved at a later date.
As part of the changes being made by the Economic Crime and Corporate Transparency Act, any person who sets up, runs, or controls a company in the UK will need to verify their identity.
The GOV.UK Login will be used when Companies House implement this requirement so that users can verify their identity directly.
If you need any help with your company secretarial requirements, please just get in touch, our team will be happy to help you!
See: https://www.gov.uk/government/news/companies-house-to-join-govuk-one-login
The Plan 1 student loan interest rate reduced to 6% (from 6.25%) from 30 August. This rate change applie across the UK with the Department for Education (DfE), the Welsh Government and the Department for the Economy in Northern Ireland (DfE NI) all confirming the change.
The reduction follows the Bank of England Base Rate changing to 5% earlier in August.
Those running payrolls and payroll bureaus should notice a reduction in student loan deductions for relevant employees in their September payrolls. If not, you may need to confirm that your payroll software has correctly updated.
See: https://www.gov.uk/government/news/change-to-plan-1-student-loan-interest-rate-announcement
With the ever-increasing costs of childcare, a very attractive benefit provided by more and more employers is a creche or nursery for employees’ children. If correctly structured, this is a tax-free benefit and will help employers attract and retain staff. Larger employers may provide an on-site nursery but for smaller employers it is more common to enter into partnership with a local nursery provider.
Two key elements of the partnership requirements for tax exemption are:
Responsibility for financing – Employers must take real responsibility for the financing of the childcare provision – for example by committing to fund an agreed proportion of the total costs, and by bearing their share of any losses. Employers simply paying a fixed cost per employee’s child are unlikely to meet this test.
Responsibility for management – Employers should be closely involved in the management of the childcare provision – for example, having close involvement in appointing and managing nursery staff, and in allocating places. Employers occasionally giving advice or ‘rubber stamping’ decisions are unlikely to meet this test. If an employer representative is appointed to the management board of a nursery, there must be evidence that they actively represent the employer in the running of the nursery.
HMRC have recently been checking these arrangements to ensure that the conditions for tax exemption are met. They have identified that some intermediaries promote schemes encouraging employers to offer childcare provisions to their employees, often under salary-sacrifice arrangements.
Those promoting the scheme often deal with all the necessary arrangements, meaning that the employer has very little involvement in providing the childcare and potentially fails the tests for tax exemption. Please contact us if you have any concerns over whether your childcare arrangements satisfy the conditions for tax exemption.
For the self-employed and those working for an organisation that does not provide nursery facilities, the alternative is to set up a government tax-free childcare account.
Back to school – set up a tax-free childcare account?
The Government’s Tax-Free Childcare Accounts provide a 25% subsidy towards the cost of childcare. The account can be used to pay nursery fees, breakfast clubs, after school clubs and registered childminders.
The scheme operates by topping up savings of up to £8,000 per child by 25%, potentially an extra £2,000 a year from the Government to spend on qualifying childcare. The scheme generally applies to children under 12. In the case of disabled children, the age limit is 16 and the amount that can be saved is £16,000 a year, topped up by the Government by a further 25% to potentially £20,000.
Unlike childcare vouchers, still provided by some employers, tax free childcare accounts are available to both employees and the self-employed. To be eligible, the parent generally needs to be working and earning at least the National Minimum Wage or National Living Wage for at least 16 hours a week on average. However, parents are not eligible if either of the parents’ adjusted net income is more than £100,000 a year.
Note that where an employer provides Childcare Vouchers then the parents are not allowed to set up a Tax-Free Childcare Account as well. Please contact us for advice on whether or not it would be beneficial to leave your employer’s Childcare Voucher Scheme, noting in particular that the voucher scheme applies to children up to age 16, rather than age 12.
ADVISORY FUEL RATE FOR COMPANY CARS
The table below sets out the HMRC advisory fuel rates from 1 September 2024. These are the suggested reimbursement rates for employees’ private mileage using their company car.
Where there has been a change the previous rate is shown in brackets.
You can also continue to use the previous rates for up to 1 month from the date the new rates apply.
Note that for hybrid cars you must use the petrol or diesel rate.
For fully electric vehicles the rate is 7p (9p) per mile.
Where the employer does not pay for any fuel for the company car these are the amounts that can be reimbursed in respect of business journeys without the amount being taxable on the employee.
Input VAT
Within the 45p/25p payments the amounts in the above table represent the fuel element. The employer is able to reclaim 20/120 of the amount as input VAT provided the claim is supported by a VAT invoice from the filling station. For a 2000cc diesel-engine car, 3 pence per mile can be reclaimed as input VAT (18p x 1/6)
Employees using their own cars
For employees using their own cars for business purposes the Advisory Mileage Allowance Payment (AMAP) tax-free reimbursement rate continues to be 45 pence per mile (plus 5p per passenger) for the first 10,000 business miles, reducing to 25 pence a mile thereafter. Note that for National Insurance contribution purposes the employer can continue to reimburse at the 45p rate as the 10,000 threshold does not apply.
Many wealthy individuals are apparently passing on substantial amounts of their wealth in anticipation of possible changes to inheritance tax (IHT) in Labour’s first Budget on 30 October. This allegedly includes a number of high-profile individuals such as TV presenter Anne Robinson who confirmed that she had passed on £50 million to her children and grandchildren. Should you consider doing the same?
Firstly, you need to check with us the value of your estate and potential IHT exposure under the current rules. Currently, each individual receives a nil rate band of £325,000 and potentially up to a further £175,000 against the value of the family home, provided it, or assets to its value, is left to direct descendants on death. This additional £175,000 allowance is referred to as the residence nil rate band (RNRB).
There is currently an unlimited exemption where assets are transferred during a lifetime or on death to the surviving spouse or civil partner. If the deceased spouse’s nil rate bands are unused then they are available to the survivor, potentially increasing the tax-free amount on the death of the second spouse to £1 million. Unfortunately, it’s not quite that simple as where the estate exceeds £2 million the RNRB is reduced by £1 for every £2 that the estate exceeds £2 million. Consequently, for wealthy couples, the RNRB reduces to nil where the value of the estate exceeds £2.7 million leaving just the combined nil rate bands of £650,000. Note that the current rate of IHT on the death estate is 40% once the nil rate band has been used.
There is currently 100% relief from IHT where business and farming assets are transferred during lifetime and on death and it is hoped that these reliefs will continue so that survivors do not need to sell off assets to pay the tax. However, those generous reliefs may not continue under the new government.
Transfers during lifetime
Under the current rules, there is no IHT payable where the donor survives for at least 7 years following the date that assets are transferred. Such transfers are referred to as potentially exempt transfers (PETs) and IHT is payable should the donor die within 7 years. Note that the transfer needs to be an outright gift with no continued use or enjoyment of the asset by the donor. Hence giving away the family home but continuing to live there will generally be ineffective unless other conditions, such as paying market rent, are satisfied.
There may also be capital gains tax (CGT) consequences of a lifetime gift, although it may be possible to hold over the gain so that no CGT is payable on the increase in value from when the asset was acquired. Holdover relief is currently available in the case of business assets and on transfers of assets into a trust.
Please get in touch with us if you have concerns about IHT and want to consider taking action before Budget Day.
| Date | What’s Due |
| 1 September | Corporation tax for year to 30/11/23 unless pay by quarterly instalments |
| 19 September | PAYE & NIC deductions, and CIS return and tax, for month to 5/9/24 (due 22 September if you pay electronically) |
| 1 October | Corporation tax for year to 31/12/23 unless pay by quarterly instalments |
| 5 October | Deadline for notifying HMRC of chargeability for 2023/24 if you are not within Self-Assessment and receive income or gains on which tax is due |
| 19 October | PAYE & NIC deductions, and CIS return and tax, for month to 5/10/24 (due 22 October if you pay electronically) |
Anyone who needs to complete a Self Assessment tax return for the first time to cover the 2023 to 2024 tax year, should tell HM Revenue and Customs (HMRC) by October 5th 2024.
There are plenty of myths about who needs to file a Self Assessment return before the 31 January 2025 deadline and HMRC today debunks some of the most common ones.
Myth 1: “HMRC hasn’t been in touch, so I don’t need to file a tax return.”
Reality: It is the individual’s responsibility to determine if they need to complete a tax return for the 2023 to 2024 tax year. There are many reasons why someone might need to register for Self Assessment and file a return, including if they:
- are newly self-employed and have earned gross income over £1,000
- earned below £1,000 and wish to pay Class 2 National Insurance Contributions voluntarily to protect their entitlement to State Pension and certain benefits
- are a new partner in a business partnership
- have received any untaxed income over £2,500
- receive Child Benefit payments and need to pay the High Income Child Benefit Charge because they or their partner earned more than £50,000
More information can be found on GOV.UK and anyone who is unsure if they need to file Self Assessment can use the free online tool on GOV.UK to check. Once registered for Self Assessment, they will receive their Unique Taxpayer Reference, which they will need when completing their return and paying any tax that may be due. Customers will have to reactivate their account if they have registered for Self Assessment previously but did not send a tax return last year.
Myth 2: “I have to pay the tax at the same time as filing my return.”
Reality: False. Even if someone files their return today, the deadline for customers to pay any tax owed for the 2023 to 2024 tax year is 31 January 2025. Customers may also be able to set up a Budget Payment Plan to help spread the cost of their next Self Assessment tax bill, by making weekly or monthly direct debit payments towards it in advance.
Myth 3: “I don’t owe any tax, so I don’t need to file a return.”
Reality: Even if a customer does not owe tax, they may still need to file a Self Assessment return to claim a tax refund, claim tax relief on business expenses, charitable donations, pension contributions, or to pay voluntary Class 2 National Insurance Contributions to protect their entitlement to certain benefits and the State Pension.
Myth 4: “HMRC will take me out of Self Assessment if I no longer need to file a return.”
Reality: It is important customers tell HMRC if they have either stopped being self-employed or they don’t need to fill in a return, particularly if they have received a notice to file. If not, HMRC will keep writing to them to remind them to file their return and we may charge a penalty.
Customers may not need to complete a tax return if they have stopped renting out property, no longer need to pay the High Income Child Benefit Charge, or their income has dropped below the £150,000 threshold and have no other reason to complete a tax return. If customers think they no longer need to complete a tax return for the 2023 to 2024 tax year, they should tell HMRC online as soon as their circumstances change. Customers can watch HMRC’s YouTube videos on stopping Self Assessment to guide them through the process.
Myth 5: “HMRC has launched a crackdown on people selling their possessions online and now I will have to file a Self Assessment return and pay tax on the items I sold after clearing out the attic.”
Reality: Despite speculation online earlier this year, tax rules have not changed in this area. If someone has sold old clothes, books, CDs and other personal items through online marketplaces, they do not need to file a Self Assessment and pay Income Tax on the sales. HMRC’s guidance on selling online and paying taxes can be found on GOV.UK.
Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We want to make sure you are clear about your tax responsibilities. These myth busters and our range of resources on GOV.UK can help if you are unsure if Self Assessment applies to you or think you no longer need to file a tax return. Just search ‘Self Assessment’ on GOV.UK to find out more.”
HMRC has a wide range of resources to help customers register for Self Assessment, including video tutorials on YouTube and help and support on GOV.UK.
HMRC urges customers to file their return early to provide peace of mind and to also allow time to consider opportunities to spread the cost of their tax bill, claim refunds earlier and avoid costly errors caused by rushing.
Customers need to keep records to fill in their tax return correctly and they may be asked for documents if HMRC checks their return. Penalties may be issued if records are not accurate, complete and readable. Self-employed workers must also keep records for their business income, outgoings and make sure they are registered with HMRC as self-employed. More information can be found on GOV.UK.
People should be cautious of potential scams and never share their HMRC login information with anyone, even a tax agent if they have one. HMRC’s scam advice can be found on GOV.UK.
It has recently been reported over half a million taxpayers paid a marginal income tax rate of 60% in 2022/23, up by 23% from the number in 2021/22.
This marginal rate applies where an individual’s adjusted net income falls between £100,000 and £125,140, where every £2 income over £100,000 reduces the £12,570 personal allowance by £1, such that it is fully eroded at £125,140.
Planning to mitigate the problem
The definition of “adjusted net income” is the individual’s total taxable income less personal pension payments and charitable payments under Gift Aid. Such payments can effectively save income tax at 60%. For example, an £80 payment to charity under gift aid is grossed up to £100 and the taxpayer’s income is reduced by £100, thus saving £60 tax where the individual’s income is between £100,000 and £125,140. If an individual’s total income is projected to be £105,000 for 2024/25 they could consider making an additional pension contribution of £4,000 before 5 April 2025 as that would reduce their income to £100,000, thereby restoring their £12,570 personal allowance.
Such planning is also effective for those caught by the high-income child benefit clawback charge (HICBC). That charge claws back child benefit by 1% for every £200 adjusted net income between £60,000 and £80,000.
Salary sacrifice arrangements can also be effective
Another way to mitigate the effects of the personal allowance restriction and the HICBC would be to agree with your employer to forgo some of your salary, pay rise, or bonus for an additional employer pension contribution or an electric company car. For example, an employee on £96,000 a year might be entitled to a £10,000 bonus. They could agree with their employer to have £6,000 of the bonus paid into their pension (tax-free, provided the £60,000 pension annual allowance isn’t exceeded) with the remainder of the bonus just keeping them at £100,000 and retaining their personal allowance.
Sacrificing salary for an electric company car isn’t quite as tax efficient, as the employee would currently be taxed on 2% of the list price instead of the salary foregone. On a £50,000 electric car that would just be a £1,000 taxable benefit in kind, which for a 40% taxpayer would mean £400 income tax.
The employing company would obtain a tax deduction for the cost of providing the benefit and would also save on employers’ national insurance. So, it’s win, win.
Employers may meet the cost of certain social events for staff without creating a tax liability.
This used to be a concession but is now a statutory exemption provided certain conditions apply.
The exemption applies to an “annual party or similar function” provided it is available to all employees or available generally to those at a particular location. During the Covid-19 pandemic HMRC confirmed that a ‘function’ could include a virtual party, where employers were unable to host a traditional party at which employees would have been physically present.
A key condition is that the cost per head of the party or function must not exceed £150, inclusive of VAT. If an event costs more than £150 then it is taxable in full, not just on the excess over £150.
If you have already held a Christmas Party for staff it may be possible to have another event, and for that to also be exempt from tax, provided the combined cost per head is no more than £150 a year.
If the combined cost exceeds £150 for the year the employer can designate which ones should be taken into account to make best use of the exemption. If, for example, the cost per head of the Christmas party was £100, and the Summer event was £70, the employer can nominate the Christmas party to be covered by the exemption, but
the £70 Summer Event would be taxable (not just the excess £20).
Rather than the employee being taxed on the £70 the employer can deal with the tax and national insurance on the employees’ behalf by way of a PAYE settlement agreement.
