Employment

Get insured or get fined!

Employers’ liability insurance provides cover for businesses in the event of accidents in the workplace. Your business can be fined up to £2,500 for every day that it doesn’t have proper Employers’ Liability insurance. It can also be fined up to £1,000 if the insurance certificate isn’t adequately displayed in the workplace.

This legislation applies to all businesses except those who employ only family members, including:-

·      Spouse or civil partner

·      Parents & grandparents

·      Siblings & half-siblings

·      Children & grandchildren

·      Step-parents & step-children


Employees who are not ordinarily resident in the UK are also normally exempt. Any insurance policy must be purchased from an authorised insurer and the minimum level of cover is £5 million, as per the Employers’ Liability (Compulsory Insurance) Act 1969.

It’s also worth remembering that any officer of a business who consensually, or neglectfully, fails to put an appropriate policy in place may be proceeded against personally. So, such cover not only makes sound business sense, but ensures you are not breaking the law!

If you’re unsure about your responsibilities, or if you’d like and introduction to an authorised broker to arrange your policy, then make sure to contact your accountant for some guidance.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

How to handle termination payments correctly

Tracy Henson of Barnett & Turner tackles some frequently asked questions on the payments made when you terminate an employee’s contract.

With careful planning, you can save tax and national insurance when you make termination payments, but it’s important to bear a number of different factors in mind. Remember that the first £30,000 of any such payment can, in theory, be made tax free, but there are a number of conditions attached.

What are the current conditions which for the exemption to apply?

Currently, if you have a contractual right to make a payment in lieu of notice (‘PILON’), that payment is subject to income tax and national insurance contributions (‘NICs’).

If there is no PILON clause and the employer grants a termination payment to the employee at the end of the employment, the first £30,000 can be paid tax-free. Any amount above this threshold is taxable, however no NICs are due.

What are the conditions which must be met after 5 April 2018?

From 6 April 2018 all payments in lieu will be taxable. The intention of these reforms is to ensure that the basic pay an employee would have earned had the employee worked his or her notice in full will be subject to tax (any amount above this may benefit from the £30,000 exemption).

The reforms will therefore require employers to identify the amount of basic pay that the employee would have received if they had worked their notice period and to split a termination payment between (1) amounts treated as earnings and (2) amounts which are being paid in true compensation for loss of employment and which may benefit from the £30,000 threshold for tax exemption.

And from April 2019?

Currently, where the exemption is available no National Insurance (NI) will be due on the payment made. However, from April 2019, this rule will change with employer’s NI being payable on the balance over £30,000. 

Can some payments qualify for a higher limit?

Yes. Some can even be paid tax free, where the payment relates to injury, disability or death. However, HMRC interpret the exemption for termination on injury or disability very narrowly.

What are the rules about non-cash benefits?

There is a requirement to include the cash equivalent of any non-cash benefits made, for example the provision of a company car. Any non-cash benefits are treated as income in the year in which the benefits are enjoyed.

Does the timing of the payment make a difference?

Where a qualifying termination payment is made to the employee before they leave, the excess over £30,000 is subject to deduction of tax under PAYE under the normal rules. If payments are made to an employee after they leave, and after a P45 has been issued, then the employer must deduct tax under PAYE at the basic rate. The employee is then liable for any additional tax charge on the termination payment received under the self-assessment system.

What planning opportunities do you have?

There are a few possibilities where the termination is to exceed the £30,000, such as:

  • making a contribution towards the employee’s legal fees, which may include, for example, the fees for their solicitor to review a compromise agreement;

  • deferring the tax point – there may be a saving to the employee by spreading the payment over two tax years, where the entitlement to deferred consideration should be specified in the settlement agreement;

  • making a contribution into the employee’s pension fund; and

  • considering whether any element of the payment made could be identified as compensation for discrimination, or injury/disability, which may be tax free.

 Given the complex nature of the legislation, it’s always good to seek advice before a termination payment is made, to avoid any potential bear traps. Failure to take reasonable care in analysing the nature of the payment and describing it in the settlement agreement may result in the parties facing unnecessary or unexpected tax liabilities. 

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

HOW TO AVOID A POST-PARTY HANGOVER

Jono Wilson of Barnett & Turner looks at the tax implications of the Summer or Christmas bash you hold at your workplace. If you’re looking to the summer and planning a party for your employees, it’s worth bearing in mind the potential tax implications. The good news is that, unlike entertaining customers, the costs of entertaining employees are generally allowable against the profits of the business.

But what about the consequences for the employees themselves? Will they have to pay tax on the benefit?

The general rule is that as long as the total costs of all employee annual functions in a tax year are less than £150 per head (VAT inclusive), there will be no tax implications for the employees themselves. In considering this limit, it is necessary to include all the costs of an event including any food, drinks, entertainment, transport and accommodation that you provide.

If the total costs are above the limit of £150, the employee will have to pay tax on the full cost of the benefit. In that scenario, it should be reported on each employee’s P11D or, alternatively, you may choose to enter into a PAYE Settlement Agreement with HMRC to cover the tax.

It is also worth noting that a new exemption in relation to employee entertainment was introduced on 6th April 2016.  From this date, a benefit provided by an employer to an employee was made exempt from tax and need not be reported to HMRC on a P11D if all of the following conditions are satisfied:

  • The cost of providing the benefit does not exceed £50;
  • The benefit is not cash or cash vouchers;
  • The employee is not entitled to the benefit as part of any contractual obligation; and

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family), the exemption is capped at a total of £300 in the tax year.

 Example

A company holds two annual functions open to all its employees in the tax year – a summer party and a Christmas party.

The total costs of the summer party, including transport and accommodation, are £10,000 including VAT. The total number of attendees was 100, so the cost per head was therefore £100.

The Christmas party cost £8,000 including VAT, and 100 people attended this. The cost per head is therefore £80.

The total cost per head for both functions is £180, so they cannot both qualify for an exemption. As the cost per head of each party is not more than £150, either event can qualify on its own, however it is more beneficial overall for the costlier summer party to be exempted.

If an employee attends both events, they will be taxed only on the benefit of £80 for the Christmas party. If they only attend the summer party, there will be no taxable benefit because that event is exempt. If they only attend the Christmas party, they will be taxed on the benefit of £80.

Both functions would be taxable if the average cost per head of each of the events exceeded £150. This limit is not an allowance to be set against an amount that exceeds that figure.

It’s worth talking to your accountant if you have any concerns about the tax implications of the summer party season ahead. That way, everyone can enjoy the event without a financial hangover.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

When is a van not a benefit?

Many employers provide company vans to their employees for work purposes, but whether a van benefit in kind charge arises depends on the private use element says Tracy Henson of Barnett & Turner, Chartered Accountants & Chartered Tax Advisers.  Where no van benefit is declared on a Form P11D or processed via payrolling of benefits, HMRC’s 2016 guidance includes a new paragraph, not included in previous versions of the same guidance, which states that employers must be able to demonstrate that there has been no significant private use in theory and in practice.

It has always been difficult to get HMRC to accept “in theory” only anyway, but in light of the changes above, employers may want to rethink their current record keeping as HMRC continue to crackdown on companies with vans in their accounts but no corresponding P11D reporting. This blog will outline good record keeping which will satisfy HMRC’s requirements.

If we start by looking at the requirements to be met in order for no van benefit in kind charge to apply, these are:

  1. The van must only be available to the employee for business travel and commuting and must not be used for private purposes except to an insignificant extent
  2. The van must be available to the employee mainly for use for the employee’s business travel

The term insignificant is not specifically defined, so takes the New Oxford English Dictionary meaning of ‘too small or unimportant to be worth consideration.’  HMRC’s guidance states that private use is considered insignificant in the following instances:

  • If it is insignificant in quantity in the tax year as a whole (that is, a few days at most)
  • If it is insignificant in quality (for example, a week’s exclusive private use is clearly not insignificant)
  • If it is intermittent and irregular (the weekly supermarket shop is not insignificant, an annual trip to the rubbish tip would be)
  • If it is very much the exception in terms of the pattern of use of that van by that employee (or their family or household) in that tax year

If an employer does not report a company van benefit but cannot prove that the above requirements are met, HMRC will insist that the van is a chargeable benefit, and this can result in a significant tax bill and hefty penalties.

HMRC can charge a £3,000 penalty for poor record keeping and a penalty of up to 100% of the tax due as well as collecting the tax and national insurance due on the benefit on a grossed up basis.

Furthermore, HMRC can backdate tax, with interest, and penalties for up to six years.  If HMRC cannot be convinced that the requirements are met, the amount at stake can quickly become detrimental to a business therefore it is vitally important that sufficient records are kept.

HMRC suggest that useful information/records for demonstrating that the necessary criteria have been met include the terms and conditions on which the van is made available to the employee and mileage records showing actual use.

The terms and conditions should state that the van is to be used by the employee for business purposes only and should not be used for private purposes. Such terms and conditions could be included within the employee’s employment contract, a separate agreement could be signed or it could even be that these are included within a staff handbook and employees sign to confirm they have read and understood this.  Any of these would prove that there is no private use in theory.

In terms of proving no private use in practice, HMRC will insist that driving records will be required.  This could be from a GPS logging system or manually entered mileage records.  This is not necessary per the legislation, although the guidance detailed above would suggest it is. We have won many cases on behalf of clients who have not had van mileage records, however it is always easier if these are available and we would suggest detailing the dates, start and finish locations, mileage and reasons for all trips as a minimum.

Other procedures that can help to further evidence no significant private use would include the keys being kept at the business premises and access being restricted. If the van insurance documentation also states that only business use is insured then HMRC will accept this as meaning no significant private use, and therefore no van benefit in kind charge, applies.

If you would like further guidance on record keeping for company vans, or if you think it would be beneficial for a review of your current procedures to be carried out to identify any improvements, please telephone or email your usual HPH contact.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Prepare to go public: the gender pay gap under scrutiny

From April 2017, the Government expected companies to be open about the pay gap that exists between male and female workers says Jonathan Wilson of Barnett & Turner. The move is a response to a large body of evidence, collected over many years, which shows men tend to get the better deal when it comes to salary. And that’s despite the fact that the Equal Pay Act (now largely superseded by the Equality Act) was introduced as far back as 1970.

According to the Office for National Statistics, the gender pay gap for full-time employees in 2016 was 9.4%. The gap for all employees, both full and part-time, was 18.1%. Although both figures are down since the 1990s, they are falling fairly slowly.

In the hope that public scrutiny will force private-sector employers to act, large businesses are now required to publish data on the pay gap every year. The rules apply to any company employing at least 250 employees as of 5th April each year. By 4th April 2018, businesses are expected to publish their data on their websites.

The Equality Act 2010 (Gender Pay Gap Information) Regulations of 2017 says they will have to let the public know:

▪ the organisation’s overall gender pay gap (expressed as a percentage), using both the mean and median hourly rate of pay for female and male employees;

▪ the proportion of male and female employees in each of the organisation’s four pay quartiles;

▪ the organisation’s overall bonus gender pay gap (expressed as a percentage), using both the mean and median bonus payments received by female and male employees over the preceding 12-month period;

▪ the proportion of female and male employees who received a bonus in that period.

For the purposes of this exercise, a ‘relevant employee’ is defined as being anyone working ‘under a contract personally to do work’. This means that casual staff and self-employed contractors need to be considered – both in terms of headcount and also the financial rewards they receive.  There is, however, a recognition that if you don’t have the relevant data about an individual – or it’s not reasonably practicable to obtain it – you don’t have to include it in your calculations.

So, what should your business be doing to ensure you’re complying with the law? First of all, establish if you are a ‘relevant employer’ under the terms of the regulations. If you believe you are, then start the process of analysing your employees’ remuneration packages and assembling the necessary information to make your calculations.

Remember, if there is a significant pay gap within your organisation, it may have PR implications for you. So now is the time to start thinking of the narrative you may choose to publish alongside the figures – explaining why there’s a discrepancy and informing the wider world of what you’re doing to address it.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Earning commission on holiday? That would be the perfect break.

There have been a number of recent court decisions surrounding entitlement to holiday pay says Jonathan Wilson of Barnett & Turner. Specifically they have been considering whether overtime, commission and work-related travel should be factored into holiday pay calculations. A court judgement 18 months ago found that contractual (but not voluntary) overtime must be included in holiday pay calculations.  This decision was followed earlier this year by another which confirmed that a worker who received performance related commission was entitled to have this taken into account when his holiday pay was calculated.

It sounds straightforward enough, but unfortunately the court did not explain how the holiday pay should be calculated to take account of lost commission.  As the ACAS website currently states: “There was no definitive legal answer about how such holiday pay calculations must be made, or how/if such claims can be backdated.  ACAS continues to monitor the case and will provide further updates when they are available.”

While the legal obligation on employers is therefore clear – that commission and contractual overtime must be included in holiday pay calculations – it is still unclear as to how some of this should be calculated and whether employees will be able to make backdated claims. The case may also be subject to further appeal.

Our expectation is that the maximum period for backdating a claim will be two years, based on  recent legislation from July 2015, which limited unlawful deduction of wages claims to a two-year period.  This law prevents an employment tribunal considering deductions which were made more than two years before the unlawful deduction claim was brought.

A useful summary of the rules can be found here: http://www.acas.org.uk/index.aspx?articleid=4109

Given this is an area which is still going to require further clarification, we would recommend that you talk to an employment lawyer if you are seeking advice.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Taking the pain out of payroll

Outsourcing your payroll run can help reduce errors, says Natalie Goodall of accountancy firm Barnett & Turner. At the same time, it can ensure you comply with ever-more complex regulations. If you run a small business and manage your own payroll, the chances are that you’ve already seen at first hand some of the problems that can inevitably arise. It’s a time-consuming and increasingly complex process as regulations change. After all, we now live in a world of auto-enrolment and real-time reporting. There are significant risks to your business if you’re unable to keep up with the latest rules.

Errors aren’t just inconvenient and potentially costly. They also have a human consequence, as your members of staff are depending on seeing their salary move seamlessly into their bank accounts once a month. There are mortgages and gas bills to pay, which means morale can dip very quickly if there are glitches in the system.

So what are your options? You can battle on with one of your staff members handling payroll in-house – perhaps combining the job with another important accounting role – or you can choose to outsource the function to your accountant.

Of course, there are costs involved in any decision to outsource, but when you factor in both the internal cost savings and the time your own staff save, it can really start to make sense.

What if you’re able to free someone up a day or two a week, for instance? How might that additional productivity within your accounting function help your business? There may also be savings on payroll software, which needs to be constantly upgraded to keep abreast of the latest changes in tax and national insurance.

By using your accountant, you can be sure of a reliable service that won’t come to a halt just because an individual is off sick. You won’t have to worry either about keeping your own staff constantly trained and updated. At the same time, you can reduce any potential risk to the business which can arise from unfortunate errors and remain compliant with HMRC.

Although outsourcing isn’t right for every business – and you have to make a judgement based on your own particular circumstances – it’s certainly worth starting the discussion with your accountant. Too often, inertia and inaction can be an obstacle to real savings in time and cost.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Prepare to share

Before May’s election, many businesses were uncertain about whether they would pursue shareholder status for key employees. Now, observes Tracy Henson of accountancy firm Barnett & Turner, there’s a definite flurry of interest. One initiative of the Coalition government back in 2013 was the introduction of ‘employee shareholder status’ or ESS. With Labour signalling that it was likely to scrap the provision – which allows staff to trade employment rights for equity – there was relatively little take-up. But with the election of a majority Conservative government in May 2015, companies now have a reasonable degree of certainty that the policy is here to stay.

The essential idea is that a business owner may want to tie in employees by giving them shares. The new regime allows employers to do this in a tax advantageous manner.

For example, you might want to reward a particularly impressive Finance Director and ensure that she stays for the long term. You issue new shares to her and she pays nothing for them, as the ‘consideration’ in legal terms is created by giving up certain employment rights (see below).

These shares must be worth a minimum of £2,000. If that’s all you choose to offer, no income tax is payable by the recipient, although if you offer more, tax is due straight away on the amount above the £2,000 threshold. (While this charge obviously belongs to the individual, it’s perfectly legitimate to offer a bonus that would help to compensate the employee for the upfront bill.)

If the amount you offer is worth more than £50,000, there are restrictions on the tax advantages. There is no tax on sale at exit up to this cap, but if the shares were worth, say, £100k when they were first offered, only half would be tax free on disposal.

Although valuation is obviously a very difficult issue in many businesses, it is possible to agree figures with HMRC up front to avoid any potential dispute. It’s important to work closely with your accountants, who will be able to make the calculations – there is a prescriptive process to go through with HMRC in order to get this agreed.

A tax-free exit can seem very appealing and the owner may be looking to part with fewer shares than they would otherwise have to. It’s worth bearing in mind that entrepreneurs’ relief only applies if someone has 5% of the company, whereas under ESS they can have a smaller % and pay 0% on an exit, not 10% under entrepreneurs’ relief.

What rights does an employee give up as ‘consideration’ for shares?

  • Unfair dismissal rights (unless the dismissal is related to discrimination or health and safety)
  • Statutory redundancy pay
  • The statutory right to request flexible working (with the exception of the two weeks after return from parental leave)
  • Certain statutory rights to request time off to train

Other rights, including statutory sick pay, paid annual leave and maternity/paternity leave, remain in place.

So it’s not for everyone, and clearly as an employer you are giving away equity if you do this, but one advantage of ESS is that it is very flexible and there are not the restrictions over which type of company can do this, which there are with a number of other tax favoured schemes such as the enterprise management incentive scheme.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Worried about auto-enrolment? Here’s a ten-point plan.

Don’t panic about your pension responsibilities, writes Jono Wilson of Barnett & Turner. Start planning ahead. If you’re running a small business, the chances are you will have heard from the Pensions Regulator by now about your staging date for auto-enrolment. Although SMEs have been given extra leeway, the time is now fast approaching when you’ll need to spring into action.

The process starts by nominating a primary point of contact (usually a partner, director or someone else in a senior position) and a secondary contact who’ll handle the day-to-day operation of the scheme.

It’s important to remember that penalties can eventually rise to as much as £50 a day or more if you’ve failed to act, so there’s a strong incentive to start making preparations.

Here’s my 10-point action plan, which should see you through the initial process and ongoing administration.

  1. Define and set-up your scheme.
  2. Assess your workforce for eligibility.
  3. Send letters to all your workers, providing details of the scheme, the contributions that will be made and the start date.
  4. Enrol all workers into scheme.
  5. Manage opt-outs and timely refunds.
  6. Enrol new starters as well as postponements.
  7. Calculate and pay over contributions.
  8. Complete an auto-enrolment declaration of compliance, within five months of the scheme starting.
  9. Keep up-to-date records.
  10. Auto re-enrol all eligible job holders every three years.

To be ‘eligible’ in the eyes of the Regulator, an employee must be over 22, but under the state pension age, and earning more than £10,000 per year. It is possible, however, for other people to choose to join the scheme and, as an employer, you may still have to make contributions.

If you have between 30 and 49 employees, your staging date will be between 1st August and 1st October 2015. If you have fewer than 30 staff, the date will depend on your PAYE reference, but can range from 1st June 2015 to 1st April 2017. Whatever your own situation, get the ball rolling by speaking to your accountants and find out exactly what support they’re able to give you.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Blowing the whistle on a key employment judgement

Jonathan Wilson at accountancy firm Barnett & Turner, has a warning for employers about the consequences of a recent test case. Back in 1998, the Public Information Disclosure Act was introduced to provide comprehensive protection for whistleblowers. If someone believed their employer to be guilty of wrongdoing – theft, for instance, or a failure to comply with legislation – the idea was that they should be able to come forward without fear of victimisation.

Although the statute was good in principle, it was widely felt to be ambiguous and there was a distinct lack of detailed guidance. This left a lot of room for interpretation.

Following the case of Parkins v Sodexho Ltd (2002), employees were able to bring ‘backdoor’ unfair dismissal claims, founded simply on the basis that a breach of their own employment contract could be subject to ‘protected disclosure’ under the 1998 whistleblowing act. In other words, if they had an individual dispute with their employer over the terms of their contract, they could claim it was an issue which was covered by the whistleblowing legislation.

The Enterprise and Regulatory Reform Act of 2013 helped to tighten the law as it stated that workers would be protected only if they had a ‘reasonable belief that the disclosure was in the public interest’. The first major test of this clause came in a case involving estate agency Chesterton Global Ltd and its employee Mr Nurmohamed, who claimed the company was relying on misleading accounts to reduce the bonus or commission that managers received. The practice not only affected Nurmohamed himself, but also around 100 other managers within the business.

Nurmohamed argued that with 100 people involved, the public interest test applied and that he had been unfairly dismissed for raising his concerns. An employment tribunal agreed, but Chesterton appealed.

In the appeal judgement, Nurmohamed prevailed again – a decision which sends a strong signal to employers that issues affecting only a relatively small group of individuals may satisfy the notion of ‘public interest’. Critically, the Employment Appeal Tribunal also stressed that it was the employee’s ‘reasonable belief’ that was important. Even if the person concerned had interpreted the situation incorrectly, the fact that their belief was objectively reasonable gave them protection in law.

So it would appear to be that the hurdle for establishing ‘reasonable belief’ does not appear to be very high. In the case of Chesterton, the fact that it was a private company and a relatively small number of people were impacted by the behaviour of the firm, did not form an adequate legal defence.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk