Category: Employment & Payroll

A salary sacrifice arrangement involves an agreement by an employee to lower their cash salary in exchange for non-cash benefits. Importantly, this reduction must not bring their earnings below the National Minimum Wage (NMW).

If an employee wishes to join or leave a salary sacrifice arrangement, the employer is required to update their contract, thus ensuring clarity on cash and non-cash entitlements.

Additionally, significant lifestyle changes—such as marriage, divorce, a partner's redundancy or pregnancy—may necessitate adjustments to the arrangement, allowing employees to opt in or out.

The following benefits are currently exempt from Income Tax or National Insurance contributions and do not need to be reported to HMRC:

• payments into pension schemes;
• employer provided pensions advice;
• workplace nurseries;
• childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018; and
• bicycles and cycling safety equipment (including cycle to work schemes).

In some circumstances when a salary sacrifice is tax-free, for example, swapping salary for an employer contribution to a pension scheme, the reduction in salary will reduce an employers’ NIC charge.

At Autumn Budget 2024, the government confirmed that it will go ahead with a simplification measure first announced in January 2024. This new measure will mandate the reporting of Income Tax and Class 1A National Insurance Contributions (NICs) for most benefits in kind (BiKs) in real time from April 2026. This measure is known as mandatory payrolling of BiKs.

Following the announcement in January 2024, the government consulted with a number of stakeholder groups including the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Institute of Tax (CIOT).

Based on the feedback received from stakeholders, a number of changes have been made to the rules for the mandatory payrolling of BiKs.

The main changes are: 

• the delivery of the work to mandate the real time reporting of and payment of tax on BiKs will be phased in from April 2026 – this will mean that all BiKs, with the exception of employment related loans and accommodation, will be mandated to be reported via payroll from April 2026;
• voluntary payrolling will be introduced for employment related loans and accommodation from April 2026. The P11D and P11D(b) process will still be available for those that do not want to payroll these BiKs. The government intends to mandate these BiKs and will set out a timeline in due course;
• an end of year process will be introduced to amend the taxable values of any BiKs that cannot be determined during the tax year. However, it is expected that the taxable values of most BiKs will be reported as accurately as possible during the tax year; and
• HMRC will continue to monitor the penalty position, from April 2026 to April 2027, whilst taxpayers get used to the new process of reporting BiKs. HMRC accepts that there will inevitably be a period of adjustment in the first year.

There is a tax-free limit of £30,000 for redundancy pay regardless of whether it is your statutory redundancy payment or a higher payment from your employer.

If you have been employed for two years or more and are made redundant, you are usually entitled to redundancy pay. The legal minimum you can receive is known as "statutory redundancy pay." However, there are exceptions, such as if your employer offers to keep you on or provides suitable alternative work, which you then refuse without a valid reason.

The amount of statutory redundancy pay depends on your age and length of service and is calculated as follows:

• Under 22: Half a week’s pay for each full year of service
• Aged 22 to 40: One week’s pay for each full year of service
• Over 41: One and a half weeks’ pay for each full year of service

Weekly pay is capped at £700, with a maximum of 20 years of service considered. The maximum statutory redundancy pay for 2024-25 is £21,000, with slightly higher limits in Northern Ireland.

Employers can choose to offer a higher redundancy payment, or you may be entitled to one based on the terms of your employment contract.

There are special rules to observe when employing an apprentice in the UK. Basically, an apprentice takes part in a structured training program that combines working with studying. Apprentices gain practical experience while earning a wage and working towards a recognised qualification. An apprentice can be a new or current employee.

Employers must pay an apprentice at least the minimum wage. The minimum rate is currently £6.40 an hour. Apprentices are entitled to the minimum wage for their age if they are aged 19 or over and have completed the first year of their apprenticeship.

The following steps to hiring an apprentice are detailed on GOV.UK:

1. Choose an apprenticeship for your business or organisation.
2. Find an organisation that offers training for the apprenticeship you’ve chosen.
3. Check what training funding you can get.
4. Create an account – you need this to manage funding and recruit apprentices.
5. Advertise your apprenticeship – find out how to create an advert or give your training provider permission to do this for you.
6. Make an apprenticeship agreement and training plan with your chosen apprentice.

Employers that do not want to hire and train the apprentice themselves can use a flexi-job apprenticeship agency. The apprentice will be employed by the agency but will work in their organisation.

This guidance is for employers in England. There are regional differences for those hiring an apprentice in Scotland, Wales or Northern Ireland.

Employees who are working from home may be eligible to claim a tax deduction on certain work-related bills. If their employer does not cover these expenses or allowances, they can claim tax relief directly from HMRC.

You can claim tax relief if you are required to work from home, such as if your job requires you to live far from your office or if your employer does not have an office. However, tax relief is typically not available if you choose to work from home, even if your employment contract allows it or if your office is occasionally full.

Employees can claim tax relief of £6 per week (or £26 per month for those paid monthly) to cover additional costs of working from home without needing to keep specific records. The amount of tax relief you receive depends on your highest tax rate. For instance, if you pay the 20% basic rate of tax, you will receive £1.20 per week in tax relief (20% of £6). Alternatively, you can claim the exact amount of additional costs incurred, but you must provide evidence to HMRC. HMRC accepts backdated claims for up to four previous tax years.

You may also be eligible to claim tax relief for using your own vehicle, whether it’s a car, van, motorcycle, or bike. Generally, there is no tax relief for regular commuting to and from your usual workplace. However, the rules differ for temporary workplaces, where such expenses are typically allowable, or if you use your own vehicle for other business-related mileage. Additionally, you may be able to claim tax relief on equipment purchased for work, such as a laptop, chair, or mobile phone.

If you are an employee who is working from home, you may be able to claim tax relief for some of your bills that are related to your work. If your expenses or allowances are not paid by your employer, then you can claim tax relief directly from HMRC.

The Disclosure and Barring Service (DBS) is an executive non-departmental public body sponsored by the Home Office. The DBS helps employers across the public, private, and voluntary sectors make safer hiring decisions by identifying individuals who might not be suitable for certain roles, particularly those involving children or vulnerable adults. Additionally, the DBS maintains the Adults’ and Children’s Barred Lists. The DBS checks are used across England, Wales, the Channel Islands and the Isle of Man.

There are four types of DBS checks, and each type results in the issuance of a DBS certificate to an individual. Employers are allowed to request to see this certificate in order to confirm that they are hiring suitable candidates.

The four levels of DBS check are:

• Basic DBS check
• Standard DBS check
• Enhanced DBS check
• Enhanced with Barred List(s) DBS check

The DBS also offer an Update Service that allows:

• applicants to keep their DBS certificates up to date
• employers to check a DBS certificate

The service is for standard and enhanced DBS checks only.

In order to use this service, a subscription is required. It costs £13 per year, and you can pay by debit or credit card. There is no charge for volunteers or for those living in Guernsey, Jersey or the Isle of Man.

In a move to put more money in working people’s pockets, the government has overhauled the remit of the Low Pay Commission (LPC).

This will, for the first time, ensure the independent body considers the cost of living when it makes future recommendations to government on the minimum wage.

The Business and Trade Secretary Jonathan Reynolds said:

“For too long working people have faced the worst of the cost of living crisis, but this Government is taking bold action to address it and make work pay.

The new remit to the LPC is the first of many vital steps we will take to support more people to stay in work and improve living standards.

Our focus remains on putting more money in working people’s pockets and boosting economic growth.”

The Business and Trade Secretary and Deputy Prime Minister have also instructed the LPC to narrow the gap between the minimum wage rate for 18–20-year-olds and the National Living Wage. This will be the first step towards achieving a single adult rate. 

In addition to the cost of living, the remit of the LPC will continue to consider the impact on business, competitiveness, the labour market and the wider economy.

Inevitably, these changes will increase costs for business owners and government has confirmed that they recognise the importance of providing sufficient notice of changes to the minimum wage, so the timelines remain unchanged in the new remit. Government have asked the LPC to report back by the end of October, and the rates will increase in April 2025. Employers and workers alike can be confident that they will have sufficient advance knowledge of next year’s increases.

The Check Employment Status for Tax (CEST) tool can be used to help ascertain if a worker should be classified as employed or self-employed for tax purposes in both the private and public sectors.

The service provides HMRC’s view as to whether IR35 legislation applies to a particular engagement and whether a worker should pay tax through PAYE. Additionally, the service will help to determine if off-payroll working in the public sector rules apply to a public sector engagement.

The software can be used to check the employment status of:

• a worker providing services;
• a person or organisation hiring a worker; or
• an agency placing a worker.

HMRC has said that it will stand by the result given unless a compliance check finds the information provided was not accurate. HMRC will not stand by the results of contrived arrangements, and one designed to create a particular outcome from the service. HMRC are clear that this would be treated as evidence of deliberate non-compliance and could result in higher penalties.

The service is anonymous, and the results are not stored online. However, the results can be printed and held for your own records. If any changes take place to the worker's role their status should be reassessed.

An employer can usually reclaim 92% of employees’ Statutory Maternity, Statutory Paternity, Statutory Adoption, Statutory Parental Bereavement and Statutory Shared Parental Pay. If the business qualifies for Small Employers’ relief, this figure can increase to 103%. 

Small Employers’ relief is available if the business paid £45,000 or less in Class 1 National Insurance (ignoring any reductions like Employment Allowance) in the last complete tax year before:

• the ‘qualifying week’ – the 15th week (Sunday to Saturday) before the week of the due date;
• the ‘matching week’ – the week (Sunday to Saturday) your employee was told they’d been matched with a child by the adoption agency;
• the date on the official notification if your employee is adopting a child from another country; or
• the ‘qualifying week’ – the week (Sunday to Saturday) before the death of the child or stillbirth, for Statutory Parental Bereavement Pay.

A claim for statutory payment assistance is usually made by including the claim on the Employer Payment Summary (EPS) that you submit to HMRC. You can also write to the PAYE Employer Office to ask for a repayment if you cannot set off the payments against the current year’s liabilities. You cannot do this until the start of the next tax year.

You can also apply to HMRC to pay you in advance if you cannot afford to make statutory payments.

Where an employee with a company car is provided with fuel for their own private use by their employers, the default position is that the employee is required to pay the car fuel benefit charge. The charge is determined by reference to the CO2 rating of the car, applied to the car fuel benefit multiplier, currently £27,800.

The car fuel benefit charge is not applicable if the employee pays back their employer for any private fuel provided. This is known as ‘making good’. Private fuel includes the fuel used commuting to and from work. Employees should keep a log of private mileage for each tax year, which they can then apply to the published advisory fuel rates to repay the cost of fuel used for private travel.

The advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly.

If private fuel costs are reimbursed in this way, HMRC will accept there is no car fuel benefit charge, and the employee will save the income tax that would have been charged on any on any private car fuel provided. In most cases, it will be beneficial to repay your employer for private fuel rather than to pay the income tax charge, especially if private mileage is relatively low.

The car fuel benefit charge will still be payable if it cannot be demonstrated to HMRC that the driver of the car has paid for all fuel used for private journeys, this includes commuting to and from work. To ensure that this does not occur employees will need to keep a log of private mileage and ensure that they make good the cost of all fuel provided for private use.

For the tax year 2023-24, the deadline for reimbursing private fuel provided is 6th July 2024.

The deadline for submitting the 2023-24 forms P11D, P11D(b) and P9D is 6 July 2024. These forms can be submitted using commercial software or via HMRC’s PAYE online service. HMRC no longer accepts paper P11D and P11D(b) forms. Employees must also be provided with a copy of the information relating to them on these forms by the same date. P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits.

Payrolling benefits removes the requirement to complete a P11D for the selected benefits. However, a P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled. The deadline for paying Class 1A NICs is 22 July 2024 (or 19 July if paying by cheque).

Where no benefits were provided from 6 April 2023 to 5 April 2024 and a form P11D(b) or P11D(b) reminder is received, employers can either submit a 'nil' return or notify HMRC online that no return is required. Employers should ensure that they complete their P11Ds accurately, including all the details of cars and loans provided.

There are penalties of £100 per 50 employees for each month or part month a P11D(b) is late. There are also penalties and interest if for late payments of Class 1A NIC.

Any tax or National Insurance due for 2023-24 under a PAYE Settlement Agreement (PSA) needs to be paid electronically to clear into HMRC’s bank account by 22 October 2024 (19 October 2024 for payments by cheque). This does not need to be reported on a P11D form.

From April 2026, the government will mandate the reporting and paying of Income Tax and Class 1A National Insurance Contributions on benefits in kind via payroll software. This represents a significant change to the current system and should reduce the administrative requirements and simplify the tax system for both employers and employees.

This means that the 2025-26 tax year will be the last year that employers will be able to file P11Ds and P11D(b)s with HMRC in most cases. From April 2026, tax on employment benefits will be collected in real time and not through tax codes in arrears. Class 1A National Insurance contributions will also be collected in real time for each pay period rather than at the end of the year. HMRC has said that this change will remove the need for 4 million end of year returns to be submitted.

HMRC has said that they will engage with stakeholders to discuss their proposals to inform design and delivery decisions and draft legislation will be published later in the year as part of the usual tax legislation process. HMRC will also work with industry experts to produce guidance, which will be made available in advance of 2026.

Employers that take on a new employee need to work out which tax code and starter declaration to use in their payroll software. Incorrect tax codes can lead to a new employee paying more tax than is due.

Employers will require certain information from their new employee in order to ensure that the correct tax code and starter declaration information is entered on the payroll software. In most cases, all the necessary information can be found on the employees P45. It is important to remind new employees to bring this with them on their first day of work.

If the employee does not have a P45 the necessary information can be collected by asking the new employee to complete HMRC's online starter PAYE checklist. A paper version can also be completed if the new employee is unable to use the online version. This information must be held in the employers’ payroll records for the current year and the 3 following tax years. Once the information has been collated, HMRC’s online tool can be used to work out the employee’s tax code.

The starter checklist can be used by a new employee if:

• they have a student or postgraduate loan;
• their personal details are different to those shown on their P45;
• they do not have a P45; and
• they have been sent to work temporarily in the UK by their overseas employer.

Once the checklist has been completed, the new employee should email, post or give the completed list to their employer. There is no requirement to send the checklist to HMRC.

The rules for individuals providing services via an intermediary such as a personal service company (PSC) are complex. The rules apply if the worker who provides services to a client through their own intermediary would have been an employee if they were providing their services directly to that client.

The off-payroll working rules usually shift the responsibility for deciding whether the intermediaries’ legislation applies, known as IR35, from the intermediary itself to the client receiving the service. In most cases, the client will be responsible for determining the employment status of the worker. However, if a worker provides services to a small client outside the public sector, the worker’s intermediary is responsible for deciding the worker’s employment status and if the rules apply.

You may be affected by these rules if you are:

• a worker who provides their services through their own intermediary to a client;
• a client who receives services from a worker through their intermediary; or
• an agency or other supplier providing workers’ services through their intermediary.

There are different rules that apply to those working for a small business and those working for medium or large-sized businesses.

Private sector companies and voluntary sector organisations are considered medium or large-sized if they meet two or more of the following conditions:

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

There are a number of scenarios that fall outside the off-payroll working rules. If you think you might be affected, we would be happy to help with looking at this issue.

From the start of April 2024, the government will increase the amount of funding that employers who are paying the apprenticeship levy can pass onto other businesses. Apprenticeships can currently be funded by a levy paying employer transferring up to 25% of their unused levy to a different employer. 

Under the new measures, large employers who pay the apprenticeship levy will be able to transfer up to 50% of their funds to support other businesses, including smaller firms, to take on apprentices. This will help SMEs hire more apprentices by reducing costs and enabling more employers to get the skilled workers they need while unlocking more opportunities for young people in a huge range of sectors, industries, and professions. 

Hundreds of large levy-paying employers have already taken advantage of the opportunity to transfer their unused levy funds to other businesses. As of December 2023, 530 employers including ASDA, HomeServe and BT Group had pledged to transfer over £35.39 million to support apprenticeships in businesses of all sizes.

Government has also announced an additional £60m of new government funding to fully fund apprenticeships in small businesses from 1 April 2024 by paying the full cost of training for anyone up to the age of 21 years.

This will remove the need for small employers to meet some of the cost of training and saves time and costs for providers like further education colleges who currently need to source funding separately from the government and businesses.