Employment Taxes Update for the Public Sector

As we enter the second half of the tax year, you will have no doubt ticked the boxes for completing your P11D’s and P60’s and you may now be focusing on preparing your PSA calculations so that you can pay the amount due by 22 October.

There are two key deadlines to focus on this tax year

  1. 20 October 2020: inform HMRC of any errors in your CJRS calculations, if you used the CJRS arrangements; and
  2. 6 April 2021: Introduction of the Off Payroll working regulations to all businesses considered medium or large in the UK. For many already caught by the Public Sector rules, this will mean that they will need to issue contractors being considered to be engaged off payroll with a Status Determination Statement.

Furthermore, there is a change to accommodation benefit in kind rules which is likely to have an impact on organisations such as universities, independent schools and those that have historically provided employees with accommodation based on their role and responsibilities.

Let’s look at these topics in detail:

Coronavirus Job Retention Scheme (CJRS)

Over 1.2 million employers have used CJRS since it was introduced in April this year, with 9.6 million jobs being furloughed and approximately £40bn of funding provided to pay wages during this time.

The rules have become increasingly complex, both in terms of which employees qualify for CJRS, as well as how to complete the calculations, especially since the introduction of “Flexible Furlough” from 1 July 2020. Follow this link to find out more.

HMRC have stated that they appreciate that employers may have made incorrect claims given these complexities, which came at a time when many businesses were struggling to survive. However, given the extensive use of furlough and CJRS, as well as over 8,000 complaints made to HMRC’s anonymous hotline to tip off on this misusing furlough, they have now set the date of 20 October 2020 from which penalties will be charged if it is found an employer has over claimed.  Penalties could be 100% of the amount claimed, and there is also a risk of reputational damage, so claims should be reviewed as a matter of urgency.

Given the complexities, we have noticed that many organisations have found it challenging to ensure that CJRS has been operated correctly. As a result, we have been supporting on reviewing the calculations and processes, as well as reviewing the basis used for employees for whom claims have been made, to ensure that they were eligible.

Common mistakes we have found include making claims for employees who have continued to work for the business, or who were not eligible as they were not employees at the relevant start period, or because the interaction with salary sacrifice arrangements was not treated correctly.

IR35 / Off Payroll Changes

The changes to the rules regarding when a contractor can be paid via their Personal Service Company (PSC) versus via the payroll of the business for who they are working came into effect in April 2017 for qualifying Public Sector organisations within the Freedom of Information Act. 

It is estimated that the changes have generated extra revenues of £410 million since being introduced. Therefore it wasn’t too much of a surprise when it was announced in the autumn budget in 2018 that the rules were going to be introduced for all sectors, with an estimated increase in revenue of £3bn. The changes were originally meant to be introduced in April 2020.  Thankfully, with everything else going on, the introduction was pushed back to April 2021.

For those organisations who are already within the rules, there is one important change that you need to be aware of.  From April 2021, Status Determination Statements have to be issued to all contractors, which set out whether the end user considers the engagement to be one of employment (within IR35) or self-employment for tax purposes.

This is often an area of concern for organisations to demonstrate as having a consistent and robust approach to status determination can be difficult. To help with this, we have created the “Mazars IR35 Technology Tool”.

The two has two functions:

  • Undertake a detailed assessment of the employment status of an individual or PSC being considered for off payroll working and generate a Status Determination Statement that provides a decision; and
  • If an organisation is struggling to understand what PSCs it has engaged with, it has the capability of automating an analysis of your suppliers list and extracting those considered to be PSCs as per the IR35 / Off Payroll working legislation.

Our support and technology help show that organisations are taking ‘reasonable care’ in an area that is very much a hot topic for HMRC    

Accommodation Benefit in Kind changes

Lastly, and a topic that is a little more niche, HMRC is again making changes to the accommodation benefit in kind rules. A few years ago, they updated on how the customary exemption for accommodation should apply, impacting a number of employees, particularly within the Education sector. Our article outlines this is in a little more detail.

HMRC has now issued a further update and is withdrawing the Representative Occupier exemption from 6 April 2021. This means many roles that have historically had accommodation provided will not benefit from a tax exemption going forward. Many organisations in the public sector will have relied upon this exemption for a number of years.

Organisations will need to review their current living accommodation arrangements to see how many employees are affected by the removal of this exemption. Once identified, it may be that other exemptions could be utilised, i.e. statutory exemptions for the better performance of their work duties / proper performance of their employment duties / security exemption.  This will need to be considered, documented and communicated to demonstrate to HMRC controls are in place and also manage any impact on employee net pay and reward packages.

If there is no other exemption available, the benefits will be subject to the benefit in kind tax rules, with NIC payable by the employer, the rules of which are complex and can depend on what the gross rateable value of a property is based on data from the 1970s as well as costs related to refurbishments, property value etc.

Want to know more?

Please do get in touch and we will be happy to have an initial conversation with you to discuss any of the above, as well as any other tax, immigration or reward aspects you may be considering.

Contact us today