Welcome to our 2023 information pack for employers. This has been prepared in April 2023 for guidance purposes only and if you have any queries or are needing further information regarding the content please contact us.
Real Time Information (RTI) became mandatory for most employers with effect from 6 April 2013. PAYE and National Insurance is still processed in the same way, however you must submit payroll information to HM Revenue & Customs (HMRC) on or before the day on which you pay your employees. This is done via an electronic Full Payment Submission (FPS).
All payroll software will generate the required reports and submit these electronically online. The submitted information includes:
- the amount you paid your employee(s)
- deductions, such as Income Tax and National Insurance contributions (NICs)
- starter and leaver dates if applicable
You need to include the details of all employees you pay, including those who earn below the NICs Lower Earnings Limit (LEL), for example students or temporary staff. You no longer submit any end-of-year forms and the starter and leaver process has also been simplified. You continue to give your employee a form P45 when they leave but you are no longer required to send part 1 of the P45 or a P46 to HMRC. Instead you must report all starter and leaver information via the RTI systems in your payroll software.
If you do not comply fully with RTI then HMRC will charge penalties. Alternatively, we offer a monthly payroll processing service (dealing with all RTI submissions) from £30 plus VAT per month, we provide you with the payslips and the amount of PAYE/NI to pay each month. Please let us know if you would like to discuss this further.
For all payrolls operating under RTI, the deadline for filing any end of year adjustments is 19th April 2023.
The Employment Allowance which provides relief from paying employers NIC contributions remains at £5,000 from 6 April 2023.
Companies are excluded from receiving the allowance where the only employee earning over the secondary threshold is a director. Companies with two or more directors earning over the secondary threshold or any number of other employees earning over the secondary threshold are able to claim this allowance.
Employers are only been eligible to claim Employment Allowance if their total secondary Class 1 liability in the previous tax year was under £100,000.
Some businesses Employment Allowance counts as ‘de minimis state aid’ and there is a limit on the amount of de minimis state aid a business can receive over a 3 year period. The de minimis state aid limits applies to businesses located in Northern Ireland and makes or sells goods or wholesale electricity. For further details please click on the following link to the HMRC website. (https://www.gov.uk/claim-employment-allowance/eligibility)
Any new or current staff members who do not have a contract or written statement of employment particulars must be supplied with one as soon as possible.
The list of information which must be included in an employee contract or written statement of employment particulars was expanded to include details such as holiday entitlement, details of remuneration and working hours. A complete list of what must be included can be found on HMRC’s website (https://www.gov.uk/employment-contracts-and-conditions/written-statement-of-employment-particulars). Please check your employees’ contracts or written statement of employment particulars meets these requirements.
Employers must protect their workers from discrimination and harassment. An employer will be legally liable for harassment at work if they have not taken reasonable steps to prevent it. The Equality and Human Rights Commission has published some technical guidance on sexual harassment and harassment at work. The guide is quite long at 84 pages but is very readable. Section 2 on harassment is particularly helpful at demonstrating what harassment can look like at work, and section 5 sets out how to prevent and respond to harassment as an employer. The full guide can be found on the Human Rights Commission’s website https://www.equalityhumanrights.com/sites/default/files/sexual_harassment_and_harassment_at_work.pdf
It remains the Employer’s responsibility to ensure that all employee personal details are correctly recorded on an ongoing basis. If it is discovered by HMRC that any employee detail is incorrect at any stage then penalties may be levied.
Various documents need to be checked when employing new individuals.
Some people are automatically entitled to work in the UK. Others may have restrictions on how long they can stay, whether they can work or the type of work they can do.
It is a criminal offence to employ anyone who requires but does not have permission to work in the UK or to do the type of work that is being offered. The financial penalty is currently up to £20,000 per illegal worker (https://www.gov.uk/employers-checks-job-applicants).
There are a number of different documents that you can check to prove a new employee’s eligibility to work. Full details can be found by visiting HMRC’s website (https://www.gov.uk/legal-right-work-uk).
The rules for hiring someone from outside the UK changed on 1 January 2021. A new points-based immigration system was introduced.
A sponsor licence will be required to employ most workers and employees from outside the UK. However, you will not need a sponsor licence for Irish citizens, anyone with settled or pre-settled status under the EU Settlement Scheme and anyone with indefinite leave to remain in the UK. More information about the visa sponsorship is available at (https://www.gov.uk/uk-visa-sponsorship-employers)
Recruiting from outside the UK will also require the individual to meet certain requirements. Anyone you recruit from outside the UK for the Skilled Worker route needs to demonstrate that:
- They have a job offer from a Home Office licensed sponsor
- They speak English at the required level
- The job offer is at the required skill level of RQF3 or above (equivalent to A level)
- They’ll be paid at least £25,600 or the ‘going rate’ for the job offer, whichever is higher
The full requirements for employing people from outside the EU after 30 June 2021 can be found on HMRC’s website (https://www.gov.uk/guidance/recruiting-people-from-outside-the-uk)
It is your responsibility to ensure that PAYE and National Insurance is deducted from all payments made to employees. HMRC are actively reviewing the status of self-employed workers and if they deem a relationship to be one of employment and not self-employment, they will be seeking to collect any unpaid PAYE and National Insurance from the employer. It is important that you tell us as soon as possible if you are regularly paying any person on a self-employed basis in circumstances such that HMRC may consider their true status to be that of an employee. We are unable to check all individual payments at the time of preparing the accounts, therefore if you believe you may have made one or more payments of this nature, we recommend that you contact us immediately to discuss the details fully. For this purpose, you may ignore all payments to partnerships and limited companies as the PAYE/NI liability is normally the responsibility of the service provider under the IR35 tax legislation, unless the Off-Payroll Working rules apply
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.
Only public authorities and medium and large businesses will be subject to these rules, so small businesses will not need to determine the status of the off-payroll workers they engage. A small company is one which meets two of these criteria: its annual turnover is not more than £10.2 million: it has not more than £5.1 million on its balance sheet: it has 50 or fewer employees. For unincorporated organisations it is only the annual turnover test that applies.
In general, an employee’s average working time must not exceed 48 hours for each seven-day period, generally averaged over 17 weeks, unless the employee has agreed with an employer via an opt out agreement that the limit should not apply. Employers are required to take all reasonable steps to ensure that workers do not exceed the 48-hour limit. Such steps might include enquiring whether a worker has a second job for which they have signed an opt out agreement.
There are special regulations for young workers which restrict their working hours based on their age. These rules are set by each local authority and will need to be assessed on a case by case basis depending on where the young worker lives and work.
Employers must ensure that they take into consideration all time an employee spends on their duties when checking if an employee has worked more than 48 hours in a week, and also for ensuring employees are paid the minimum wage. HMRC have issued guidance on what constitutes working time which is available on their website (https://www.gov.uk/minimum-wage-different-types-work).
Generally, working time will consist of time spent:
- at work and required to be working, or on standby near the workplace (not including rest breaks)
- not working because of machine breakdown or lack of workload, but kept at the workplace
- waiting to collect goods or meet someone for work or waiting to start a job
- travelling in connection with work, including travelling from one work assignment or one workplace to another
- training and travelling to and from training
- at work and under certain work-related responsibilities even when workers are allowed to sleep (whether or not a place to sleep is provided)
Does not include time spent:
- travelling between home and work
- away from work on rest breaks, holidays, sick leave or maternity leave
- on industrial action
not working but at the workplace or available for work at or near the workplace during a time when workers are allowed to sleep (and you provide a place to sleep)
Flexible working is a way of working that suits individual employee’s needs, such as having flexible start and finish times, or working from home.
All employees have the legal right to request flexible working
Employees can apply for flexible working if they’ve worked continuously for the same employer for the last 26 weeks. It’s known as “making a statutory application”.
The basic steps are:
• The employee writes to the employer.
• The employer considers the request and makes a decision within 3 months – or longer if agreed with the employee.
• If the employer agrees to the request, they must change the terms and conditions in the employee’s contract.
• If the employer disagrees, they must write to the employee giving the business reasons for the refusal. The employee may be able to complain to an employment tribunal.
Employees can only make one application for flexible working per year.
Further information can be found on the ACAS website (https://www.acas.org.uk/).
The youngest age a child can work part-time is 13, except for children involved in areas like television, theatre or modelling. Children can only start full time work once they have reached the minimum school leaving age.
School aged children aren’t entitled to the National Minimum Wage and children under 16 do not pay National Insurance.
More information on employing children and the various restrictions that apply can be found at www.gov.uk/child-employment.
From 1 April 2023, the National Living Wage is £10.42 an hour for workers age 23 years and older. The minimum wage will apply for workers aged 22 and under.
There are currently 3 rates of National Minimum Wage:
- 21 to 22 year old rate is £10.18 per hour.
- 18 to 20 year old rate is £7.49 per hour.
- Under 18’s (but above compulsory school age) and is £5.28 per hour.
In addition to the above there are also special rates for apprentices. The rate is £5.28 per hour and is applicable as follows:
- apprentices under 19
- apprentices aged 19 and over, but in the first year of their apprenticeship.
Tips, service charges, gratuities and cover charges cannot be used to make up national minimum wage pay, but may still be taxed. This means that eligible workers should receive at least the national minimum wage in basic pay with any tips being paid on top. Further details about tips can be found in the section below and on HMRC’s website (https://www.gov.uk/tips-at-work).
Employees must receive minimum wage for their equivalent hourly rate for all time they are classed as working (see above Working Time).
Tips received by staff do not count towards national minimum wage. Staff who receive tips in any form must still be paid at least minimum wage for each hour of work they perform in addition to tips.
Tips may be provided to staff in several different ways, the most common of which are; as cash, included in staff’s pay packet, or distributed by a troncmaster. Tax and National Insurance may be due, but it will vary depending on how the tips are paid to staff.
Cash tips paid directly to staff by customers will be subject to tax but not National Insurance. It is the staff’s responsibility to declare this income to HMRC via a self-assessment tax return. The employer does not need to make any tax deductions from these tips.
Tips that are paid to the employer to be passed directly to staff (for example, a tip included on a bill that was paid by card) will normally be paid to staff via their wages packets and will be subject to PAYE only.
If tips are paid to the employer, who then pools them together and distributes them to staff, they will be subject to both tax and National Insurance. The individual who deals with the payment of these pooled tips is called a troncmaster and it is their responsibility to ensure the tips are treated correctly for tax and National Insurance.
Service charges that have been included on bills and are paid to staff are treated slightly differently depending on if they are voluntary or compulsory. Voluntary service charges are considered tips, so their tax and National Insurance treatment will depend on the criteria above. Compulsory service charges are treated in the same way as wages, so are subject to all deductions which apply to regular wages (tax, National Insurance, student loan etc).
More information can be found on HMRC’s website (https://www.gov.uk/tips-at-work). There are no set rules on how employers explain tips to customers and staff, but HMRC advise employers to follow their code of best practice to help avoid any queries. The code can also be found on HMRC’s website.
Deductions are often included when processing an employee’s payroll, but you must be careful that deductions do not take an employee’s pay below minimum wage. Only certain deductions are allowed to reduce an employee’s hourly rate below minimum wage. These deductions are:
- Tax and national Insurance
- Deductions that are the employee’s fault and which the contract states are the employee’s liability (e.g. till shortfalls)
- Repayments for loans, advances and accidental overpayments
- Buying shares in the company
- Employer provided accommodation
- Deductions for the employee’s own use (e.g. union subscriptions, pension contributions, personal goods etc.)
The above deductions are the only deductions that can reduce an employee’s pay below minimum wage. It is a common misunderstanding that goods required for an employee’s job (for example uniform or tools) or costs that are reclaimed from an employee per their contract (for example training costs or background checks) can reduce an employee’s pay below the minimum wage. This is not correct. If any deductions other than those in the list above would reduce an employee’s pay below minimum wage then you must only make deductions up to the point the employee is paid minimum wage. You may, therefore, be required to make deductions for several pay periods in order to reclaim the whole amount that is due to be deducted.
It’s a criminal offence for employers not to pay someone the National Minimum Wage or to falsify payment records.
Employers who discover they’ve paid a worker below the minimum wage must pay any arrears immediately.
HMRC officers have the right to carry out checks at any time and ask to see payment records. They can also investigate employers, following an employee’s complaint to them.
If HMRC finds that an employer hasn’t been paying the correct rates, any arrears have to be paid immediately. There will also be a penalty and offenders might be named by the government.
It’s the employer’s responsibility to keep records proving that they are paying the minimum wage – most employers use their payroll records as proof. All records have to be kept for 3 years, however, we recommend at least 6 years.
With the introduction of the National Living Wage the penalty for non-payment will be up to 200% of the amount owed unless the arrears are paid within 14 days.
The maximum fine for non-payment will be £20,000 per worker.
All staff (Employees and Workers) must be provided with a payslip (either physically or digitally) that details gross pay, tax deductions, other deductions and net pay. Payslips must include the following information as a minimum:
- Gross pay (before any deductions)
- Any deductions made from pay (including PAYE and National Insurance)
- Net pay
- Number of hours worked where a staff’s pay has variable hours.
Further guidance can be found on HMRC’s website, and full details regarding all information that must be provided on payslips can be found in the Employment Rights Act 1996.
HMRC charge late payment penalties on all amounts that are not paid in full and on time.
Late payment penalties will be automatically charged in-year on any late payments. The penalties charged by HMRC will vary depending on the number of late payments that have been made in a tax year. More information on penalties can be found on HMRC’s website (https://www.gov.uk/guidance/what-happens-if-you-dont-pay-paye-and-national-insurance-on-time). You can appeal any late payment penalties issued by HMRC if you believe you have reasonable grounds for appeal. Full details of how to appeal a penalty can be found on the webpage above. The government website also includes examples of reasons that can be given as grounds for appeal.
Any element of a payment in lieu of notice (PILON) that is classed as “basic pay” (any payments an employee would have received had they worked their notice period, such as basic salary, commission and any benefits the employee would have received) will be subject to tax and class 1 NIC. Any holiday accrued but not yet taken when an employee ceases employment is also subject to tax and NIC. Redundancy payments up to £30,000 are still not taxable earnings and are not subject to Employees NIC at any level. Redundancy payments over £30,000 are subject to tax and Employers NIC.
All employees are entitled to holiday pay from commencement of their employment on an accrued basis. Both the employer and employee have a responsibility to ensure that the entitlement is actually taken as holiday. It is only at the end of employment that an employee should usually receive payment as an alternative to taking holiday.
A full-time employee’s minimum paid annual leave entitlement is 5.6 weeks. There is no requirement to allow time off for bank holidays and public holidays, as many businesses remain open at these times. However, many businesses will choose to include these as part of the employee’s 5.6 weeks entitlement, particularly if the business is closed on these days.
Further detailed advice can be found on the government services and information website www.gov.uk and follow the links “Employing People” and “Statutory leave and time off”.
Holiday pay is a complicated area. HMRC state that “Workers are entitled to a week’s pay for each week of leave that they take”. The kind of hours an employee works and how they’re paid for the hours determines how a week’s pay is calculated.
|How a week’s pay is calculated
|Fixed hours and fixed pay (full- or part-time)
|A worker’s pay for a week
|Shift work with fixed hours (full- or part-time)
|The average number of weekly fixed hours a worker has worked in the previous 52 weeks, at their average hourly rate
|No fixed hours (casual work, including zero-hours contracts)
|A worker’s average pay from the previous 52 weeks (only counting weeks in which they were paid)
To calculate the average hourly rate, the hours worked and how much was paid over the last 52 weeks should be used. If there was no pay in any of the previous 52 weeks you can count back a further week(s) to ensure the calculation is based on 52 weeks in which they were paid. You can count back to a maximum of 104 weeks to find these.
If an employee is regularly paid overtime, commission or bonuses, then these payments must be included in working out the average amount paid, in at least 4 week of the paid holiday. Some employers may decide to include overtime, commission and bonus payments in the full holiday calculation (including bank holidays), but they do not have to. This is due to the law on overtime, commission and bonus payments being included in holiday pay, based on the EU Working Time Directive, which is 4 weeks’ holiday pay.
An employee should aim to take all of their holiday in the holiday year it is accrued in. The employee’s contract should contain information on carrying any untaken leave over to the next holiday year. If an employee gets 28 days holiday per year, they can carry over a maximum of 8 days to the following year if they have been unable to take these days (for example due to sickness or not being able to use holiday days due to workloads). If an employee gets more than 28 days leave then the employer can allow the employee to carry over as many of the additional holiday days as they wish.
The rates of National Insurance contributions (NICs) for both employees and employers are unchanged for 2023/24. For employees, the rate of NICs is set at 12% on all earnings between the primary threshold and the upper earnings limit, and at 2% on earnings above the upper earnings limit. For employers, the rate of NICs is set at 13.8% on earnings above the secondary threshold.
The primary threshold is set at £242 per week for 2023/24. The secondary threshold is set at £175 per week for 2023/24. The upper earnings limit is set at £967 per week for 2023/24, so that it remains aligned with the income tax higher rate threshold. All three thresholds are unchanged from 2022/23.
Please note that where your business has paid for an item contracted for in the name of an employee, which is also a benefit in kind, such items may attract a National Insurance charge and are required to be included as part of the monthly or weekly salary when calculating NIC.
Employer NICs is 0% for apprentices under 25 who earn less than the upper secondary threshold (UST) which is £967 per week (£50,270 per annum) for 2023/24. Employers are liable to 13.8% NIC on pay above the UST. Employee NICs are payable as normal.
An apprentice needs to:
- be working towards a government recognised apprenticeship in the UK which follows a government approved framework/standard
- have a written agreement, giving the government recognised apprentice framework or standard, with a start and expected completion date.
Employers need to identify relevant apprentices and generally assign them NIC category letter H to ensure the correct NICs are collected.
Under the Tax-Free Childcare scheme, which was launched in April 2017, eligible families get 20% of their annual childcare costs paid for by the Government.
The way it works is that for every 80p you pay into a Childcare Account, the Government will contribute 20p. This could mean up to £2,000 per child (the scheme assumes a maximum of £10,000 per year childcare costs per child. If you pay more, you won’t get more help).
If you currently receive Employer-Supported Childcare Vouchers then you can continue to do so, but you are not entitled to take part in the Tax-Free Childcare Scheme. Employer Supported Childcare, often referred to as childcare vouchers, closed to new applicants from 4 October 2018 and parents who wish to remain in Employer-Supported Childcare may continue to do so while their current employer continues to offer the voucher scheme, but you may wish to consider which of these two schemes is the most beneficial. The provision by employers of qualifying childcare vouchers is exempt from income tax and national insurance up to the following limits:
Where the employee joined the scheme before 6 April 2011:
£55 a week per employee
Where the employee joined the scheme on or after 6 April 2011:
£55 a week per week for a basic rate taxpayer
£28 a week per week for a higher rate taxpayer
£25 a week per week for an additional rate taxpayer
Employers are required to enrol their employees who meet certain age and earnings criteria into a pension scheme. The employer must pay contributions into the scheme.
We are able to setup an Auto Enrolment compliant pension scheme and deal with all aspects of enrolment, correspondence and contributions payments on your behalf if we process your payroll. Please contact us if you think this would be of interest.
Automatic enrolment places duties on employers to automatically enrol ‘workers’ into a work-based pension scheme. The main duties are:
- assess the types of workers in the business
- provide a qualifying automatic enrolment pension scheme for the relevant workers
- write to their workers explaining what automatic enrolment into a workplace pension means for them
- automatically enrol all ‘eligible jobholders’ into the scheme and pay employer contributions
- complete the declaration of compliance and keep records.
Whether this is an easy or difficult task depends on the type of business. A business which uses the services of casual workers, young or old workers, or workers receiving varied amounts of pay will need to spend some time in analysing its workforce. A business which only employs salaried staff will have an easier task.
A ‘worker’ is:
- an employee or
- a person who has a contract to provide work or services personally and is not undertaking the work as part of their own business.
There are three categories of workers: eligible jobholders; non-eligible jobholders; and entitled workers.
Most workers will be eligible jobholders unless the employer already has a qualifying pension scheme. These are the workers for which automatic enrolment will be required.
An ‘eligible jobholder’ is a worker who is:
- aged between 22 years and the State Pension Age.
- earning over the minimum earnings threshold (£10,000).
- working or ordinarily working in the UK.
- not already in a qualifying pension scheme.
‘Non-eligible jobholders’ may have the right to ‘opt in’ (i.e. join a scheme) and therefore to be treated as eligible jobholders
An ‘non-eligible jobholder’ is a worker who is:
- Aged between 16-21 years old or between State Pension Age – 74 years old.
- Working or ordinarily working in the UK.
- Earning over the minimum earning threshold (£10,000).
- Aged between 16 years old and State Pension Age.
- Working or ordinarily working in the UK.
- Earning above the lower earnings level for qualifying earnings (£6,240), but below the minimum earning threshold (£10,000)
‘Entitled workers’ are entitled to join the scheme but there is no requirement on the employer to make employer contributions in respect of these workers.
An ‘entitled worker’ is a worker who is:
- Aged between 16-74 years old.
- Working or ordinarily working in the UK.
- Earning below the lower earnings level for qualifying earnings (£6,240).
The categorisation of workers can be difficult in some circumstances. Please contact us if you are unsure of how to assess the types of workers you have.
For 2023/24, the minimum Auto Enrolment contribution rates are at their expected maximum of 3% employers and 5% employees, giving a total of 8% contribution (with an additional 2% tax relief available). The employer’s contribution and total contribution are minimums that must be met. If an employer chooses to pay a contribution of 6%, then the employee is only required to pay a contribution of 2% to meet the minimum total contribution of 8%, however the employee can voluntarily pay more. If an employee chooses to pay a 10% contribution, the employer must still pay their minimum 3%, even though the total contribution would be above the minimum total contribution at 13%.
Most well-known pension providers offer Auto Enrolment compliant schemes, and there are several providers who specialise in providing Auto Enrolment compliant schemes. The government low-cost scheme which all employers can use is called the National Employment Savings Trust (NEST).
It is important that the pension scheme chosen will deliver good outcomes for the employee’s retirement savings. This may mean that an existing employer’s scheme may not be appropriate as it may have been designed for the needs of higher paid and more senior employees.
To be a qualifying automatic enrolment scheme, a scheme must meet the qualifying criteria and the automatic enrolment criteria. The scheme must not contain any provisions that:
- prevent the employer from making the required arrangements to automatically enrol, opt in or re-enrol a worker
- require the jobholder to express a choice in relation to any matter, or to provide any information, in order to remain an active member of the pension scheme.
The main part of the qualifying criteria requires the pension scheme to meet certain minimum standards, which differ according to the type of pension scheme. Most employers will want to offer a defined contribution pension scheme. The minimum requirements for such schemes are a minimum total contribution based on qualifying earnings, of which a specified amount must come from the employer.
The second point above means, for example, that the pension scheme must have a default fund into which the pension contributions attributable to the jobholder will be invested. The jobholder should however have a choice of other funds if they want.
We may be able to advise you on an appropriate route to take. Please contact us.
You must complete forms P11D for ALL Employees in receipt of expense payments and benefits. There are substantial penalties which HMRC may impose for the late submission or incorrect completion of these forms.
For your assistance, we list below some points which should be considered when completing the forms: –
- Completed forms should reach HMRC by 6 July 2023.
- A form P11D is required for all directors and employees in respect of all expense payments to, and benefits provided.
- P11D information should be provided to all employees by 6 July 2023 who were in your employment at 5 April 2023.
- Expense payments not covered by the exemption mentioned below.
- Details of all benefits in kind provided for the employee or their family need to be entered on the P11D form. Where there is doubt as to whether something which has been given to an employee qualifies as a benefit in kind, full details should be returned to HMRC.
- The liability to pay Class 1A NI has been extended to most benefits in kind and the liability should be calculated using the form P11D and P11D(b).
There is a statutory exemption for certain business expenses and benefits such as;
- business travel and subsistence
- phone bills
- business entertainment expenses
- uniform and tools for work
To qualify for the exemption you must either be reimbursing the employee the actual cost or paying a flat rate to your employee at either the benchmark rate or a special rate approved by HMRC (for more information, please see travel and subsistence scale rate payments).
Employers may include taxable benefits in pay and thus account for PAYE on the benefits. However, in order to payroll benefits, employers will need to register with HMRC for the service before the start of the tax year. Employers will then not have to include these payrolled benefits on forms P11D. Please contact us if you require further information.
If you would like us to complete the forms P11D on your behalf, please ask us to supply you with our standard questionnaire for each individual employee and return these to us by 15 May 2023. Alternatively, if you would prefer for a member of our staff to telephone you to complete our questionnaire and gather the necessary information please let us know.
This is a fixed fee service. The fee for the 2022/2023 returns will be £95 plus VAT per form P11D and P9D, and £180 plus VAT per P11D(b).
The liability to pay Class 1A NI at the rate of 14.53% applies to most benefits in kind and the liability should be included on the form P11D(b). The completed return should reach HMRC by 6 July 2023. (Class 1A NI for 2023/24 will be at the rate 13.8%)
Contributions due in respect of the benefits arising in the year ended 5 April 2023 must be paid by 19 July 2023. A payslip specifically for Class 1A National Insurance Contributions will be issued by HMRC in mid-April 2023.
If Class 1A NI contributions are paid late, or either you or HMRC discover an underpayment, interest will be charged on the amount outstanding.
Failing to submit the form P11D(b) by 19 July 2023 attracts an automatic penalty at the rate of £100 for every 50 employees or subcontractors who are provided with benefits, for each month or part month that the return is submitted late. Where you have less than 50 employees or subcontractors who are provided with benefits a minimum of £100 per month will apply. If the failure continues beyond 12 months there is an additional penalty, not exceeding the amount of Class 1A NICs unpaid at the filing date.
An incorrect return made negligently may attract a penalty of 100% of the underpaid NIC.
If we are completing the forms P11D on your behalf we will advise you of the Class 1A National Insurance Contributions payable.
It is important that you maintain records for the current tax year in respect of all benefits paid to employees and directors. We strongly recommend that you keep a record of benefits paid to individuals during the course of the current tax year. This will assist you in ensuring that there are no omissions and the information provided to HMRC is therefore correct. In the normal course of preparing the business accounts we cannot and do not look at every single invoice and every single payment which has been made during the year as this would result in excessive costs. If at any time you are uncertain as to whether a payment constitutes a benefit, please contact us at that time to clarify the situation. We enclose for your assistance our standard “Individual Employee Record” which you may photocopy and use for the purpose of recording all benefits. We also enclose a copy of our “Expense Sheet” which you may also copy and amend as appropriate.
We have also enclosed a “Travel Log” which we strongly recommend is maintained in respect of all vehicles used for business purposes to support the business mileage claim. Failure to keep a log of the mileage will restrict claims for business mileage and this will result in higher assessments for taxation purposes.
As part of the government’s package to simplify the rules for taxing and charging national insurance contributions (NIC) on employer-provided benefits-in-kind (BIK) and expenses, there is a statutory exemption from income tax and NIC for low value BIK which meet certain qualifying conditions including a £50 limit for each BIK.
For directors or other office holders of close companies and members of their families or households, such trivial BIK will be subject to an overall annual cap of £300.
There are three conditions:
- The benefit cannot be a cash payment or cash voucher (this does not impact the use of non-cash vouchers and credit tokens, i.e., those that can only be exchanged for goods and services).
- The employer must bear the cost, so this exemption cannot be used with salary exchange arrangements.
- The benefit cannot be given to the employee in recognition of particular services they have or will perform or as part of a contractual arrangement.
One mobile phone may be provided to a director/employee without a charge to tax arising for private calls provided that the mobile phone contract is in the name of the employer. If an employer pays for an employee’s private mobile phone, then tax and national insurance contributions may be due.
The Cycle to Work scheme is a UK Government tax exemption initiative introduced in the Finance Act 1999 to promote healthier journeys to work and to reduce environmental pollution. It allows employers to loan bicycles and cyclists’ safety equipment to employees as a tax-free benefit provided that at least 50% of the bicycle’s use is for business purposes (which includes home to work cycling).
Although it is not necessary, a salary sacrifice arrangement may be put in place, where the employee agrees to give up part of their pre-tax salary in exchange for the hire of a bicycle to be used as detailed above. Although the bicycle remains the property of the employer, the salary sacrifice arrangement can save both employers and employees National Insurance as well as employees PAYE.
If, after the salary sacrifice arrangement has finished, the employee wishes to purchase the bicycle from the employer, HMRC has a set range of percentages based on the age and original cost of the bicycle.
A booklet entitled Cycle to Work Scheme – Guidance for Employers may be obtained from Gov.UK by using the following link which will provide you with further information:
If an employer and employee wish to take advantage of the cycle to work scheme via a salary sacrifice arrangement, we suggest that they use one of the many cycle to work scheme providers to ensure the correct paperwork including consumer hire arrangement is correctly recorded.
If an employer does not require a salary sacrifice arrangement to be put into place, they may simply purchase a bicycle for the employee to use.
An employee may be able to claim tax relief for additional household costs if they have to work at home for all or part of the week.
An employee can claim tax relief if they have to work from home, for example, if their job requires them to live far away from the office or the employer does not have an office. The employee can claim tax relief on £6 a week or the exact amount of extra costs they have incurred above the weekly amount. If the employee claims the exact amount of extra costs they will need to keep evidence such as receipts, bills or contracts.
An employee cannot claim tax relief if they choose to work from home.
More details are on the HMRC website (https://www.gov.uk/tax-relief-for-employees/working-at-home)
If company assets are used by a director/employee a benefit in kind normally arises. Assets provided solely for business purposes do not normally give rise to a benefit in kind provided that any private use is insignificant.
Where an employer provides internet access at the director’s/employee’s home solely for work purposes, or where it is not possible to break down the cost of the provision of the internet access between work and private use and where any private use is not significant and does not affect the cost of the internet access package, then no benefit in kind arises.
Where a director/employee subscribes for his own internet access at home and the employer either reimburses the cost to the employee or pays the supplier direct, any such payments are taxable as expenses payments and give rise to a P11D reportable benefit as well as a National Insurance liability. However, if the employee can show that all of the internet costs related to use wholly, exclusively and necessarily in the performance of his duties, then he may be entitled to make an expense claim on his tax return. Where there is mixed business and private use then the full value of the reimbursement to the employee will be a reportable benefit in kind.
Form P46(CAR) must be completed when an employer provides a director/employee with a car for the first time, when such a provision ceases or when the number of cars available changes. It is no longer possible for a form P46(CAR) to be completed when a car is replaced. Whilst this does remove the burden of completing the form in this particular circumstance, this may lead to underpaid or overpaid tax liabilities arising as the director’s/employee’s PAYE code will not be updated to reflect any change in car benefit. Where a form P46(CAR) is required, this must be submitted to HMRC within 28 days after the end of each Income Tax quarter. Failure to do so can incur penalties. Please contact us to discuss this if you have any queries or concerns.
The HMRC Authorised Mileage Rates which may be paid to a director/employee for business miles travelled in their own car without a taxable benefit arising are included on the “Individual Employee Record”. Please note that there is a single, statutory, tax-free rate for cars and vans of 45p per mile for the first 10,000 miles and 25p per mile thereafter, irrespective of engine size or whether the car is electric, petrol, diesel or hybrid. In addition, the employer may also pay up to 5p per mile tax free for each additional employee carried on the same business journey.
When working away on business, directors and employees may be entitled to claim the cost of reasonable accommodation, travel and subsistence from the company. A director or employee may claim the cost of an evening meal including a drink with the meal. However, if additional drinks are purchased a Class 1 National Insurance liability arises together with a benefit in kind unless the amount spent together with other incidental items falls within the £5 per night (£10 outside the UK) incidental overnight expenses exemption.
Rather than pay or reimburse directors and employees exact travel and subsistence costs incurred, you may pay a set amount to cover some common business expenses like travel and meals. These are known as ‘scale rate payments’.
You can pay either:
- A scale rate agreed with HMRC by providing examples of typical expenses
- HMRC’s pre-approved benchmark scale rates
Agreed scale rates
If you use a scale rate, which your business has agreed with HMRC, you need to ensure any directors/employees have actually incurred the travel and subsistence costs when you are reimbursing them. Otherwise the scale rate payment will be treated as an additional wages payment (and will be subject to taxes such as PAYE and National Insurance).
You do not need to check receipts for every single expense that has been incurred – it’s fine to just check a sample. HMRC suggest checking the receipts for at least 10% of employees (selected at random) per pay period to ensure the costs they are incurring are equal to the scale rate payment you are making.
Benchmark Scale Rates
If you are using the pre-approved benchmark scale rates, employers are not required to operate a system for checking expenditure in order to make benchmark scale rate payments. Instead, employers will only be required to ensure that directors/employees are undertaking qualifying travel on occasions in respect of which a payment is made.
The HM Revenue and Customs benchmark scale rates for subsistence costs are as follows:
|Minimum journey time
|Maximum amount of meal allowance
|15 hours (and ongoing at 8pm)
Where a scale rate of £5 or £10 is paid and the qualifying journey in respect of which it is paid lasts beyond 8pm a supplementary rate of £10 can be paid to cover the additional expenses necessarily incurred as a result of working late.
Benchmark scale rates must only be used where all the qualifying conditions are met. The qualifying conditions are:
- the travel must be in the performance of a director’s/employee’s duties or to a temporary place of work, on a journey that is not substantially ordinary commuting.
- the director/employee should be absent from their normal place of work or home for a continuous period in excess of five hours or ten hours.
- the director/employee should have incurred a cost on a meal (food and drink) after starting the journey and retained appropriate evidence of their expenditure.
Vans provided to directors/employees with unrestricted private use result in a benefit in kind charge for £3,960 for 2023/24 (£3,600 for 2022/23) plus an additional £757 (£688 for 2022/23) if an employer provides fuel for private use.
However, if private use of a company van is restricted to home to work travel the employee will not incur a van benefit. It should also be noted that any ‘insignificant private use’ would also not give rise to a benefit in kind. Guidance from HMRC as to what constitutes insignificant private use, includes using the van to take rubbish to the tip once or twice a year, calling at the dentist on the way home, regularly making a slight detour to drop a child off at school or stopping at the newsagent on the way to work. This differs to private use of company cars, where any private use including home to work travel will result in a car benefit.
Examples of what constitutes significant private use would include regular use of the van to do the supermarket shopping, taking the van away on a week’s holiday or using the van outside of work for social activities.
HMRC may require an employer to prove that the private use has been restricted. This may include keeping sufficient records to show that private use is restricted to home to work travel, for instance mileage logs, which could be used to substantiate any claim. This may also include making the condition clear in employment contracts or asking employees to sign a statement acknowledging company policy on what use is allowed and any disciplinary consequences.
When deciding whether double cab pick-ups count as cars or vans, HM Revenue & Customs currently interpret the legislation which defines ‘car’ and ‘van’ for tax purposes in line with the definitions used by HMRC for VAT purposes.
Dual purpose vehicles such as some ‘double cab’ pick-ups which can legally carry a payload of 1 tonne or more are currently treated as vans under current benefit in kind legislation.
Please note that some dual-purpose vehicles carry a payload of less than 1 tonne and will remain cars.
A hard-top consisting of metal, fibreglass or similar material, with or without windows is accorded a generic weight of 45kg. Therefore, the addition of a hard top to a double cab with an ex-works payload of 1010kg will convert the vehicle into a car (payload reduced to 965kg).
As with all purchases where there is a private use element, only the business proportion of the input VAT should be reclaimed.
Employer provided cars are taxed by reference to the list price of the car but graduated according to the level of its carbon dioxide (CO2) emissions. Lower benefit in kind rates apply for electric and hybrid cars to encourage employees and employers to opt for environmentally friendly vehicles.
The table below shows the percentage to use to calculate the company car benefit. These rates will remain frozen until the 2024 to 2025 tax year.
|CO2 emissions (grams per km)
|Electric Range (miles)
|2023/24 All Cars % of car’s price taxed
|1 – 50
|1 – 50
|70 – 129
|1 – 50
|40 – 69
|1 – 50
|30 – 39
|1 – 50
|51 – 54
|For every added 5g/km
Chargeable percentage is subject to a maximum of 37%
Add 4% for diesels up to a maximum of 37% (unless Real Driving Emissions Step 2 (RDE2) compliant). Diesel plug-in hybrids are classified as alternative fuel vehicles, so the 4% diesel supplement does not apply to these vehicles irrespective of RDE2 compliance.
For example, a diesel car that would give rise to a 22% charge on the basis of its CO2 emissions will instead be charged at 26%.
The Vehicle Certification Agency produces a free guide to the fuel consumption and emissions figures of all new cars. It is available on the government’s website at www.carfueldata.direct.gov.uk. These figures are not however necessarily the definitive figures for a particular car. The definitive CO2 emissions figure is recorded on the Vehicle Registration Document (V5).
The list price of a car is the price when it was first registered including delivery, VAT and any accessories provided with the car. Accessories subsequently made available are also included (unless they have a list price of less than £100).
Employee capital contributions up to £5,000 reduce the list price.
There is a further tax charge where a company car user is supplied with or allowed to claim reimbursements for fuel for private journeys.
The fuel scale charge is based on the same percentage used to calculate the car benefit. This is applied to a set figure which is £27,800 for 2023/24 (£25,300 for 2022/23). As with the car benefit, the fuel benefit chargeable to tax on the employee is used to compute the employer’s liability to Class 1A. The combined effect of the charges makes the provision of free fuel a tax inefficient means of remuneration unless there is high private mileage.
The benefit is proportionally reduced if private fuel is not provided for part of the year. Taking action now to stop providing free fuel will have an immediate impact on the fuel benefit chargeable to tax and NIC. Please note that if free fuel is provided later in the same tax year there will be a full year’s charge.
The car fuel benefit charge does not apply to electric charging as HMRC does not class electricity as a road fuel. An employee can charge their personal electric car at work with no tax charge even though they will use it for personal mileage. If an employee uses an electric company car, no tax charge arises on private mileage even if it is charged at work or if it is charged using public charges or at the employee’s home. If the employee is reimbursed for the cost of charging the electric company car at home or at a public charger, records must be kept to substantiate the claim.
No fuel charge applies where the employee is solely reimbursed for fuel used for business travel.
HMRC have published guidelines on fuel only mileage rates for employer provided cars. The advisory rates are not binding if you are able to prove that the actual cost of fuel is higher, perhaps where employees need to use particular types of car such as 4x4s to cover rough terrain. Employers can adopt the rates in the following table but may pay lower rates if they choose.
These rates are reviewed four times a year and published on the HMRC website at www.gov.uk/government/publications/advisory-fuel-rates .
Rates per mile from 1 March 2023
|1400cc or less
|1401cc – 2000c
|1600cc or less
|1601cc to 2000cc
There is also a statutory system of tax and NIC free mileage rates for business journeys in employees’ own vehicles.
The statutory rates are:
|Rate per mile
|Up to 10,000 miles
|Over 10,000 miles
Employers can pay up to the statutory amount without generating a tax or NIC charge. Payments made by employers are referred to as “mileage allowance payments”. Where employers pay less than the statutory rate (or make no payments at all) employees can claim tax relief on the difference between any payment received and the statutory rate. If an employer pays more than the statutory rate, the difference between their rate and the statutory rate will be subject to tax and NIC.
We can provide advice on such matters as:
- Whether a car should be provided to an employee or a private car is used for business mileage.
- Whether employee contributions are tax efficient
- Whether private fuel should be supplied with the car.
Please contact us for detailed advice.