Employment Tax Considerations
All employers should be focussed on maintaining the health and wellbeing of their employees. The financial implications on businesses from Covid-19 and ‘social distancing’ measures such as extended homeworking will require specific workforce measures.
Employer Coronavirus Statutory Sick Pay Rebate Scheme
The Coronavirus Statutory Sick Pay Rebate Scheme was announced at the March 2020 Budget as part of a package of support measures for businesses affected by the COVID-19 outbreak.
The Government have announced (19th May) that small and medium-sized employers, with fewer than 250 employees, will be able to apply to HMRC through a new scheme to recover the costs of paying coronavirus-related SSP via an online system from 26th May.
Employers will receive repayments at the relevant rate of SSP that they have paid to current or former employees for eligible periods of sickness starting on or after 13 March 2020. Tax agents will also be able to make claims on behalf of employers.
Employers who find it necessary to put employees on temporary ‘furlough’ (not working but still on the payroll) can apply to HMRC for a grant to help retain those staff. The grant will cover up to 80% of the employee’ usual monthly wage costs up to a maximum of £2,500 per employee per calendar month, plus the associated employer’s NIC and minimum automatic enrolment employer pension contributions on that wage. Employers can top this up to give employees their normal level of wages while on furlough.
This support is available to any business or organisation who had a PAYE scheme established before 28 February 2020 and needs to furlough employees who were engaged before that date.
The grant is only payable in respect of furloughed employees: those who continue to provide services or generate income (even part time) are not covered. Employee PAYE and NIC is still payable as usual whilst employer NIC and minimum automatic enrolment pension contributions will be covered by the grant. The specially designed HMRC portal to use to make a claim is expected to be available to employers by the end of April. Businesses are to treat any claim as business income subject to Corporation/Income tax and wages paid out to furloughed workers are also treated as a business expense.
Read our FAQs on the scheme
PAYE and NIC
Monthly PAYE/NIC remittances should continue unless specific payment holidays are announced by the government.
If you are struggling to meet your employer’s PAYE/NIC commitments then you should contact the HMRC Covid-19 time to pay helpline (0800 024 1222) to seek a deferral arrangement. Evidence of financial hardship will be needed. This is expected to be a straightforward process but if you have difficulties in reaching agreement with HMRC contact our tax team.
Managing staff costs
If you are considering asking staff to take a temporary pay cut or putting them on furlough, it is essential that you obtain employment law advice. If a temporary pay cut is introduced, formal employment contract changes may be required. If they are not put in place, a PAYE liability may still arise for the pay that has been reduced. This is because if an employee is still entitled to the pay that has been cut, PAYE will be due on that element even though it has not been paid. This does not apply to NIC which only arises when a payment has been received by an employee.
Where employees continue to work, HMRC has pointed out that employers must continue to pay the National Minimum Wage (NMW) for the hours worked. If workers are furloughed and paid 80% of their wages, the NMW rules do not apply as employees are not working.
If it unfortunately becomes necessary to reduce your workforce, then the existing tax and NIC rules for redundancies remain in place. Statutory Redundancy Pay is not liable to PAYE and NIC, but any additional payments made on termination require careful consideration. For help and advice please contact us.
If employees are home working then you may want to give some financial assistance. Under current legislation a £4 per week (£18 per month) allowance can be paid tax/NIC free without the proof of expenditure if an employee works from home regularly. This will rise to £6 per week for 2020/21. HMRC has confirmed that enforced homeworking during the Covid-19 crisis will mean that employees qualify for this relief – read more
This allowance is intended to differentiate between employees who are home based and those who work from home occasionally. It remains to be seen whether HMRC will see enforced homeworking as ‘regular’. Current HMRC guidance can be accessed at Homeworking - EIM1472.
As an alternative you may choose to make a loan to help an employee. If it less than £10,000, taking into account the value of any existing employee loans, then it can be made on a tax free basis and does not give rise to an Employers NIC liability. Please note if the loan is not repaid, the value that is written off becomes liable to PAYE and NIC.
If an employer sets up health screening or Covid-19 testing for employees the costs involved should not generate a tax and NIC charge. Other minor costs (£50 or less per employee) incurred by employers in relation to Covid-19 may be treated as trivial benefits which are exempt from tax and NIC.
If employees are offered any other medical assistance by an employer then the basic position will be that it is likely to be taxable unless a specific exemption applies. Therefore, if an employer pays for specific treatment directly, this will be taxable either as a benefit in kind (BIK) if paid direct to the supplier and liable to Class 1A NIC. If the employee incurs the costs and these are reimbursed, this will also trigger a BIK liable to NIC (but Class 1 NIC). However, if medical costs are incurred whilst employees are overseas for business purposes no tax and NIC charges should arise.
There are a number of other scenarios that can arise, the tax and NIC treatment of which are detailed here.
On 27 March, the Government announced that it will be relaxing the current Working Time regulations to allow employees working in ‘key industries’ to carry forward unused holiday entitlement where it cannot be used. A precise definition of the sectors covered was not released at that time but the measure was described as covering employees “working in the national effort against the coronavirus” where it is not “reasonably practical” for them to take holidays (eg NHS workers and those working in the healthcare supply chain).
This briefing is for general advice only and has been prepared in relation to legislation in place and announcements made up to 29 March 2020. Contact your local BDO employment tax adviser for advice in specific circumstances.