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Employee share scheme-share incentive plans
Share incentive schemes are an effective way of retaining employees in the short to medium term.
In the majority of share option schemes, employees are not allowed to exercise their option until they have been with the company for a minimum period of three years.
At present there are four types of approved share schemes. These are:
Share Incentive Plans (SIP)
Saving Related Share Option Scheme
Companies Share Option Plans (CSOP)
Enterprise Management Incentives (EMI) Schemes.
The approved shares have a tax and National Insurance Contribution (NIC) advantage. Providing that certain conditions are met the company will be able to award shares to its employees free of tax and NIC.
Typically a company will establish a UK resident trust and will transfer cash into that trust. Cash will then be used to acquire shares in the company.
There are four different ways in which an employee can receive shares under a SIP:
Free shares – an employer can award up to £3,000 worth of shares per annum to participating employees. Awards may be linked to performance, such as the performance of individuals, teams or divisions.
Partnership shares – an employee can buy up to £1,500 worth of partnership shares each year (or up to ten per cent of the income for the tax year if that is less). The shares are bought out of the salary before the deduction of tax and NIC.
Matching shares – an employer can ‘match’ up to two additional free shares for every one partnership share purchased by the employee.
Dividend shares – if an employee receives shares from free, partnership or matching shares the employee can reinvest up to £1,500 per annum of dividend in acquiring new shares.
Before operating the scheme the employer must first obtain HMRC approval. The conditions that have to be met in order to get HMRC approval are:
company must be quoted (any market) or not controlled by another company
the shares must be ordinary shares but the shares can have limited or no voting rights
the employees must be offered shares on similar terms
the scheme must be open to all employees (employee with less than 18 months' service can be excluded)
employees (together with their associates) must not have a ‘material interest’ in the company. Material interest means that they are not able to control more than 25% of the ordinary share capital.
As highlighted above, for all four types of approved share schemes above there is never a charge to income tax or NIC when the shares are awarded to the employees. The future charge, if any, is dependent on the time held as follows:
Free and matching shares – the employer can introduce a clause into the scheme rule to prohibit the withdrawal of the share within three years. If there is no such clause and the employee calls for the shares within three years there will be an income tax and NIC charge at the market value of the shares at the time they were withdrawn. If the shares are withdrawn between three and five years the income tax charge and NIC will be the lower of market value of the shares on allocation and the market value of the shares at the date of withdrawal. If the shares are withdrawn after more than five years there is no income tax or NIC charge at the date of withdrawal.
Partnership shares – unlike free and matching shares the employer cannot prohibit an employee withdrawing the shares from the plan. As with free and matching shares if the shares have been in the plan for less than three years there will be an income tax charge at market value of the shares at the date of withdrawal. If the shares have been in the plan between three and five years, the income tax will be the lower of the ‘salary sacrificed’ to purchase the share and the market value of the shares at the date of withdrawal. If the shares remain in the plan for at least five years, there is no tax or NIC charge at the date they are withdrawn.
Dividend shares – the dividends used to purchase the shares are tax free (the dividends used to purchase the share are omitted from income tax computation in the year in which they are received). The employer cannot prohibit an employee from withdrawing the share from the plan. If the dividend shares are withdrawn within three years, the dividend originally used to purchase the share becomes taxable in the year the shares are withdrawn. There is no income tax if the shares are withdrawn more than three years after purchase.
Capital Gain Tax (CGT) is charged on the difference between the sale proceeds and the value of the shares at the time of withdrawal. So the CGT can be avoided if the shares are sold as soon as they are removed from the trust.
Auto enrolment spot checks
Ensure you dont get caught out by spot checks
Spot checks started last month and will be carried out across the country including Essex, Kent, Hertfordshire, Bedfordshire and Cambridgeshire.
This is part of the latest in compliance drives from the Pensions Regulator. It follows a series of spot checks carried out over the past 12 months, in London then the North East, Northern Ireland, South Wales, Edinburgh, Glasgow, Greater Manchester, Sheffield and Birmingham.
This latest round of spot checks targets employers who are still non-compliant despite penalty action and those suspected of providing false or misleading information to The Pensions Regulator about how they are meeting their automatic enrolment duties.
Make sure your clients know what they need to do to meet their on-going duties and that their records are kept up to date.
As previously highlighted a healthcare company and its managing director have pleaded guilty to misleading The Pensions Regulator about providing its staff with a workplace pension.
Birmingham-based Crest Healthcare and managing director Sheila Aluko admitted recklessly providing false or misleading information to TPR. They also admitted wilfully failing to comply with their automatic enrolment duties and were fined £20,000.
Employment benefits - whats the cost?
A refresher on the treatment of benefits, form P11D and relevant deadlines.
Employment benefits fall into the following broad categories:
Salary, which is taxed through to payroll when the money paid to the employee is usually monthly or weekly.
Taxable benefits in kind such as a company car, accommodation, loan at a reduced rate of interest and various other items, all of which should be reported on form P11D.
Shares in the employer company (or group) or options to buy such shares in the future. There are various tax schemes made available by HMRC which, if used by the employer, can reduce the tax which would otherwise be payable by the employee.
There are various tax free benefits which can be provided by the employer to the employee. These cover benefits such as health screening, late night taxis, training courses, sports facilities and many more. See the June issue of In Practice for a comprehensive list of these tax free benefits.
The employment benefits reported on a form P11D include the following:
Assets transferred from the employer to the employee
Payments made by the employer on behalf of an employee
Vouchers and credit cards made available to the employee
Living accommodation provided by the employer to the employee
Mileage allowance payments not taxed at source
Cars and car fuel provided by the employer for use by the employee
Vans and van fuel provided by the employer tor use by the employee
Interest free and low interest loans provided by the employer to the employee
Private medical treatment or insurance.
Qualifying relocation expenses payments and benefits
Services supplied by the employer to the employee
Assets placed at the employee's disposal.
Other items (such as subscriptions and professional fees)
Expenses payments made on behalf of the employee.
The employer should submit all P11Ds and one P11D(b) form to HMRC by 6 July following the relevant tax year (for the tax year 2017/18 deadline in 6 July 2018). Form P11D(b) is used to declare the amount of Class 1A NICs the employer is due to pay for the tax year. The form is required if the employer is liable to return any expenses payments or benefits on form(s) P11D. The deadline for giving employees a copy of their form P11D is also 6 July following the end of the tax year.
The Class 1A National Insurance Contributions should be paid to HMRC by 22 July (or 19 July if paying by cheque) following the end of the tax year.
Employers pay Class 1A National Insurance contributions on all the above except items (b), (c), (e) and (n).
The P11D guide for the tax year 2017/18 explains how the taxable benefits listed above are calculated and how these should be entered on form P11D.
Further useful guidance from HMRC is in Booklet 480: expenses and Benefits – A Tax Guide and Booklet 490: Employee Travel – A Tax and National Insurance Contributions Guide
Employee share schemes
The tax treatment of employee share schemes will depend on whether the scheme is a registered scheme for tax purposes and the type of scheme. View this handy introduction to the various schemes.
Revised national minimum wage from 1/4/2018
These rates are for the National Living Wage and the National Minimum Wage. The rates change every April.
25 and over
21 to 24
18 to 20
April 2017 (current)
Apprentices are entitled to the apprentice rate if they’re either:
aged under 19
aged 19 or over and in the first year of their apprenticeship
Example An apprentice aged 22 in the first year of their apprenticeship is entitled to a minimum hourly rate of £3.50
Apprentices are entitled to the minimum wage for their age if they both:
are aged 19 or over
have completed the first year of their apprenticeship
Example An apprentice aged 22 who has completed the first year of their apprenticeship is entitled to a minimum hourly rate of £7.05
New dividend tax causes problems for directors
The dividend tax comes into effect on 6 April 2016, and applies to all dividends the individual receives in excess of £5,000 per tax year. The average company director who takes a modest salary within his personal allowance, and the rest of his income from the company as dividends, will pay more tax in 2016/17 than he did in 2015/16.
Under self assessment this additional tax would be payable by 31 January 2018, as the balancing payment for that tax year. However, HMRC doesn’t want to wait that long for the extra tax, so it has amended the tax codes of many owner/directors to “code out” an estimated amount, which is approximate to the dividend tax due for the year.
The deduction in the PAYE code is labelled ‘dividend tax’, and the notes on the P2 (PAYE coding notice) say: “this is to collect the basic rate of tax due on your dividend income.” The P2 notes for a higher rate taxpayer refer to higher rate tax.
However, the good news is that the taxpayer can object to having dividend income or interest included in their PAYE code. To get the PAYE code changed they can ring HMRC, or complete the online form.
The new living wage
In April the Government’s new National Living Wage will become law.
If you’re working and aged 25 or over and not in the first year of an apprenticeship, you’ll be legally entitled to at least £7.20 per hour. That’s an extra fifty pence per hour in your pocket. The Government is committed to increasing this every year.
If you’re an employer, you’ll need to make sure you’re paying your staff correctly from 1st April 2016, as the National Living Wage will be enforced as strongly as the current National Minimum Wage.
For more details please visit the official Government living wage webpage
Shared parental pay
The Government is reforming the statutory pay and leave entitlements available to
employed parents. For babies due or adopted children matched or placed on or after
5 April 2015 a new entitlement of Shared Parental Pay and Leave (ShPP/SPL) will
replace Additional Statutory Paternity Pay and Leave (ASPP/APL). The parents of
babies due or adopted children matched on or before 4 April 2015 will continue to be
eligible for ASPP and APL. For full details follow this link.
Online learning for employers
If you have questions about your payroll, PAYE tax and National Insurance responsibilities as an employer, HMRC have launched a new e-learning site.
You can dip in and out when you need to and the e-learning will help you understand what you need to do when you take on an employee, how to deal with PAYE tax and National Insurance, including other responsibilities as an employer.
To access the help site follow this link
Changes to sick pay compensation
The Statutory Sick Pay (SSP) Percentage Threshold Scheme (PTS) ceased to exist on 6 April and will be replaced later in 2014 by The Health and Work Service (HWS).
The Percentage Threshold Scheme provided compensation to employers who experienced high levels of employee sickness absence, allowing them to recover some or all of the Statutory Sick Pay paid. Under the new rules this compensation scheme will be scrapped, leaving employers to bear the full cost.
Employers providing medical treatments recommended by HWS or an employer-arranged occupational health service, will find that this employee benefit is exempt from tax up to £500 a year per employee.
It has been announced that a benefit of the scheme for employers is that SSP records will not need to be kept. However, it is important to remember that employers will still be required to keep records of employee absence.
HWS is built around the premise of helping employers manage sickness absence better and helping employees back to work more quickly. One of the key elements is a Return to Work Plan (RtWP) which will include recommendations to help the employee return to work.
There are two elements of the Service and these are described as:
“Advice: Anyone including employers, employees and GPs will be able to seek advice via a phone line and website to help identify issues that may be affecting employees or preventing a return to work. HWS will provide information on possible interventions, adjustments or self-help measures that may support those individuals.
Assessment: Once the employee has reached, or is expected to reach, four weeks of sickness absence, they can be referred by their GP or employer for an assessment by an occupational health professional. This will identify any measures, steps or interventions that would facilitate a return to work. Recommendations for these will be included within a return to work plan that will, with the employee’s consent, be shared with their employer and GP.”
It will be interesting to see how the scheme works for employers given that they will lose the compensation payment but they can offer a tax-free benefit to employees, they have access to an advice line and, if allowed by their employees, can see the Return to Work Plan.
New publications from ACAS
ACAS - The official Arbitration and Conciliation Service for employers and employees - have released two new guides which give important and interesting information on the following subjects:
Flexible working hours
Lay offs and short time
For a full range of ACAS publications avaialble follow this link
We can also help with legal representation for employers and employees. Please contact us for more details.
Latest advisory fuel mileage rates from HMRC
HM Revenue & Customs has published new advisory fuel rates to operate from 1 September 2014. Please follow this link for the details.
New numbers for Online Services Helpdesk and Employer Helplines
From 23 April 2013, HM Revenue & Customs are changing some helpline numbers.
The helplines below are changing their telephone numbers to those shown:
Online Services Helpdesk - 0300 200 3600
Billpay Plus - 0300 200 3601
Employer Helpline - 0300 200 3200
New Employer Helpline - 0300 200 3211
You should only call these numbers if you have questions about that area of business.
For most people the new numbers will reduce the cost of calling these helplines. You can check the exact cost by calling your telephone service provider.
If you have hearing or speech impairments, the new textphone number for the:
Online Services Helpdesk is 0300 200 3603
Employers Helpline is 0300 200 3212
You will still also be able to use the old numbers (with the 0845 code), for approximately 18 months.
Online help from HMRC
Online seminars - HMRC has produced webinars (online seminars), on a variety of topics to help you understand your tax obligations better.
There are two types of webinar:
• live webinars lasting one hour that take place on specific dates and include the opportunity to ask questions throughout
• pre-recorded webinars, lasting approximately 30 minutes and are available for you to watch at any time
The webinars cover many aspects of being an employer including first steps, statutory payments, help with your end-of-year returns and Real Time Information.
Please follow this link for the online help index.
Employer alerts - Register for HMRC's free employer email alerts so that they can let you know when the latest information is available.
Follow this link to register
Currently recruiting? Have you checked your employees right to work in the UK ?
As an employer you are required to carry out document checks to ensure you only employ people who have the right to work in the UK. Checking these documents will help you identify if a person is allowed to work in the UK and also provide you with a statutory excuse against liability for a civil penalty if that person is an illegal worker.
FACT: You could receive a penalty of up £10,000 per illegal worker you employ.
The following steps will help you to not fall foul of the law:
• You must ask for, check the validity of, and take copies of original, acceptable documents before a person starts working for you
• If a person has a time limit on their right to work, you will need to carry out repeat document checks at least once every 12 months
• If a person has a restriction on the type of work they can do and, or, the amount of hours they can work, then you should make sure that you do not employ them in breach of their work conditions
• You will not have a statutory excuse against liability for a civil penalty if you knowingly employ an illegal worker, regardless of any document checks you carry out before or during a person’s employment.
You can find out more about the checks you are required to make and the documents considered acceptable on the UK Border Agency’s website at www.ukba.homeoffice.gov.uk/sitecontent/documents/employersandsponsors/ preventingillegalworking/.
You may find using the ‘Right to Work Checklist’ at the back of these guides helpful in ensuring you correctly carry out the checks.
You can also use the ‘Check if someone can work in the UK’ tool on the GOV.UK website at www.gov.uk/legal-right-to-work-in-the-uk for more information.
The UK Border Agency is making it much easier for employers to check the right to work of non-EEA nationals by rolling-out biometric residence permits (BRPs) to all those coming to live in the UK for more than 6 months. Almost a million BRPs have been issued so far in place of passport stamps and vignettes, and they will become the principal work entitlement document for non-Europeans over time.
Do you suspect illegal working?
Report it by calling the UK Border Agency’s Employers Helpline on 0300 123 4099 or Crimestoppers anonymously on 0800 555 111.
Automatic pension enrolment
Workplace pensions law has changed. Every employer has new legal duties to help their workers in the UK save for retirement. They must automatically enrol certain workers into a qualifying workplace pension scheme and make contributions towards it.
For a full guide on what you'll need to do now, on your staging date and beyond to make sure you're compliant, with help and information to support you with your new duties please follow this link
Factsheets for employers
In conjunction with ACCA, we have produced some free pdf downloads relating to some of the difficult issues that employers may be faced with. Please have a look at these subjects and let us know if you need any more help. Please follow the links below
Dealing with sickness
Contracts of employment
Probation for employees
PAYE Real Time Information
From the end of 2013 most employers will be using RTI to deal with all of its payroll PAYE/NIC processing. This is a new online based approach to all interaction with HMRC covering payroll issues. Where we currently prepare the payroll for you then you don't need to worry as we will be dealing with all of the necessary changes.
Please follow this link for notes on what is changing and how this will affect employers . As always let us know if you have any queries.
The student loans system becomes ever more complicated for employers and employees alike so for a complete guide follow this link
Company cars - changes to advisory fuel rates
These new rates apply to all journeys until further notice. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.
To find a table of the new rates follow this link
New penalties for late payment on monthly PAYE/NIC
From May 2010 you may have to pay a penalty if you do not pay the PAYE due each month, on time and in full. Although technically this has always been the case, HMRC have now annouced what amounts to a tightening of their rules.The new penalties will apply to all employers, including large employers (who are required to pay electronically) and will replace the Mandatory Electronic Payment surcharge.
The penalties will be a percentage of the amount you pay late. They will start at 1 per cent and increase to 4 per cent depending on the number of late payments in a year. There are also penalties of 5 per cent if any of the PAYE due is still not paid after six months; and again after twelve months.You will not get a penalty if you have a reasonable excuse for being late or if you are only late once in a tax year (unless that payment is more than six months overdue). You can also appeal against the penalty if you disagree with HMRC’s decision to impose it, or if you believe that the amount of the penalty is wrong.
It is very important that from May 2010 all employers ensure that payments are made on time and that any liabilities are not simply left until the annual end of year return.
Penalties for not filing starter/leaver details online
Since April 2010, employers who have more than 50 employees need to file all starter/leaver details online - P45, P46 etc. We understand that warning notices for failure to do so have been issued and the first non e-filing penalties will also start to be issued shortly. It is therefore very important that all larger employers are properly set up with online payroll software or use a suitable payroll bureau.
Paternity pay and 'fit notes'
On 6th April 2010, new regulations come into force which allow for additional paternity leave and pay. For parents of babies born on or after 3rd April 2011, eligible fathers (or partners) will be entitled to take up to 26 weeks' additional paternity leave, if the mother returns to work before the end of her statutory maternity leave period. Part of additional paternity leave will be paid if taken at the time when the mother would be receiving statutory maternity pay. This new entitlement also applies to parents who adopt.
Further information can be found following this link
From 6th April 2010, the old sick note will be replaced by the "fit note". GPs will issue fit notes focusing on what an employee can do and ways that an employee can be assisted back to work. This can include going back part-time or reducing responsibilties, until they are fully fit.
Useful guidance is available from ACAS following this link
Parents to Benefit from Increase
From April 4th 2010, the standard rates of statutory maternity, paternity and adoption pay increase from £123.06 to £124.88 per week.
Employer bulletins from HMRC
Revenue and Customs issue regular bulletins aimed at employers. These contain the latest news on various employment issues and other useful forms and contact details.
For the latest bulletin ( and access to earlier editions) follow this link
Employer roadshows from Revenue and Customs
HM Revenue and Customs are presenting a series of roadshows and exhibitions around the country during the year. These cover a wide range of topics of interest to employers.
To see the nearest venue to you and to book your place follow this link