Date posted: 12th Jun 2024
Employment taxes can be a minefield when it comes to not only salary payments but benefits-in-kind.
It is very important to understand the implications of employment taxes and we understand that HMRC are challenging a number of areas including:
Payment of national minimum wage to directors.
This can cause some issues where the director has an employment contract. An employment contract means that the director needs to be paid at the NMW rate, so approximately £22,500.
A lot of director-shareholders are paid around £12,500 in salary with the balance in dividends. Therefore, the company could be underpaying the director, if there is a contract of employment.
This can be unforeseen, following say a management buyout where the existing employment contract continues. However, the situation can be resolved by terminating the employment contract and setting up a service contract. Legal advice is required.
Employment status of sub-contractors.
HMRC are believed to be querying the employment status of sub-contractors, that work for building companies.
Sub-contractors are usually self-employed, due to the nature of the work but HMRC are starting to challenge their employment status and ask questions about who controls the relationship, whether the worker can substitute themselves, whether there are mutual obligations between the main contractor and the sub-contractor.
IR35
HMRC are having some success at the courts, in relation to IR35.
IR35 is the HMRC guidance that allows them to over-turn the tax savings made by individuals by operating via an intermediary (usually a limited company) rather than being an employee of the business that is utilising their services.
HMRC are likely to challenge the tax treatment for payments made to “off payroll workers”.
We also understand that HMRC are challenging the use of pool cars by employees, termination payments made near retirement and certain salary sacrifice arrangements.
If you have any queries regarding employment taxes, please give us a call.
