Taxation: Employment

The Practice note, Non-domiciled tax reforms: impact on share incentive taxation from 6 April 2008 has been updated to reflect the changes to income tax legislation as enacted by the Finance Act 2008, which received Royal Assent on 21 July 2008.

For tax years starting with 2012-13, the 0T code (rather than the BR code) will apply to post-P45 PAYE on employee shares and options.

The Chancellor delivered his 2005 pre-budget report on 5 December 2005. There are several aspects of the report that are relevant to employers and employees including maternity, paternity and adoption pay rates, and income tax and national insurance contributions.

A summary of the key points contained in the 2007 Pre-Budget Report relating to occupational and personal pension schemes. For a full report prepared by PLC Tax, see Legal update, Pre-Budget Report 2007.

An update about the new bank payroll tax announced in the 2009 Pre-Budget Report on 9 December 2009.

An update about the incentives matters which were expected to be included in the 2009 Pre-Budget Report but have not in fact been addressed.  This update includes comments from leading share schemes practitioner David Pett.

Our summary of the key business tax announcements in the 23 March 2011 Budget. 70 leading tax practitioners told us what they thought of the Budget. We have published an article incorporating their views: 2011 Budget: Keep calm and carry on.

We asked leading tax practitioners for their views on the 2012 Budget, announced on 21 March 2012. (Free access.)(Free access.)

A summary of the employment-related points arising from the 2013 Budget, which included further details on the new "employee shareholder" employment status.

An update about some additional FAQs on the new bank payroll tax published by HMRC on 24 December 2009.

An update on the decision of the Special Commissioner in A v Her Majesty's Revenue and Customs [2009] SPC 00734.

In McCarthy v McCarthy and Stone PLC, the Court of Appeal has upheld the earlier judgement of the High Court that:(1) The company's discretion to allow or deny exercise of options after leaving employment had to be exercised on the strict terms of the relevant option plan rule. The company did not have discretion to modify the proportion of an option that could be exercised under the rule, once its exercise had been permitted.(2) The company had a right to restitution of amounts of PAYE and NICs paid on the former employee's gains on the exercise of options. The company needed this because the option terms lacked an express contractual obligation for the employee to reimburse PAYE and NICs.

On 27 July, the House of Lords gave its judgment in Jones v Garnett [2007] UKHL 35.The facts are relatively common in family owned businesses. Mr and Mrs Jones each acquired half the ordinary share capital in a company. Mr Jones provided IT consultancy services via the company and earned the income of the business. Mrs Jones provided administrative support. Both took a salary but Mr Jones' salary was less than he would have earned in the market. The balance of the company's profits were paid as dividends. This reduced the total tax bill because national insurance contributions are not payable on dividends and Mrs Jones paid tax at lower rates than Mr Jones.HMRC argued that anti-avoidance rules applied to the dividends paid to Mrs Jones to treat the dividends as income of Mr Jones. The rules apply to gifts between spouses if the transferor (or spouse) has an interest in the asset or income deriving from it and the asset is wholly or substantially a right to income.Their Lordships agreed that the anti-avoidance rules applied in principle but dismissed the appeal on the basis that ordinary shares are not substantially a right to income. HMRC immediately announced that legislation will be introduced to reverse the decision.Individuals that are considering providing their services via a corporate vehicle must consider carefully whether incorporation is appropriate. Such companies are likely to be caught by the IR35 rules or the new managed service company rules. Additio

My client has been made redundant and has accepted a compromise agreement. As part of that agreement she is entitled to £1700 for an outplacement. Please can you tell me what the Inland Revenue limit is for outplacement sums like this? If it is under £1700 who is responsible for paying the tax on it?

An Ask the team looking at the main issues and practical points when a private company is considering giving an employee shares.

An Ask the team considering the implications of an individual who was engaged as a consultant (and has been taxed on that basis) arguing that they were actually an employee and so can claim unfair dismissal. This is one of a series of Ask the teams: see Employment Ask the team archive and Tax Ask the team archive.

An article that considers the tax treatment of a non-contractual payment in lieu of notice.

An update about new exclusions from the scope of the bank payroll tax, announced by HM Revenue & Customs on 12 March 2010.

The First-tier Tribunal has decided, following the Court of Appeal decision in HM Revenue and Customs v PA Holdings Ltd [2011] EWCA Civ 1414, that income tax  and NICs were due on bonuses paid to directors that were structured as dividends (Manthorpe Building Products Limited v HMRC [2012] UKFTT 82 (TC)).

The 2005 Budget covered various issues that will be of relevance to employment lawyers, including: the taxation of outplacement counselling and training, computer and bicycle exemptions, payments to employees attending universities and technological colleges, benefits relating to spinout companies and the annual review of allowances and other limits

An update about a new income tax charge expected to be levied from 6 April 2011 on the benefit to high earners of their employers' pension contributions and commitments.

Can an employee who is about to enter into a compromise agreement as a result of taking voluntary redundancy, be employed by a third party agency to do consultancy work for 1 or 2 days per week (for a period of about 6 months) for the company he's about to leave? It is thought the consultancy work will start as soon as his employment is terminated. Could this situation have consequences upon the "tax free" element of his voluntary redundancy payment?

Our client is wanting to purchase a business from an individual who is in an IVA. The Seller runs a nursery and employs between 15 to 25 employees. The Seller runs the business as a sole trader. Unfortunately, due to the Seller's financial difficulties they have been unable to pay the staff their wages. Our client is wanting to pay the staff after they transfer under TUPE but not wanting to pay the PAYE and NICs to the staff (they are wanting this liability to remain with the Seller). We have reviewed the note on obligations not transferred under TUPE which contains the provision which deals with PAYE and NICs but would like to know if we can leave the payment of the PAYE and NICs with the Seller by virtue of contract (or is this prohibited)? For the avoidance of doubt it is the payments which the Seller should have made to the staff which our client is wanting the Seller to pay the PAYE and NICs on.

In the 2007 Budget, Gordon Brown, then Chancellor, announced that the 10% starting rate of income tax would be abolished for earnings and pensions income with effect from 6 April 2008 (see Legal update, Budget 2007: Income tax allowances, rates and bands). However, this proved very unpopular as the effect would be to make the poorest members of society worse off. There were calls for the government to take action to counteract this effect (see Legal update, 10% starting rate: backbenchers withdraw Finance Bill amendment after Chancellor promises help).In response to this, on 13 May 2008, the current Chancellor, Alistair Darling, announced the following amendments to the income tax regime:1. Increasing the personal allowance for 2008/09 by £600, to £6,035, with effect from September 2008 but backdated to 6 April 2008.2. Reducing the higher-rate income tax threshold by £600 (presumably, also backdated to 6 April 2008). HMRC explained on its website that the higher-rate threshold is the total of the personal allowance and the basic rate limit, meaning that the basic rate limit (the level of taxable earnings, after the personal allowance is applied, from which higher-rate tax applies) would be decreased by £1,200 in total, to £34,800. The idea is to ensure that higher-rate taxpayers, who would be largely unaffected by the abolition of the starting rate, do not benefit from increased personal allowances.Draft legislation effecting these changes is to be included in

HMRC published changes to its Employment Income Manual on 2 August 2012.

The increase in personal allowance for 2008/09, from £5,435 to £6,035, comes into effect from 7 September 2008 and will be backdated to 6 April 2008. The basic rate tax band will also reduce from £36,000 to £34,800 with effect from the same date, also to be backdated to 6 April (see Legal update, Chancellor announces measures to counteract axing of 10% rate and Checklist, Current rates and limits). National Insurance rates and thresholds are unaffected.If the effect of these changes is that PAYE amounts collected by an employer are less than the PAYE refunds they are due to pay out to employees, money to cover these extraordinary refunds can be obtained from HMRC (see HMRC guidance, PAYE: employee tax refunds following increase to Personal Allowance). For further information, see HMRC guidance, Extra personal allowance for 2008/2009.

The High Court held that a goodwill payment to pensioners and their surviving spouses following the withdrawal of a free tax advice service is a benefit provided in connection with past service. Accordingly it is taxable under section 596 and 611 of the Income and Corporation Taxes Act 1988 as an unappproved retirement benefit scheme. Read more.

An update about the decision of the First-tier Tribunal in Thomas John Crompton v HM Commissioners of Revenue & Customs (7 April 2009).

An update about HM Treasury and HMRC's consultation paper entitled "False self-employment in construction: taxation of workers" published on 21 July 2009.

A legal update about a consultation published by HMRC and HM Treasury inviting comments on proposals to improve the operation of the PAYE system.

Draft legislation giving an automatic corporation tax deduction for most companies operating employee share schemes has been included in the Finance Bill which, if enacted as drafted, will take effect for accounting periods starting after 31 December 2002.

In Barclays Bank plc and another v Commissioners for HM Revenue and Customs [2007] EWCA Civ 442, the Court of Appeal has upheld the decision of the High Court that one-off payments made by Barclays Bank to compensate certain pensioners for the withdrawal of a free tax assistance service were "relevant benefits" that were paid "in connection with past service". Arden LJ held that the Special Commissioner had misdirected himself as to the meaning of "in connection with past service" by considering that it was necessary for a payment to be a deferred reward. There was no such requirement, and the connection contemplated by the legislation could be indirect.

Four decisions of the Special Commissioners were reported, dealing with the application of the IR35 legislation to specialist IT consultants: First Word Software Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 652. MKM Consulting Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 653. Dragonfly Consulting Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 655. Datagate Services Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 656. As the four cases were heard by three different Special Commissioners but have similar facts, they are a useful indication of the tribunal's approach to applying the IR35 legislation and also usefully illustrate the differences of interpretation and application.

On 16 September 2008, HMRC published guidance on the circumstances in which it will exercise its discretion to transfer a PAYE liability from employer to employee under the "Demibourne regulations". The effect of a transfer is that HMRC will not seek to recover PAYE income tax from an employer if the worker has paid tax on the relevant sum under self-assessment: a transfer does not impose any additional tax liability on the employee.Given that HMRC states in its guidance that it will always exercise its discretion to make a direction other than in exceptional circumstances, businesses entering into arrangements with a self-employed worker should ensure that the worker is obliged to self-assess income tax on sums paid under the arrangements.

A look at the new direct tax disclosure regime introduced by the Finance Act 2004 and its practical implications.

An explanation of the Stock Exchange’s Model Code on directors share dealings, and how it interacts with employee share schemes. The article looks at Save As You Earn (SAYE) schemes, share options (approved or non-approved), profit sharing schemes, and long-term incentive plans.

Inland Revenue have made it clear that a report will be required where the shareholders of a newly-incorporated company also work in the business. This obligation exists regardless of whether a tax liability will arise under the Income Tax (Earnings and Pensions) Act 2003.

The First-tier Tribunal has confirmed the correct approach to apportioning a global settlement payment for alleged discrimination that results in a termination of employment in Oti-Obihara v HMRC [2010] UKFTT 568 (TC).

We are offering one of our employees a compromise agreement to terminate their employment - the sum agreed is over 30k - can the additional amount be included as a redundancy payment despite being above the statutory amount and as such not liable for tax etc?

A practice note about the direct tax disclosure regime applicable before 1 August 2006. NOTE: This resource is being reviewed in light of the 2013 Budget. For more information, see Legal update, 2013 Budget: key business tax announcements.

Four decisions of the Special Commissioners were reported, dealing with the application of the IR35 legislation to specialist IT consultants: First Word Software Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 652. MKM Consulting Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 653. Dragonfly Consulting Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 655. Datagate Services Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 656. As the four cases were heard by three different Special Commissioners but have similar facts, they are a useful indication of the tribunal's approach to applying the IR35 legislation and also usefully illustrate the differences of interpretation and application.

A legal update on the ECJ's decision in Astra Zeneca UK Limited v HMRC (Case C-40/09), delivered on 29 July 2010.

The Inland Revenue has announced that the “appointed day” for the purposes of the new rules on employment-related securities in Schedule 22 to the Finance Act 2003 is 1 September 2003.

Applying the Ramsay doctrine, the Court of Appeal has held that a scheme under which an employer paid cash to acquire trust interests, and assigned those interests to directors, involved a “payment” by the employer for the purposes of the PAYE legislation.

An update about the decision of the Tax Chamber of the First-tier Tribunal in Burton v HMRC [2009] UKFTT 320 (TC), released on 18 November 2009.

On 27th November, 2002, the Chancellor announced in his pre-budget report the introduction of draft legislation expected to form part of this year's Finance Bill that will permit companies to make a statutory deduction for corporation tax purposes equal to the value of the benefit received by its employees who acquire shares by reason of their employment.

In the Budget, the Chancellor announced some important changes in employment share schemes, many of which will provide increased flexibility for companies.

The last two years have seen significant changes to the underlying tax legislation for employee share schemes and the Inland Revenue's approach to remuneration planning.

Two new tax favoured share incentive schemes will be introduced next year.

HM Revenue & Customs (HMRC) has issued a new guidance note, targeted at small and medium businesses, on the tax-advantaged childcare scheme introduced in April 2005.

The First-tier Tribunal has held that an employment agency was supplying introductory services, rather than making supplies of staff, for VAT purposes in light of the economic realities of its transactions (Reed Employment Ltd v HMRC [2011] UKFTT 200 (TC)).

The Enactment of Extra-Statutory Concessions Order 2011 was made on 30 March 2011 and came into force on 1 April 2011. This update discusses the enactment of ESC A81.

A review of the opportunities available for pan-European employee share schemes, including guidance on how to design the scheme and on the tax treatment of share options and other types of employee participation.

In McCarthy v McCarthy & Stone PLC, the High Court held that a company's discretion under an employee share scheme could only be exercised in accordance with the strict terms set out in the scheme rules governing exercise of that discretion, and the company was therefore not permitted to take into account the alleged misconduct of the optionholder. The court also held that the company was entitled to recover from the optionholder an amount equivalent to the PAYE it had paid on his option exercise.

A legal update on the summary of consultation responses received, which was published by HMT and HMRC on 10 March 2010.

Finance Act 2007.

Four decisions of the Special Commissioners were reported, dealing with the application of the IR35 legislation to specialist IT consultants: First Word Software Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 652. MKM Consulting Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 653. Dragonfly Consulting Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 655. Datagate Services Limited v The Commissioners for HM Revenue & Customs [2007] UK SPC 656. As the four cases were heard by three different Special Commissioners but have similar facts, they are a useful indication of the tribunal's approach to applying the IR35 legislation and also usefully illustrate the differences of interpretation and application.

The Revenue has updated its guidance notes for Form 42, on which companies must report, before 6 July, any transactions in shares and share rights held by employees.

The Employee Share Schemes Act 2002 received Royal Assent on 7th November, 2002 and has made a number of minor amendments to the legislation governing the Inland Revenue all-employee share ownership plan.

Following concern about the effect of the repeal of the 10% tax band on low paid workers, the Chancellor of the Exchequer, Alistair Darling, has confirmed that the Government will put in place a package of measures to help those affected. The measures include asking "the Low Pay Commission to report on what changes could be made to the minimum wage regime to support younger workers". Mr Darling has stated that any measures that are taken will be backdated to 6 April 2008 (when the repeal took affect), but has not addressed how this would be implemented if it is decided to make changes to the national minimum wage. See Full text: Chancellor's tax letter, BBC, 23 April 2008

On 14 November 2011, the government published its next steps in the plan to integrate the operation of income tax and NICs and a discussion paper on modernising the administration of the personal tax system.

HMRC has published guidance for employers and employees on the April 2011 changes to employer-supported childcare.

On 8 March 2005, the Inland Revenue gave further guidance as to the reporting obligations in respect of shares acquired by reason of employment. This guidance also makes it clear that certain acquisitions of shares that could fall within the reporting requirements do not now need to disclosed to the Inland Revenue.

An update about a PLC seminar for in-house practitioners.

Part of HM Revenue and Customs site. Provides details of the Employment Income Manual.

HMRC have clarified the application of extra-statutory concession (ESC) A11 to tax on employment-related securities and securities options. ESC A11 allows a taxpayer to split a tax year in which they change UK residence into two separate periods. As a result, income arising in the period when the taxpayer is not resident is taxed (if at all) on a non-resident basis, even though strictly it arises in a tax year of UK residence.HMRC have confirmed that ESC A11 generally will apply for employment-related securities and options charges under Part 7 of ITEPA 2003 (other than notional loan charges in a year of departure). But, the ESC may not be available if HMRC think it is being used for tax avoidance.HMRC had suggested that ESC A11 would not apply to Part 7 charges following the Finance Bill 2008 changes to Part 7 charges for resident but not ordinarily resident (R/NOR) employees (see Practice note, "Non-dom" tax reforms will change share incentive taxation from 6 April 2008). This caused alarm among share scheme tax advisers, so the latest HMRC statement is welcome.As R/NOR employees will be subject to Part 7 charges largely on the same basis as R/OR employees from 6 April 2008, ESC A11 is likely to be useful and relevant. In some cases, it may mean that shares or options are not subject to a Part 7 charge if received during the "non-UK part" of a year. However, ESC A11 will not always be available to an R/NOR taxpayer arriving in the UK, as it requires a new residen

HMRC published Revenue & Customs Brief 28/11 on 28 July 2011. It sets out HMRC's revised view of the VAT implications of providing employee benefits under salary sacrifice arrangements. 

HMRC has confirmed that it does not regard the First-tier Tribunal's decision in Reed Employment Ltd v HMRC [2011] UKFTT 200 (TC) as applying to employment businesses supplying workers as principal. (Revenue & Customs Brief 32/11, published on 24 August 2011.) 

HMRC have proposed four new measures which would enable it to investigate cases where there are reasonable grounds to believe that a promoter has failed to comply with the tax disclosure regime introduced by Finance Act 2004. A technical note and draft clauses published on 18 December 2006 include proposals which would give HMRC power to require a promoter to explain why he has not made a disclosure and to request a tribunal to make an order obliging a promoter to make a disclosure. Compliant promoters are likely to welcome this measure although there are some concerns about how it will operate in practice.

An update about HMRC guidance published on 12 December about tax-privileged childcare.

An update on HMRC's investigation into the tax treatment of temporary workers under Travel and Subsistence Schemes and Mobile Worker Schemes.

A legal update on HMRC's lease premium settlement initiative, launched on 7 June 2010.

An update about new HMRC FAQs on the bank payroll tax.

HMRC published guidance on dual contract arrangements on 19 March 2012.

HM Revenue & Customs has issued a revised Statement of Practice on payments made by employers to employees attending full-time education courses at universities and technical colleges. The Statement of Practice sets out those circumstances in which payments from an employer to an employee for periods of attendance on full-time courses (including sandwich courses) can be exempt from income tax: The employee must be enrolled at the educational establishment for at least one academic year and attend the course for at least 20 weeks of that academic year. The educational establishment must be a recognised university, technical college or similar establishment, open to the public generally and offering more than one course of practical or academic instruction (ruling out an employer's internal training school or one run by an employer's trade organisation). The payments (including lodging, subsistence and travelling allowances but excluding tuitition fees) do not exceed £15,480 for the 2007/8 acadmic year, which starts on 1 September 2007. See Statement of Practice 4/86: Payments made by employers to employees when in full-time attendance at universities and technical colleges, HMRC, revised August 2007.

We have made an offer of employment to someone who lives in Germany. Their work will be split between Berlin and London - but the request is that I issue them with a UK employment contract. (We have an office in Berlin which does employ locally - but this employee would be part of the London office but living in Germany.) There would be travel and accommodation expenses that the employee would incur as part of completing the London part of their role which the company will pay an allowance for to ensure the employee is not "out of pocket". This situation raises issues for me such as: Which country would they be paid in? Where would they be liable for income tax? Which employment law would be applicable? Would allowances for accommodation and travel have taxable benefit status? Could you advise how to approach this - or direct me to the relevant articles on the site to research it.

I am advising an individual who has brought discrimination claims in the ET. The individual is not an employee but may be a worker under s230 ERA. Does the £30,000 threshold apply, and if so, how?

Where a Claimant has brought a claim for unpaid wages and unfair dismissal, and a global settlement figure is agreed (which is less than the amount claimed for unpaid wages), should any of that settlement payment be subject to tax?

I have a case where I am defending an unlawful deduction of wages claim in connection with a demotion that the claimant argues was applied unilaterally. The claim is not for breach of contract because the employee remains employed. My question is whether a tribunal will award compensation on the basis of her net losses or whether (given I cannot see why the tribunal compensation would be tax-free as it is not made in connection with the termination of employment) whether any sums would be awarded gross with the intention for the employee to have to pay the tax on any sums received.  

An ex-employee is claiming some unpaid wages up to his termination date. He is doing this by way of a County Court claim, rather than via the Tribunal. He has not stated the exact basis of his claim but it is presumably intended to be a breach of contract claim. In terms of the calculation of the amount that might or might not be due, would the sum be free of tax (as it would be damages in a breach of contract claim) or taxable (because it relates to earnings pre-dismissal)?

We are currently advising a client in relation to a compromise agreement. In the compromise agreement there is a clause that states that if the client breaches the compromise agreement the company is entitled to be repaid the compensation received by the client. The compensation is greater than the £30,000 exemption and so the compensation will be paid less tax. The company states that if the compromise agreement is breached, they will be entitled to the gross sum back but have said that the client will be entitled to claim the tax paid back from HMRC. Is it possible for the client to claim this money back from HMRC? I cannout find anything helpful on HMRC's employment income manual.

If an employer deducts Tax and NI contributions for employees under the PAYE scheme but fails to pay them to HMRC do the employees lose the benefit of such contributions such as state benefits and pension? Is there a central fund whereby they can seek to recover lost contributions?

In Impact Foiling Ltd v HM Revenue & Customs the Special Commissioner held that the wording of the relevant statutory provisions meant that employees are liable to income tax and employers are liable to class 1A NICs on the cost of private fuel expenses where the employer initially bore the costs and was then reimbursed by the employee in a subsequent tax year. To avoid an income tax and NIC charge on private fuel, employers should make it clear that employees are required to reimburse any private fuel costs and ensure that they do so within the relevant tax year.

An amendment is to be introduced at the Report Stage of the Finance Bill concerning the participation of part-time directors in share schemes.

This note is a general summary of the principles underpinning UK income tax. It describes what income is and how it is taxed. It also provides links to notes describing other aspects of the UK income tax rules, such as calculation of income and exemptions from income tax.

The Special Commissioners have held that compensation for loss of earnings in a constructive dismissal case was taxable.

The Court of Appeal has confirmed that tax may be assessed on a payment on termination of employment which involved the performance of duties in the UK even though the recipient is not resident and has not worked in the United Kingdom in the tax year in which the employment ends.

The Commissioners for Revenue and Customs Act 2005, which received Royal Assent on Thursday, 7 April 2005, will create a new department integrating the Inland Revenue and HM Customs and Excise. The new department will be called "Her Majesty's Revenue and Customs".

I have a client who is about to employ someone for 16 hours a week - he has agreed a rate of £8 per hour but instead of paying him, the employee will be entitled to use the client premises to carry out his own business for a set period rent free. The premises are a gym and the employee also runs a business as a self employed personal trainer. I am struggling with how to express this in a contract of employment without contravening tax and minimum wage legislation - would it be better to have it all on a self employed basis or are there any other issues I have missed!

The seventh article in our series on international JVs analyses the relevant employment issues, with country-specific Q&A for France, Germany, Italy, The Netherlands, the UK and the US.

HMRC published guidelines on its risk-based approach to customers' compliance with the intermediaries (IR35) tax rules on 9 May 2012.

If an ex gratia redundancy payment is expressed to be "dependent on affected staff delivering an orderly hand-over" does this convert the payment into a terminal bonus that is taxable, or does the payment still remain capable of falling within the £30k tax free element?

Am I right in understanding that if a compromise agreement is to be completed now (that is after 6 April 2012) and the settlement figure is substantial (in excess of £80,000) that it is now more tax efficient for the payment to be effected before the issue of the P45? (As if it is after personal allowances cannot be taken into account?)

In the long Compromise Agreement the precedent is as follows: "3.2 The Company and the Employee believe that [the first £30,000 of] the Termination Payment will be tax free. [The remainder of the Termination Payment will be subject to deductions for income tax at the appropriate rate.] The Employee shall be responsible for any further tax and employee's National Insurance contributions due in respect of the Termination Payment. [The Termination Payment will be paid to the Employee [before OR after] receipt by him of his P45.]” Should the reference to "The remainder of the Termination Payment will be subject to deductions for income tax at the appropriate rate" actually read: "The remainder of the Termination Payment will be subject to deductions for income tax and national insurance at the appropriate rate”. If not, why is national insurance not payable on the balance of the Termination Payment especially given the next paragraph states that the Employee will be responsible for any further tax and employee's National Insurance contributions due in respect of the Termination Payment. If you are of the view that National Insurance is not payable on the Termination Payment I shall advise my Client as the Employer that it should not deduct National Insurance but only Income Tax from the balance of £40,000. Would that be right?  

Hi, maybe I've misunderstood, but in the model settlement agreement annexed to the Ending the Employment Relationship consultation doc, in clause 5 where it covers the settlement sum (i.e. normally tax free up to 30K) there is reference to the settlement sum including accrued but untaken holiday - is this not a payment in lieu of contractual entitlement, hence taxable? Is mixing the two concepts putting at risk the tax treatment of the wider settlement sum?

The First-tier Tribunal has allowed a consultant's IR35 appeal (MBF Design Services Limited v HMRC [2011] UKFTT 35). (Free access.)

Our summary of the key business tax announcements in the 22 June 2010 Budget. (Free access.) Leading tax practitioners told us what they see as the most important announcements in the Budget, see Article, June 2010 Budget: the second half.

As a result of lobbying by ifs proshare, a last-minute change is expected to retain the current flat 20% PAYE on post-P45 charges from 6 April 2011, but only for tax due on employee shares, options and other securities under Part 7 of the Income Tax (Earnings and Pensions) Act 2003. (Free acess.)

In Impact Foiling Ltd v HM Revenue & Customs the Special Commissioner held that the wording of the relevant statutory provisions meant that employees are liable to income tax and employers are liable to class 1A NICs on the cost of private fuel expenses where the employer initially bore the costs and was then reimbursed by the employee in a subsequent tax year. To avoid an income tax and NIC charge on private fuel, employers should make it clear that employees are required to reimburse any private fuel costs and ensure that they do so within the relevant tax year.

The Special Commissioner has allowed an appeal by the television presenters, Richard Madeley and Judy Finnigan, against HR Revenue & Customs' disallowance of their claims to deduct their agent's fees from their employment income for tax purposes. Read more.

Amendments to the provisions in the Finance Bill relating to managed service companies (MSCs) (see Finance Bill, Notices of amendments, 10 May 2007) have been agreed by the Standing Committee (Public Bill Committee Proceedings, 15 May 2007). The changes improve the position of employment businesses and employment agencies by making it clear that an organisation will not be caught by the definition of an MSC provider or fall within the third-party recovery rules merely by placing an individual with a client who wishes to obtain the individual's services (including by contracting with an MSC for the provision of those services). For further information see Practice note, Managed service companies.

HMRC and HM Treasury have published draft legislation which will make certain third parties liable for the unpaid PAYE debts of managed service companies (MSCs) from April 2007. Those that may be caught include anyone who has encouraged, facilitated or been involved in the MSC arrangement. This could include employment businesses, end-user clients and the individual worker whose services are provided via the MSC.

A legal update on the employment implications of the March 2010 Budget.

A summary of the main pensions-related points in the 2010 Budget.

The link below will take you to a transcript of the judgment provided free on the British and Irish Institute for Legal Information website.

An update about the tax and NICs exemptions for medical check ups, following an HMRC announcement on 10 December 2008.

Changes in the way that companies account for National Insurance contributions (NICs) on employee share schemes, including share option schemes and long term incentive plans (LTIP), have caused confusion.

The National Insurance Contributions Bill was given a First Reading in the House of Commons on 12 November 2007 and has now been published, together with explanatory notes. For further information on the Bill, see Legal update, Queen's Speech 2007: employment-related proposals. HMRC has also published Frequently Asked Questions on the Bill. See National Insurance Contributions Bill and explanatory notes.

The Inland Revenue has recently confirmed that remuneration in the form of units in an authorised unit trust is not excluded from constituting "pensionable remuneration" (or "relevant earnings" where appropriate). Consequently, since unit trust bonuses are not subject to national insurance contributions, they are likely to be used increasingly instead of cash bonuses.

A legal update about the revisions to HMRC's Employment Status Manual published on 5 May 2010.

The National Insurance Contributions Bill 2005 will, when passed, extend much of the anti-avoidance concepts of disclosure and retrospective legislation (introduced earlier this year in the area of employment tax) to NIC. It will be possible to make retrospective NIC regulations where retrospective income tax legislation has already been made. In addition there will be a reporting obligation where the only effect of a planning structure is to save NIC.

We have published a new practice note on pay as you earn (PAYE).

An update on the publication of a new Practice note, Personal liability of senior accounting officers.

PLC Employment subscribers can access a new tax legislation tracker.

Commons select committee issues a warning on equality issues. Joint Committee on Human Rights brands new highly skilled migrant rules "unlawful". Pay disparity may give rise to equal pay claims across the civil service. DCLG publishes progress report on race equality and community cohesion. Debate on taxation of employee assistance programmes likely to be resolved. Concern over positive action in Environment Agency training scheme. City & Guilds report finds managers are unprepared for supervision of remote workers. Disability Rights Commission publishes 2006/07 annual report.

Tripartite Social Summit discusses progress made under the EU's Growth and Jobs Strategy. Commission adopts 2008 work programme of the Roadmap for equality between men and women. Indian trade minister criticises points-based immigration rules. Changes to VAT rules for temporary workers could be costly. Conservatives propose changes to maternity leave.

This week's news round-up includes details of the Employment Tribunals Service's new IT system, settlement of Sid Saeed's sexual orientation claim against Deutsche Bank, the decision of members of the Employer's Forum for Belief to extend flexible working practices to celebrate holy days and festivals and the publication of Revenue guidance on the tax treatment of employees who hold shares in a company which acquires intellectual property from a research institution.

An examination of the issues that companies embarking on an offshoring should consider.

In Parade Park Hotel and another v The Commissioners for Her Majesty's Revenue and Customs the Special Commissioner held that a painter and decorator, who had worked for the hotel between 1999 and 2004, was not an employee. The case is a useful illustration of the determination of employment status.

The First-tier Tribunal has determined that tax that an employer failed to deduct under PAYE was treated as deducted for the purposes of the employee's tax self-assessment.

An update about the decision of the First-tier tribunal in Clinton v HMRC [2009] UKFTT 337 (TC), released on 2 December 2009.

The Upper Tribunal released its decision in Kuehne & Nagel Drinks Logistics Ltd, Stott and Joyce v HMRC [2010] UKUT 457 (TCC) on 21 December 2010.

A note about the obligation on senior accounting officers of large companies to establish and monitor appropriate tax accounting arrangements for financial years beginning on or after 21 July 2009. The legislation for this is in section 93 of, and Schedule 46 to, the Finance Act 2009.

The Chancellor, Alistair Darling, delivered his first Pre-Budget Report on 9 October 2007. It included a number of items that may be of interest to employment practitioners: The Government will consult this autumn on a number of proposals intended to simplify the PAYE system and the payment of NICs by the self-employed. For further information, see Legal update, Pre-Budget Report 2007: Consultation on simplification. Holiday pay NIC-avoidance schemes will be stopped for most employees. This means that payments to most employees from holiday pay schemes will be subject to NICs from 30 October 2007. Workers in the construction industry will still be able to benefit from holiday pay schemes until 30 October 2012 when the exemption will be completely withdrawn. For further information see Legal update, Pre-Budget Report 2007: Holiday pay NIC avoidance schemes stopped for most employees. The multiplier for the fuel benefit charge will increase from £14,400 to £16,900 from 6 April 2006. For further information, see Legal update, Pre-Budget Report 2007: Increase in fuel benefit charge. However, a recent Treasury review of the case for further aligning the ways in which income tax and NICs are administered and collected has found no general case for the further alignment of income tax and NICs systems. For further information, see Legal update, Pre-Budget Report 2007: Review finds no general case for the further alignment of income tax and NICs systems.

In Demibourne Limited v HM Revenue & Customs [2005] SpC 00486, the Special Commissioners held that where an employment relationship exists, the employer is responsible for deducting income tax under the PAYE system. Accordingly, HMRC must recover underpaid tax from the employer even if the employee has already paid tax under self-assessment on the basis that he was self-employed. For a summary of the case, see Legal update, Income tax: operation of PAYE. While the decision of the Court of Appeal in McCarthy v McCarthy & Stone plc [2007] EWCA Civ 664 recognises that employers have a right of restitution in respect of PAYE liabilities, it is clearly preferable to allow HMRC to offset the tax paid by the individual against the employer's PAYE liability. A right of set-off already exists so far as wrongly paid NICs are concerned.On 27 February 2008, HMRC released a statement (via the Chartered Institute of Taxation's website) confirming that HMRC intends to effect a legislative solution which will come into force on 6 April 2008.The draft regulations are not yet available but the intention is to extend the circumstances in which HMRC can transfer a PAYE liability from the employer to the employee. In effect, the amount of income tax assessed on or paid by the employee will be set against the employer's liability. The employer will remain liable for any excess together with interest and penalties.Source: Demibourne statement.

The Queen's Speech was delivered on 8 May 2013 and set out the government's plans to make changes relating to national insurance contributions, immigration, apprenticeships and the employment tribunal's power to make wider recommendations in discrimination claims under the Equality Act 2010.

We have added a new standard clause, Relocation expenses clause and its associated drafting note, Relocation expenses: drafting note. The standard clause provides for the employer to contribute towards the employee's relocation costs and includes repayment provisions if the employee ceases to be employed within a specified time limit aftter receipt of the relocation expenses. The drafting note gives an overview of the tax exemption which is available in relation to relocation expenses.

On 16 July 2008, HMRC published a summary of responses received to the consultation on its proposals to tax benefits in kind through the payroll. HMRC also set out how it proposes to proceed in the light of these responses. Its proposal to abolish the £8,500 earnings threshold in relation to the taxation of certain benefits was dropped in April 2008 as a result of adverse comments.

HM Revenue and Customs have issued new guidance on dual contract arrangements setting out a number of elements which may trigger a challenge of the validity of those arrangements. If HMRC successfully challenge a dual contract arrangement, the PAYE and NIC implications for employers may be significant.

The Special Commissioner has allowed an appeal by the television presenters, Richard Madeley and Judy Finnigan, against HR Revenue & Customs' disallowance of their claims to deduct their agent's fees from their employment income for tax purposes. The Special Commissioner found that they were "theatrical artists" for the purpose of section 201A(5) of the Income and Corporation Taxes Act 1988.

This practice note is a guide to the use of salary and bonus sacrifice arrangements.

In SCA Packaging Limited v Revenue and Customs Commissioners the Special Commissioners held that the part of a termination payment comprising unexpired notice pay was income "from" employment for the purposes of section 19 of the Income and Corporation Taxes Act 1988 (ICTA 1988) (now section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)). Read more.

The Inland Revenue has published guidance on the income tax and national insurance contribution treatment of share option gains made by employees who remain in the same job but change tax residence between receiving and exercising options.

A look at the choice of share incentive schemes for a UK listed company.

This is a question re tax on ex-gratia payments. My client's husband was due to receive circa 19,000 redundancy payment via a comp agreement. Unfortunately he died 10 days before his EDT and signing the CA. The employer has decided to honour the payout but will only pay in monthly installments and states it will deduct 20% in tax. I have advised my client she has no legal entitlement to the payoff as the employment was terminated by reason of her husband's death not the redudancy. However, is there any legal way they can avoid having to pay the tax? I suspect not but thought I'd check.

Should P45s be issued on a TUPE transfer?

A look at some of the issues employers and employees are now encountering and how they can be addressed.

On 29 January 2008, the Special Commissioner released her judgment in the case of Grace v HMRC [2007] SPC 00663. This case provides a useful summary of the authorities on the meaning of "residence" and "ordinary residence", and suggests that taxpayers should be wary of relying on HMRC's guidance in IR20.

A standard letter to be used as part of a contractual bonus sacrifice arrangement.

A standard letter to be used as part of a bonus sacrifice arrangement.

The Supreme Court has refused the taxpayers permission to appeal against the Court of Appeal's decision in Kuehne + Nagel Drinks Logistics Ltd, Stott and Joyce v HMRC [2012] EWCA Civ 34.

HMRC is to deal with the problems associated with the formal enactment of an existing extra-statutory tax concession in April 2011.

On 6 December 2011, HMRC published a response document in which it confirms it is consulting on an amendment to the tax exemption for legal costs on termination of employment in section 413A of the Income Tax (Earnings and Pensions) Act 2003. 

HM Revenue & Customs require companies in which shareholders are also employees to file an annual return reporting various types of transactions in those shares, such as acquisition (including via option exercise) and variation of share rights. The return for 2005-06 is due in by 7 July 2006, whether sent out to the company or not. Penalties may be payable if the return is not filed.

A document tracking the development of certain notable pieces of proposed new legislation relating to employment taxation.

A legal update on the decision of the First-Tier Tribunal in Colquhoun v Revenue & Customs [2010] UKFTT 34 (TC), released on 14 January 2010.

This is a short briefing note for employers on the tax implications of staff parties and gifts to employees.

In Samson Publishing Ltd and others v HMRC [2010] UKFTT 489 (TC), a company was liable to Class 1A NICs, and its directors were liable to income tax, when the company made available to the directors cars that the company and directors jointly owned. Christensen v Vasili [2004] STC 93, in which the High Court held that co-ownership of a car did not stop the employer making it available to the employee for the purposes of the income tax benefits code, was not distinguishable from this case.

In Porter v HMRC the Special Commissioners held that the vesting of a share award after termination of employment, did not create income "from" employment for the purposes of section 19 of the Income and Corporation Taxes Act 1988 (ICTA 1988) (now section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)) but rather fell within section 148 of the Income and Corporation Taxes Act 1988 (ICTA 1988) (now section 403 of ITEPA 2003). Vesting was determined by the terms of the termination agreement (rather than by the share award plan) and was entirely at the employer's discretion, taking into account the employee's conduct post-termination.

In SCA Packaging Limited v Revenue and Customs Commissioners the Special Commissioners held that the part of a termination payment comprising unexpired notice pay was income "from" employment for the purposes of section 19 of the Income and Corporation Taxes Act 1988 (ICTA 1988) (now section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)). The payment was therefore taxable even though there was no payment in lieu of notice (PILON) clause in the employment contract and so no contractual right for the employer to make a PILON.

As promised in the 2007 Pre-Budget Report, on 13 December 2007, HM Revenue & Customs (HMRC) published a consultation document seeking views on its proposal to include all benefits and expense payments in the payroll. The consultation document also contains a proposal to remove the £8,500 a year earnings threshold, below which employees are not taxed on certain benefits.While the proposals would provide greater certainty and consistency of treatment, it is far from clear that they would achieve the significant reduction in administrative burdens and compliance costs for employers, that HMRC anticipates. What is clear, however, is that implementing the proposals will bring forward the due date for payment of tax and could have a significant impact on an employee's net pay in a tax month.HMRC requests comments on the proposals before 14 March 2008.

The First-tier Tribunal has determined that income tax was due on £30,000 paid under a compromise agreement as compensation for termination of an office and employment, despite evidence that the amount represented the refund of consideration for the grant of a share option (Reid v HMRC [2012] UKFTT 182(TC)). (Free access.)

A legal update on the EAT's decision in Yorkshire Housing Ltd v Cuerden UKEAT/0397/09.

A summary of those aspects of the 2006 budget that are relevant for occupational pension schemes. The issues addressed in the budget all arise out of pension scheme tax simplification.

The 2008 Budget has been quiet from an employment perspective. The only developments of note relate to the VAT arrangements in respect of the supply of temporary workers by employment businesses, which will be withdrawn from 1 April 2009. The Government has also indicated that it may take action to prohibit tax relief for ordinary commuting expenses being claimed by workers who participate in structures such as umbrella companies with employment businesses.

The Finance Act 2007 was given Royal Assent on 19 July 2007. This update is a brief summary of the main provisions that may be of interest to employment lawyers.

We asked leading tax practitioners what they saw as the key points of interest for the City in the 2007 Pre-Budget Report.

The Checklist, Current rates and limits has been revised and updated to take account of these increases. (Free access.)

The Practice note, Salary sacrifice arrangements has been updated.

In Porter v HMRC the Special Commissioners held that the vesting of a share award after termination of employment, did not create income "from" employment for the purposes of section 19 of the Income and Corporation Taxes Act 1988 (ICTA 1988) (now section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)) but rather fell within section 148 of the Income and Corporation Taxes Act 1988 (ICTA 1988) (now section 403 of ITEPA 2003). Vesting was determined by the terms of the termination agreement (rather than by the share award plan) and was entirely at the employer's discretion, taking into account the employee's conduct post-termination.

I am defending a claim for a Respondent brought as an unlawful deduction of wages for non paymnet of commission to an employee (claim started post resignation). There is a clear dispute that there is any contractual right to any commission as claimed at all let alone as to the amounts, and we argue alternatively that even if a contractual right exists the amount of commission would be zero. We wish to compromise for commercial reasons (for less than £30k). On the basis we dispute the claim as above, would a settlement sum paid be taxable?

I am looking at when- for tax purposes, someone is an employee or self employed. We have several people who work for us on a self employed basis, in fairly low paid jobs. Some are paid through companies and others are paid to themselves. We are concerned that they may be tax avoiding by being paid through companies rather than the more usual route as employees. Is the Council ultimately responsible or does the fact we pay directly to a company or individual and rely on them to pay their tax make them liabile. It seems guidance from HMRC suggests that they should be paid as employees but I am not sure about what the law actually requires. We felt that IR 35 supported that view that it was for the company to be liable for any PAYE. There do not appear to be any written contractual agreements with these parties

S. 403(3) ITEPA 2003 refers to a non-cash benefit being received when it is used or enjoyed. Presuming tax will be payable, if a severence agreement provides for a waiver of monies owed by the employee to the employer, will the tax charge on this non-cash benefit crystallise when the severence agreement is signed or when the employment is actually terminated a week later? i.e. is the benefit of a waiver of debt used or enjoyed when the agreement is signed or when the employment is actually terminated?  

My question relates to the definition of an agency worker under regulation 3 of the Agency Workers Regulations 2010. I need to know how you determine whether a worker falls within the exception to the definition in regulation 3(2). Put another way, what is the test for determining whether the status of the hirer or the agency is that of a client or customer of a profession or business undertaking carried on by the individual? I am aware of the usual tests for determining whether someone is self employed as opposed to being employed but these do not sit very well in the context of an agency:hirer:individual relationship. For example, in an agency context there will never be a mutuality of obligations between the individual and the hirer as there won't be a contract between them. This is a general feature of an agency worker arrangement. Does it really just come down to the degree to which the individual works under the direction and supervision of the hirer? If so, this would surely mean that regulation 3(2) is superfluous as the definition of an agency worker already includes this condition. The BIS guidance gives the example of an IT contractor who supplies his services through a limited company (which of course is not determinative of his status as an agency worker). The conclusion is that this person would not be an agency worker. The determining factors appear to be the absence of personal service, no mutuality of obligations, payment based on the completion of

Please could you clarify the allocation of PAYE and NIC liability (both accumulated and future) in a situation involving a business transfer/succession of a secondary contributor. In particular, how is liability for past (non-deducted) NICs allocated? If the transfer/succession takes place in the middle of a payment month, which employer or contributor is liable to account for the relevant contributions at the end of that month? I understand from the Income Tax (PAYE) Regulations 2003 and the Social Security (Contributions) Regulations 2001 that generally the the new employer will be liable to do anything which the former employer was previously liable to do, had the change/transfer not taken place. However, I believe there are some exceptions to this rule and would appreciate any clarification which you might be able to provide on this issue.

If there is an employment tribunal claim for failure to pay notice (which is disputed) but the tribunal find the Claimant's claim valid, would the award to the Claimant be taxable?