View the related Tax Guidance about Statutory Sick Pay (SSP)
What are employer compliance checks?
What are employer compliance checks?The purpose of employer compliance checksThe purpose of an employer compliance check is to satisfy HMRC that all earnings and benefits have been identified and reported correctly by an employer, and that associated payments of income tax and NIC have been made within the statutory time limits. The checks will also consider whether statutory payments and deductions are correct. In the case of large employers (those to which a Customer Compliance Manager has been assigned by HMRC), Know Your Customer visits may be made by HMRC. These are outside the scope of this guidance note.Selection of employers for checksHMRC’s Risk and Intelligence Service (RIS) identifies the cases for compliance checks. This is to remove any bias from the process. Whilst cases are usually selected because a risk has been identified, random selections are also made. Disgruntled former employees or former spouses / partners (of both the business and personal variety) of owners can be a source of HMRC information, although RIS officers are well aware that such information may be incorrect and motivated by non-tax considerations. Employers may wish to consider what could have prompted a check and ensure that they address the issue in their initial meeting with HMRC, since the officer conducting the check is told of any risk that has been identified. Although at one time it was generally thought that an employer could expect ‘a PAYE review’ every six or so years, this is no longer the case and some employers
Sick pay ― legal points
Sick pay ― legal pointsAn employee who is unable to work because of sickness may still be entitled to pay during any period of sick absence. Such entitlement may be due to:•contractual sick pay•statutory sick pay (SSP)This guidance note covers both types of sick pay. See also the Statutory sick pay (SSP) guidance note in the ‘Mechanics of payroll’ sub-topic for more on the administration of SSP as part of payroll operation.Temporary amendments were also made to the treatment of SSP and SSP recovery, during the coronavirus (COVID-19) outbreak. For details on this see Simon’s Taxes A8.213, and the GOV.UK guidance, including Sick pay from day one for those affected by coronavirus, and Coronavirus sick pay scheme opens for applications.ACAS provides guidance on all elements of holiday, sickness and leave.Contractual sick payAn employee’s contract of employment may contain provisions entitling them to be paid during any periods of sick absence. An employer does not have to agree to any contractual terms entitling their employees to sick pay. However, if they do agree to such terms, then they must be included in any written statement of particulars provided to the employee. See the Written statement of particulars (terms and conditions) guidance note. There is no general presumption of a contractual right to sick pay, but a term may be implied in some circumstances even where there has been no express agreement. See the Contractual terms guidance note. Typically, the contract of employment will specify the duration of any
Feasibility study for a flexible benefits scheme
Feasibility study for a flexible benefits schemeTo consider setting up a flexible benefits scheme (see the Flexible benefits schemes ― an overview guidance note), it is important that employers are both aware of the consequences of the scheme and have checked that the relevant systems are in place.Many employers simply consider flexible benefits schemes to be a straightforward method for delivering employer’s National Insurance savings through salary sacrifice (see the Salary sacrifice arrangements ― overview guidance note) but the reality is that in most cases, full prior consideration should be given to the consequences of the scheme. The most appropriate method is to undertake a feasibility study.Flexible benefits v voluntary benefitsA flexible benefits scheme can cover benefits provided by salary sacrifice or benefits made available to employees to purchase from their net pay by taking advantage of their employer’s purchasing power (known as ‘voluntary benefits’) or a combination of the two. Consideration must be given to the basis on which the benefits will be provided and therefore the tax / NIC consequences of either approach.Voluntary benefits are generally those where salary sacrifice is not necessarily the most appropriate, eg benefits to which employees do not wish to be tied in for a minimum period. There are few tax / NIC considerations applicable and as long as the employer requires the employee to make good (ie repay) the tax cost to their employer of providing the benefit, there is no tax or NIC liability.Tax considerationsClearly, the first point to consider
A–Z of payroll
A–Z of payrollUnderstanding payroll terminology and establishing the correct tax and NIC treatment of paymentsThis note provides an alphabetical summary list of many of the common terms encountered by those operating a payroll. It also provides appropriate signposting, showing where additional guidance may be found Additional published official guidance, includes HMRC’s CWG2 further guide to PAYE and National Insurance contributions, which summarises the department’s technical views of how most payments should be treated.For additional reading on payroll matters, please refer to Simon’s Taxes, division E4.11.For new or smaller employers the Employer obligations for those running a small payroll guidance note may also be of use.Navigation tip: press ‘Ctrl + F’ to search for a particular term within the table.Payroll term or paymentFurther detailsReferencesAAbsences ― holiday payAn employer has a statutory obligation to pay holiday pay, and the general expectation is that this should be made at the employee’s normal pay rate. The statutory minimum in the UK is 5.6 weeks holiday pay per year, including bank holidays (pro-rated for part time staff). However employees may have additional rights, eg under their employment contract Holiday pay ― legal pointsAbsences ― statutory payments, maternity pay, paternity pay, adoption pay, shared parental leave pay and parental bereavement pay (SMP, SPP, SAP, SSPP and SPBP)An employer is obliged to make statutory payments to employees, if they fall within certain qualifying criteria covering parenthood or child bereavement. All statutory payments are paid
Statutory sick pay (SSP)
Statutory sick pay (SSP)Statutory sick pay has its origins in the Social Security and Housing Benefits Act 1982, Part 1. Various amendments have been made to this Act to give us the SSP system we now operate.Temporary amendments were made to the treatment of SSP and SSP recovery, during the coronavirus (COVID-19) outbreak. For details on this see Simon’s Taxes A8.213, and the GOV.UK guidance, including Sick pay from day one for those affected by coronavirus, and Coronavirus sick pay scheme opens for applications.Introduction to SSPA table of acronyms and related terms used in this note is as follows:AcronymMeaningAWEAverage weekly earningsLELLower earnings limitNICNational insurance contributionsPIWPeriod of incapacity for workPTSPercentage threshold schemeQDQualifying daysSC2Employee’s statement of sickness (self-certificate)SSPStatutory sick paySTSecondary thresholdWDWaiting daysAssessing whether an employee is entitled to SSP involves several processes. Although not necessarily complex, the interaction can be somewhat confusing at times, but these processes and interactions are explained below.The conditions regarding assessing and paying SSP apply equally to all employees whether they are full-time, part-time, permanent, fixed-term, or casual.The first step is to ascertain whether the employee who is on sick absence meets the qualifying conditions. This involves determining:•the length of the absence•the employee’s AWE over the relevant period•QD in the period of absence•WD in the period of absence•whether the latest period of absence links to an earlier period of absence•reasons why SSP cannot be paid, or can no longer be paidWhile employers are required
Employer obligations for those running a small payroll
Employer obligations for those running a small payrollPAYE procedures applicable for new or smaller employersThis guidance note sets out a number of payroll considerations which may be particularly relevant for new or smaller employers, and provides appropriate signposting where additional guidance may be found. Whilst most general PAYE tax and NIC rules apply equally to all employers, there are certain rules and processes which are more likely to be relevant when starting a new payroll, especially if this is a smaller employer.In making payment to an employee, the PAYE treatment of an item (ie whether or not the payment is subject to tax deduction) is usually matched by the NIC treatment, however this is not always the case. In addition, the methods by which PAYE tax and NIC are actually calculated differ. This document highlights some of the key differences.For additional explanation of some of the terms used in this and other guidance notes relating to payroll matters, see the A–Z of payroll guidance note. Simon’s Taxes Division E4.11 also provides a more detailed analysis of the common employer payroll PAYE and NIC deduction reporting and payment obligations. Much of HMRC’s general views on how PAYE should be applied is spread across the GOV.UK site. However, for a more definitive and consolidated technical view on how HMRC believes particular payments should be treated, reference may be made to the CWG2 further guide to PAYE and National Insurance contributions.Basic principles of the PAYE systemIs the person hired an employee?On basic
Employment status ― why it matters
Employment status ― why it mattersAnne is a barrister who sits as a judge of the Upper Tribunal (Tax and Chancery Chamber) and the First-tier Tax Tribunal. The commentary in this guidance note is her personal view as she is not authorised to write on behalf of the Tribunals Service or the judiciary.This note sets out the main differences between employment and self-employment. It discusses the timing of payment, national insurance contributions (NIC), expenses, statutory payments, leave entitlements and (briefly) employment rights. It does not cover those who work through agencies (for which, see the Agency workers guidance note). In addition, some of the tax rates and bands set out below may not apply to Scotland.Employment status matters for individuals because it determines the tax and NIC on their earnings, as well as their statutory rights. From the engager’s perspective, miscategorisation may trigger PAYE and NIC assessments, as well as claims for employment rights and / or statutory payments. Getting employment status wrong can be very expensive.Remember that this note and the other notes on employment status are only a summary, and do not cover all situations. You may need to take further advice. For the position of those working through personal service companies and the IR35 rules, see the Off-payroll working (IR35) for small clients ― overview guidance note.Gross or netThe first difference between employment and self-employment is that employees have income tax and NIC deducted from their general earnings before receipt under PAYE, whereas the self-employed are
Compensation for injuries at work
Compensation for injuries at workIntroductionIf an employee is injured as a result of something that happens at work then, in certain circumstances, compensation payments can be made to them which have no income tax, NIC or reporting requirements.Issues regarding compensation payments for injuries suffered at work are covered in EIM06450 where these payments are referred to as ‘injury payments’.Compensation paymentsLump sumsA lump sum paid to an employee due to an injury at work is not subject to tax or NIC as it is not caught by the legislation. It does not come under ITEPA 2003, s 62 as it is not earnings and nor is it within the definition of a termination payment under ITEPA 2003, s 403. There are no income tax, NIC or reporting requirements associated with compensation payments for injuries suffered at work as long as all the following requirements are satisfied. If any of these are not satisfied, then they will bring the payment into a charge under the legislation:•the payment to the employee is of the same nature and magnitude that would be made to a member of the public suffering the same injury (where the payment is different for an employee, this is likely to bring it into the definition of employment income in ITEPA 2003, s 62)•the employee has no contractual right to the payment under their terms of employment (contractual are employment income, under ITEPA 2003, s 62). If the payment is due because of a contractual term, then
Taxation of coronavirus (COVID-19) support payments
Taxation of coronavirus (COVID-19) support paymentsMeasures setting out the taxation treatment of coronavirus (COVID-19) support payments were included in FA 2020 and further changes were announced in Budget 2021. For more details of coronavirus support payments, see the What coronavirus (COVID-19) support payments are available? guidance note.In summary, these measures:•ensure that the grants are treated as income where the business is within the scope of income tax or corporation tax•enable HMRC to recover payments to which the recipient was not in fact entitled, and•enable HMRC to charge a penalty for deliberate non-complianceFor more details, see Simon’s Taxes B2.210A and B2.210B. For HMRC guidance, see BIM40456 onwards.Which business support grants are within the scope of these provisions?The provision applies to ‘coronavirus support payments’ (CSP), which include:•the coronavirus job retention scheme (CJRS), see the Coronavirus job retention scheme (CJRS) guidance note•the self-employment income support scheme (SEISS), see the Self-employment income support scheme (SEISS) guidance note•the small business grant fund, see the Other coronavirus (COVID-19) support payments guidance note•the retail, hospitality and leisure grant fund, the local authority discretionary grants fund, see the Other coronavirus (COVID-19) support payments guidance note, and•the coronavirus statutory sick pay (SSP) rebate scheme, see the Coronavirus (COVID-19), statutory sick pay (SSP) and NIC guidance note•the equivalent grant funds in Scotland, Wales and Northern Ireland•amounts paid under the test and trace support payment scheme and its equivalent in Scotland and Wales, called self-isolation support payments, see the Other coronavirus
Payroll record keeping
Payroll record keepingUnder SI 2003/2682, reg 97, “...an employer must keep, for not less than 3 years after the end of the tax year to which they relate, all PAYE records which are not required to be sent to [HMRC]...â€. Reasons for keeping the records include:•being able to calculate tax and NIC•ensuring compliance with legislation•proving that employees have been paid any statutory pay that they are entitled toThe GOV.UK website gives guidelines on the retention period for other payroll related records.Records which must be kept include those relating to pay rates, tax and NIC deductions. Employers should keep records of training, employment history and terms and conditions of employment.Although payroll records should be retained for the current tax year plus the previous three years, many employers keep these records for six years. A major reason for this is that some payroll records, such as business expenses claims, are also ‘accounting’ records. Under the Companies Act 2006, accounting records need to be kept for six years following the end of the company’s accounting period.Basic information needs to be kept in relation to employees. As a minimum, this should include:•name: surname and full forenames•home address•date of birth•national insurance number•gender: some employers are wary of collecting this, in case it breaches certain aspects of equality legislation; a person’s gender is required as it is a mandatory data item on many returns that have to be submitted to HMRC such as the full payment submission
Tax legislation doesn't stand still, and neither should you. At Tolley we're constantly building tools to give you an edge, save you time and help you to grow your business.