Employment tax update - points to watch in 2022/23
As we move into the 2022/23 tax year, we highlight some areas requiring particular attention from employers.
Benefits and expenses
The key point this year is that the Covid-19-related derogations and exemptions in respect of home or partial home working, including costs of home to work travel, and expenses of working at home, have ceased to have effect after 5 April 2022.
While HMRC’s pre-March 2020 guidance once again applies, there has been a recognition from HMRC that the country has generally moved into a new way of working, with employees splitting their time between home and the office. HMRC has therefore provided some examples of the types of expenses an employee can claim for working from home as well as travel expenses to the office when they are no longer working full time at the office. These examples can be found in HMRC’s Employment Income Manual at EIM32790 and EIM32174.
Health and social care levy
In September 2021 the Government announced a new employment tax to help fund the NHS and social care. This tax, the Health and Social Care Levy (HSC Levy), took effect from 6 April 2022.
For the first year of operation the HSC Levy will take the form of an additional 1.25% cost for both employers and employees through increased National Insurance rates.
The government is advising employers to include the words '1.25% uplift in NICs, funds NHS, health & social care' on payslips throughout 2022/23.
We have published practical tips on the impact of the HSC Levy. In particular, this additional cost increases the effectiveness of salary sacrifice arrangements for pension contributions and other benefits not subject to the optional remuneration rules, such as child care vouchers and cycle to work schemes.
Also, as the HSC Levy will take the form of increased NIC until 5 April 2023, NIC-related derogations and exemptions will apply, such as exclusions for internationally mobile employees holding Certificates of Coverage/A1 certificates, or employees transferring employer’s NIC on employment related shares gains.
We highlighted the potentially significant benefits of providing electric vehicles (EVs) to employees in Tax Insight, September 2021. The main attractions are that:
- This helps to meet rising employer costs
- It fits well in an Environmental, Social and Governance agenda
- There is a lower benefit in kind tax charge on EVs compared to standard petrol/diesel powered vehicles
- There is a lower tax charge on both employees and employers compared to PAYE/NIC on salary when EVs are provided through salary sacrifice arrangements
- Ultra-low emissions vehicles are on the limited range of specific exclusions from Optional Remuneration Arrangements, alongside other government favoured employee benefits such as pension provisions.
With the range and availability of EV cars and charging points constantly increasing, this popular benefit is well worth considering in 2022/23, either as a replacement for the traditional car fleet, or under a salary sacrifice arrangement where cars are not already being provided.
The new rules for the private sector have now been in force for a year, and this sees the end of HMRC’s soft penalties landing period. Medium and large-sized businesses (including those who have recently fallen into that category - for example, through growth, or by being acquired) who fail to comply with the legislation will therefore face penalties in addition to tax and national Insurance liabilities.
We are already seeing an increase in HMRC activity on reviewing compliance with the legislation, so now is a good time to check that the policies and procedures for engaging with off-payroll workers remain fit for purpose. We are also, anecdotally, hearing that some businesses are already beginning to soften their approach to compliance, especially where policies were implemented prior to April 2021 and where it is now more difficult to attract and retain off-payroll workers. It’s never a bad thing to review policies but care is needed not to let commercial expedience get in the way of compliance.
Affected employers need to ensure that their processes, including assessing the status of workers, and correctly payrolling them where necessary, have been reviewed, and are up to date and being applied.
Recent National Audit Committee and House of Lords Finance Bill Committee impact reports have essentially concluded that the public sector has coped with new IR35 rules (which came into force for public sector businesses in 2021, following a year’s deferment due to Covid). The reports recognised that challenges were faced especially for the public sector which had less time to prepare, but ultimately the reforms achieved their primary purpose of reducing non-compliance and increasing tax revenue. The House of Lords committee report stated there was work still required on addressing incorrect determinations, and a more coherent approach to employment status and rights is needed.
The implication is that as the private sector has had longer to prepare for the changes, and in light of the end of the penalty soft landing period, any mistakes will now be regarded as failure to prepare, or carelessness, and thus exposed to higher penalties.
It should be noted that there is no small companies exemption in relation to the use of alternative contractor models and umbrella companies, and HMRC is increasingly focusing on and scrutinising such arrangements, including where agency workers are brought in from overseas. There is also the risk that a non-compliant agency/umbrella could raise challenges for the engager, including a liability under HMRC’s debt transfer powers, process failures under the Senior Accounting Officer regime, and even the risk of facilitating tax evasion under the Corporate Criminal Offence legislation. Labour supply chain due diligence is key to understanding to what extent those risks exist and the level of exposure engagers face.
National minimum wage
It should be noted that the National Minimum Wage/National Living Wage rate increases from 1 April 2022 are above the rate of inflation:
- NLW up by 6.6% to £9.50/hour
- NMW age 21-22 rate up by 9.8% to £9.18/hour
- NMW age 18-20 rate up by 4.1% to £6.83/hour
- NMW age 16-17 rate up by 4.1% to £4.81/hour
- Apprentice rate up by 11.9% to £4.81/hour
- Accommodation offset up by 4.1% to £8.70/day
In Tax Insight, November 2020 we published a list of ten common errors made by employers which have resulted in underpayments, penalties and the public naming of many UK businesses.
Coronavirus job retention scheme issues
Following the ending of the CJRS, HMRC compliance activity is now in full swing, particularly in view of the pressure on HMRC to recover as much of the fraudulently and incorrectly claimed amounts as possible. An HMRC taskforce of around 200 staff is reviewing claims in relation to levels claimed, particular sectors in which claims were made, such as leisure, hospitality and retail, and aspects such as staff paid at variable rates, and treatment of holiday and redundancy pay. With 35 claim risk areas, and over 400 changes to the legislation and guidance over the periods in which the scheme was in force, there is considerable scope for inadvertent errors.
The effective tax rate on overclaimed amounts is 100%, and it should be noted that underclaims potentially undermine the whole claim, with serious consequences. Furthermore HMRC has the power to publicly name employers who have significantly overclaimed CJRS funds.
It is important that reviews are carried out, and correct disclosures made on Corporation Tax/Partnership/Income Tax Returns of the amounts that were claimed, the amounts that organisations were entitled to claim, and that overclaimed amounts are correctly reported and repaid.
Separately, a voluntary disclosure facility is also available for employers wishing to repay funds, whether they have identified an overclaim or have determined to repay funds received voluntarily.