Uncategorised

The Low Pay Commission recommended that the NLW rate should rise to £9.42 per hour, but the Government has gone further and announced it will increase the NLW to £9.50 per hour for pay periods starting on and after 1 April 2022. The full rates as announced are set out below.

The apprentice rate has risen significantly by 11.9% to £4.81, and has been aligned with the rate for those employees aged 16 and 17. This may help to relieve the NMW apprentice trap we explained on 26 August, which caught out employers who have apprenticeships lasting more than one year for younger employees.

The employer must have an actual apprenticeship agreement in place with the employee to pay the apprenticeship rate. Employers who take on apprentices before midnight on 31 January 2022 can claim a £3,000 incentive for each apprentice hired.

Anyone employed through the Kickstart scheme has to be paid the NMW relevant to their age. Employers must apply for funding to pay employees on the Kickstart before 17 December 2021, but the scheme has been extended so the start date for those new employees can be anytime up to 31 March 2022.

Employers still need to keep a sharp eye on the birthdays of their employees to ensure any rise in wage rate is implemented for the pay period that begins after the individual moves into a different age category – see table.

Written by the Tax Advice Network

 

The 1.25% increases in the rates of both Class 1 and Class 4 NIC were announced back in September, as we outlined on 16 September 2021.

This is a temporary increase in NIC, which will be replaced by the Health and Social Care Levy at 1.25% from 6 April 2023, but that levy has a slightly wider base as it will apply to those who are still working and aged over state retirement age.

In the meantime, the Health and Social Care Levy Act 2021 provides for transitional increases in NIC rates to apply only for 2022/23, as detailed in these tables:

NIC Class 1

Class 1A and Class 1B

NIC Class 4

Classes 2 and 3

The Employment Allowance (confirmed at £4,000 for 2022/23) can cover employer’s Class 1 NIC, but not Class 1A or Class 1B. It is still not clear whether the Employment Allowance will cover the Health and Social Care Levy from April 2023

Written by the Tax Advice Network

 

To balance the increase in NIC payable on salaries and self-employed profits, the tax payable by individuals on dividends will also increase by 1.25 percentage points from 6 April 2022, as we outlined on 9 September 2021.

However, this dividend tax increase is permanent and not temporary. It will apply to all dividends taken from all companies, where the total dividend income exceeds the taxpayer’s dividend allowance which has been held at £2,000 for 2002/23, see table.

This tax increase is significant. For a director of a personal service company, who takes a salary of £12,570 and dividends of £37,700 per year, his tax will increase by £442.44 in 2022/23, calculated as follows:

That’s a tax increase of nearly 14.5% in one year. The rate of corporation tax charged on overdrawn directors’ loan accounts (s 455 charge), is currently set at 32.5% to match the tax on dividends in the higher rate band. It is likely that this rate will also increase to 33.75% from 6 April 2022, but this wasn’t mentioned in the Budget announcements.

Written by the Tax Advice Network

Clients are often tempted to extract funds from their own companies as loans. That can make sense on a temporary basis, but if the director’s loan account (DLA) is not cleared by the corporation tax payment date, a charge under CTA 2010 s. 455 is due at 32.5% of the loan.

HMRC has noticed that some company directors are trying to avoid the section 455 charge by moving the debt around their associated companies.

Example 1

Sam owns all the shares in Alpha Ltd which in turn owns all of Beta Ltd. Sam has an overdrawn DLA with Alpha of £1m. Just before the section 455 charge bites, Sam borrows £1m from Beta and clears his loan from Alpha.

In a year’s time, to avoid the section 455 charge due to be paid by Beta Ltd on his overdrawn DLA, Sam borrows a similar amount from Alpha, pays-off the Beta loan and so the debt circles round and round the group.

HMRC is clear that this circulation of the debt doesn’t avoid the s. 455 charge, as the substitution of a fresh debtor, for the original debtor, does not constitute repayment (Corporation Tax Manual CTM 61602).

In Example 1 the section 455 charge is payable by Alpha Ltd as the debt has not been repaid. If the debt has grown while held by Beta Ltd, then Beta will be due to pay the s. 455 charge on the additional amount.

An alternative way to clear the DLA is to transfer an asset from the director to the company, but as this is a connected party disposal the asset must be transferred at open market value.

Example 2

Jo is the only shareholder of Gamma Ltd, and has an overdrawn DLA of £2m. Jo also owns shares in Delta Ltd which she claims are worth £2.5m. Jo transfers her Delta shares to Gamma and this transfer clears the overdrawn DLA.

However, HMRC discovers that the Delta shares are only worth £250,000. This means the overdrawn DLA was only reduced to £1.75m on the transfer of the Delta shares to Gamma, and a s. 455 charge is due.

Written by the Tax Advice Network

An ‘umbrella’ company may act as an employment agency in sourcing workers, but its core role will normally be to pay the contractors or temporary workers.

Businesses that hire temporary labour either directly from umbrella companies or employment agencies need to be aware of potential tax avoidance in the supply chain. The umbrella may quote a price for the work which seems unreasonably cheap, because it is not deducting all the tax required from the worker.

We advise clients to educate their workers about possible tax avoidance schemes operated by umbrellas. One way to check for a tax scheme is to compare the payslip the worker receives with the pay details provided by the umbrella to the hiring company.

Look out for elements of the pay described as:

• loans
• grants
• salary advances
• capital payments
• credit facilities
• annuities
• profit shares
• shares and bonuses
• amounts held in a fiduciary capacity

These could all be indicators of untaxed pay and the operation of a tax avoidance scheme.

Workers and businesses can both get scammed by clones of legitimate umbrella companies. The clone company is set up with a very similar name to a legitimate company. It then attempts to convince the hirer that the legitimate Co has changed its bank account so it can receive misdirected payments.

If a company is a clone company set up only to commit fraud is unlikely to have:

• Companies House history– check exact company number and names of directors
• Filed accounts
• Website or social media presence – check physical address and contact details
• Membership of professional bodies or trade association – check with the bodies for the exact company name
• VAT registration – ask to see registration certificate

The clone company is also likely to have:

• Directors based outside of the UK
• Directors who hold multiple positions in many companies
• An address at a residential property that has many companies registered there.

Written by the Tax Advice Network

If you have underclaimed furlough pay for employees this can be corrected by amending the CJRS claim within 28 days of the end of the calendar month the claim relates to, so by 28 October 2021 for September 2021 claims.

What if the employer used the wrong reference pay to calculate the claim, and has underclaimed for earlier months? In most situations you are too late to amend the CJRS claim, but if the employer has also over-claimed furlough pay for a particular month it may be possible to set-off the over and under claimed amounts.

HMRC has just agreed with the professional accountancy bodies that off-sets are possible, and has updated its guidance on this point. In summary the correction of CJRS over and under claims must be made as follows:

• An under-claimed amount needs to be actioned as an amendment an existing claim within 28 days of the month it relates to.
• Over-claimed amounts need to be repaid to HMRC within 90 days of receiving the funds to avoid a penalty being imposed.
• Set-off of under-claims against over-claims is only possible within the same claims period – ie the same calendar month.

It appears from the new guidance that if the under-claim exceeds the amount of over-claim for the month, then the excess cannot be claimed from HMRC.

Where the employer has under-claimed for furlough pay, he must ensure that the correct amount is paid to the employee. If the employee doesn’t receive the correct amount of pay the entire CJRS claim for that employee for that month could be invalidated, and the employer will have more to repay to HMRC.

HMRC are now actively pursuing fraudulent CJRS claims.

Written by the Tax Advice Network