9 September 2020 - Reading time: 4 Minutes
Many UK businesses furloughed their employees to keep paying workers while business was temporarily closed under The Coronavirus Job Retention Scheme (CJRS). The government’s measure helped thousands of businesses to stay afloat, but one issue that continues to perplex people is in relation to employee benefits and salary sacrifice arrangements, such as childcare vouchers and cycle-to-work schemes.
The good news is, the government are making it easier to pay employees benefits in kind. To help employers, businesses and individuals, almost all benefits in kind can now be payrolled to save you time, which means no more P11D forms. If you want to payroll benefits during the 2021-22 tax year, you can register right up to 5 April 2021.
The P11D brings an uncertainty bounce shock, especially for new starters or for one-off benefits reported on form P11D now. Due to its annual reporting nature, employees can be hit with a three-year liability from the tax on benefits from the last year and forward taxation for the current. However, this can be prevented by payrolling benefits in kind.
So why not consider payrolling from April 2021. Registration needs to happen by the latest 5th April else you are too late and will end up waiting another year. Good payroll solutions have capability present so you can save both yourself and your employees any reporting hassles. You will need to consider adding pay elements to enable the tax calculation, generally there is no NIC in payroll, although there may be Class 1A NIC liabilities on the employer that need to be accounted on the single form P11Db as an adjustment value.
It's worth noting that benefits provided by employers have different tax and National Insurance implications than an employee receiving cash remuneration.
Childcare vouchers given to employees are tax and National Insurance free up to certain limits determined by the annual Basic Earnings Assessment (BEA).
Items such as bikes provided through an employer scheme don’t create a tax or National Insurance charge on the employee. Employer pension contributions (within certain limits) also have no liability to tax or National Insurance Contributions.
Medical and Dental benefits are subject to P11D, although they can be payrolled for the tax liability, they are not subject to Class 1 NIC, but an employer Class 1A.
Company cars have no employee Class 1 liability, but they do have benefit tax and employer Class 1A.
The question is, if an employee buys these benefit items, do they have similar tax and National Insurance Contribution reliefs? The answer is no they don’t. Employees cannot buy any of them from their declared earnings and receive any tax and NI reliefs. The purchase would be after the deduction of tax and NICs.
The only employee deductions that have tax relief are actual employee pension contributions, charitable giving, and additionally with regards to National Insurance relief, Share Incentive Plans.
So, what about salary sacrifice, aren’t the employees buying benefits? Simply no, they are buying nothing.
Salary sacrifice is about a contractual construction which determines benefits which legally cost the employee zero. Salary sacrifice is not a pay deduction, it is agreement of a remuneration pay cut or exchange to receive a free benefit instead of cash pay. The contractual construction is key. The payroll representation is not key, the contract is. These constructions are generally referred to as salary sacrifice, Flexible Benefits or Smart schemes and they involve employment law and may interact with tax, social insurance and pension law implications. Employers and employees often do not understand them or the legal and tax implications. They can impact state benefit, maternity and pension amounts.
Often payroll operates a notional pay value. This is not earnings or pay, or it would be subject to tax and National Insurance Contributions. Some employers then operate reductions relating to the employer provided benefits. The employee is not buying these benefits as they never earned the money. The residual amount is the actual declared earnings. And the benefits selected are the employer’s responsibility and now a contractual right. These benefits may be due to continue during periods of zero pay and certainly during maternity leave with employment law (non-cash benefits – full duration of maternity leave) and social security law (cash benefit employer pension contribution during any paid maternity leave).
The example below has been created to help you calculate furlough and salary sacrifice.
An employee has a monthly notional pay of £2,800. They have a 5% salary sacrifice pension scheme applied to that notional pay, £100 childcare vouchers and £25 cycle to work salary sacrifice arrangements:
Notional Pay £2,800
Smart pension -£140 (5% of £2,800)
Childcare -£100 fixed
Cycle2Work -£25 fixed
Cash Pay £2,535 which is subject to tax and NICS (this is the reference pay for furlough).
The CJRC reclaim is 80% = £2,028 plus Ers NIC and Pension banded 3%
Unless the contract is changed, the employee remains entitled to both the £100 childcare and £25 cycle benefit funded by the employer. And the equivalent of 5% smart pension contribution.
To calculate the uplift for the employer pension contribution in relation to the sacrifice:
Furlough reference pay plus fixed salary sacrifice values divided by (100-% pension sacrifice) multiplied by 100 to determine the pensionable pay for the basis of the employer contributions.
(£2,028 + £100 + £25) / 95 * 100 = £2,266.32 @5% = £113.32 additional employer pension contribution relating to furlough. The same £2,266.32 would also be the basis of the non-salary sacrifice employer pension contribution.
The Coronavirus Job Retention Scheme covers cash pay and the employer remains responsible for the provision of benefits under the contract of employment. Therefore, unless the employee’s contract is changed, the employee remains entitled to any salary sacrifice or benefit in kind from the employer.
Can an employer cancel a salary sacrifice arrangement and increase the Furlough reference pay? The answer is no. Salary sacrifice arrangements are never retrospective and as the 19th March has already passed and the taxable income declared, the reference pay for furlough should not be changed.
As always, please consider checking the official government website for updates on the CJRS and their official statement on benefits in kind and Salary Sacrifice.
The UK prime Minister announced new lockdown restrictions in response to increasing Coronavirus cases. What do the new restrictions mean for payroll and HR professionals in the UK? Find out more in our blog.P. Simon Parsons - 2 November 2020
The government has announced the launch of policies and measures to protect jobs where businesses are facing lower demand over the winter months due to the Covid-19 pandemic. Learn all about the job Support Scheme and whether you are eligible.12 October 2020
It might have been costly to change payroll suppliers twenty years ago, but thanks to modern technology it doesn’t cost nearly as much as resource and time as you might think. Uncover the truth in our blog.14 September 2020
Every year UK businesses lose £12 billion from payroll fraud. In this blog we’ll explain the common types of payroll fraud and share tips on how to stop it from happening to your business.14 September 2020
Simon Parsons, Director UK Compliance Strategies, SD Worx UK & Ireland, discusses the Government’s Kickstart scheme which aims to create thousands of jobs for young people across the UK.9 September 2020
HM Revenue and Customs (HMRC) has updated guidance in readiness for the commencement of the second part of the Coronavirus Job Retention Scheme (CJRS). Simon Parsons, Director of Payments, Benefits & Compliance Strategies at SD Worx UK, shares his interpretation of the changes and what this could mean for employers.P. Simon Parsons - 15 June 2020
Our resident payroll and legislation guru answers your questions about furlough and SSP.29 April 2020
We’ll help you make sense of the government’s advice on Statutory Sick Pay and taking care of your employees during COVID-19.24 March 2020
There have been many publications about the Good Work Plan over the past 18 months and it can be confusing to work through complex, legislative documentation to understand how you stay compliant. While the good work plan covers many topics, this blog aims to take you through one aspect of this, Holiday Pay, and asks the simple question – are you ready for the changes?29 October 2019
If you want to learn best practice in handling data in light of the General Data Protection Regulations (GDPR), you can do no better than to look at DuPont. Now part of science giant DowDuPont following a merger last year, data is part of the DNA of the organisation and it has a long history of embedding data protection into its culture.8 March 2018
Here are the top five lessons on implementing GDPR from the session with Gert Beeckmans, Chief Risk and Security Officer at SD Worx, and Frank Rudolf, Director of Payroll at PAREXEL from the SD Worx European Conference 2018, held in London on 6th February.2 March 2018
With just three months to go until the General Data Protection Regulation (GDPR) comes into force, the clock is ticking for HR and payroll managers to get the systems and processes in place to ensure compliance. The regulation, coming into effect on 25 May 2018, updates data rights for today’s networked world, and organisations ignore it at their peril.1 March 2018
Clark Hoy, Business Development Manager at SD Worx UK & Ireland shares his top tips for all the new dads and dads to be (D2B) regarding all things paternity!26 February 2018
Retention of the personal data is ‘lawful basis’ where it is necessary, for compliance with a legal obligation, for the exercise or defence of legal claims. For Payroll and HR reasons, employers must hold and retain personal information about their employees and former employees to meet these legal requirements.4 December 2017
GDPR is set to see the biggest shake-up in the way we handle data since the Data Protection Act of 1998. Over the last few years, the processing and control of data has seen many systematic changes. Updated legal obligations set out in the Regulation such as the ‘lawful basis’ of the processing of data is sure to see more changes to data handling.27 November 2017
Read Simon Parson's latest blog where he answers the frequently asked question: 'Do you know if HMRC are likely to want us to include more options for employees that may be transitioning or don’t identify themselves with either gender?'23 November 2017
Increasingly within global organisations we see that individuals have increasing international activity throughout a business’ empire with differing national fiscal obligations. Impact on employees and compliance with a variety of national fiscal government obligations brings into play significant complexities. Some will be available within Payroll Software or service, whereas others, a little more obscure, may require special handling. For UK Payroll, there are a variety of variants (to the normal) Pay As You Earn (PAYE) obligations.6 November 2017
The EU’s General Data Protection Regulation (GDPR) comes into effect on 25 May 2018. It applies to any organisation that processes the personal data of
EU citizens regardless of where they are situated. Brexit won’t let UK companies off the hook as the government has announced that the legislation
will be brought into UK law.
9 October 2017
In order to get to understand Alabaster, we recommend that you know a little about the case precedent behind it.2 October 2017
Our Head of Legal, Leon Daniel, has written some useful information on GDPR and what it might mean for your organisation. This is the second of a series of articles on the steps we are taking at SD Worx to ensure GDPR compliance.14 August 2017
Our Head of Legal, Leon Daniel, has written some useful information on General Data Protection Regulation (GDPR) and what it might mean for your organisation. This is the first of a series of articles on the new Regulation and will cover the steps we are taking at SD Worx to ensure GDPR compliance.7 August 2017
Part two of our blog, our Commercial Director John Cusack and Business Development Manager Steve Knapman, built upon the information outlined by Mercer in part 1 – and discuss how SD Worx’s analysis tools can provide you with in-depth statistics on the gender pay gap. Read more on some of the useful points that we took away from the webinar...10 July 2017
Minimum pay is governed by employment law, and breach is criminal; HM Revenue & Customs are charged with policing its application based on a number of significant factors and structures. In this blog, our Director of Payment, Benefits & Compliance Strategies, Simon Parsons, discusses critical touch points for compliance and recent payroll error examples regarding this legal requirment.3 July 2017
The gender pay gap has been a hot topic for years, dominating discussion in the media and in boardrooms. Seemingly refusing to close, the gap stood at 9.4% in 2016, down from 17.4% in 1997. While the UK is getting nearer and nearer to gender parity in pay, figures suggest it still has a long way to go...19 June 2017
2017 is going to be both interesting & challenging. With Brexit and changing government leadership much is to be done and quickly. Now is the time for the business to come together and plan for change...2 March 2017
In August 2016, HMRC launched a ‘Consultation on salary sacrifice for the provision of benefits in kind’. The indication is to bring in law changes from April 2017.11 October 2016
Often once the deal is done you can’t see the lawyers for dust, so if you receive notice from a supplier or customer that they have been acquired, or if you have been acquired yourself, what do you need to do to keep your current contracts in order?3 October 2016
The way the government funds apprenticeships in England is changing. The 6th April 2017 sees the introduction of a new employment tax on United Kingdom employers. Scotland Wales and Northern Ireland, each having their share of the levy, will have to decide how apprenticeship spending will take place. In this blog I cover some key points that employers should be considering in order to prepare for the upcoming changes...5 September 2016
As a union, the UK has voted to leave the European Union with some Scottish politicians hinting of a further independence referendum, and some in Northern Ireland wanting a joint Irish nation! At the same time, Job Centre Plus has run out of National Insurance numbers and in June 2016, decided in to start issuing NINOs with prefix ‘KC’ - but there is an issue with this...15 August 2016
With the result of the UK referendum to leave the European Union and indication by Scotland's first minister to run a further Devolution referendum, Simon Parsons considers the potential implications for the next few years for Scotland and Payroll services...8 August 2016
So the nation has chosen to progress leaving the EU with a popular vote of 52%. So what's changed, apart from volatility in currency and stock markets? And what major action do we see impacting payroll?26 July 2016
The National Living Wage (NLW) became compulsory for employees aged 25 and above, at a new minimum rate... Have you considered the implications and reviewed your maternity leave payments and made top-ups of SMP?27 June 2016
April 2016 saw some of the most significant legal changes to impact payroll operations and software. I would venture that this year’s new changes have been some of the most impactful yet, more so than the introduction of Real Time Information (RTI). New requirements for Scotland including the Scottish Rate of Income Tax and changes to Earnings and Maintenance Arrestments. A revolution in national insurance with the removal of Contracting out and Under 25 Apprentice NICs being introduced. The list can go on.13 June 2016
Following the judgement of the Employment Appeal Tribunal (9th March 2016), the question of salary sacrifice and maternity rights has been thrown into question! Was HMRC errant in providing guidance? Are employers now off the hook with provision of non-cash benefits in kind during maternity?16 May 2016
In the 2015 Queens speech, the Government set out to create 3 million new apprenticeships by 2020. As part of the Enterprise Bill, apprenticeships would gain the same legal treatment of degrees. ‘The Richard Review’ brings new standards being developed by ‘trailblazers’ and new funding trialled giving employers greater control over spend on training delivery.11 April 2016
We thought 2013 was busy with the introduction of Real Time Information, but looking back it now seems a doddle! 2016 is proving to be one of the most substantial change years ever for payroll, software and service providers and especially payroll managers. Never before have I seen such a wide, heavy plethora of change. Now seems a good time to start the preparations in earnest and put the brain in gear...25 January 2016