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therefore saving the employee tax and class 1 NICs. What advice can be given in relation to this kind of arrangement? Would it be classed as a flexible benefit arrangement and would it impact the national minimum wage (NMW) calculation? A: If employees were having the entire cost of their holiday purchase deducted in one payroll period, then this would not be a salary sacrifice arrangement; it would be treated as unpaid leave. This would not reduce the employee’s pay for minimum wage purposes as the employee’s working hours and salary would be reduced in the month in which the leave is taken. However, if an employer is contractually agreeing with employees to reduce their salary by an amount of holiday purchase over several months, then this would be regarded as a salary sacrifice arrangement as it is a change to the employee’s terms and conditions of employment. The holiday purchase would reduce the contractual wages of the employee and would therefore affect the NMW calculation. HMRC guidance does state that no salary sacrifice arrangement should lower an employee’s wage below the minimum and that the employer must have checks in place to safeguard the minimum wage. Holiday purchase is one of the benefits that does not fall under the optional remuneration arrangements rules. Q. With regards to HMRC’s coronavirus job retention scheme (CJRS) guidance update from November 2020 in relation to notice pay, does this only apply to redundancy notice? A: The update in the CJRS guidance relates to all types of contractual and statutory notice periods. From 1 December 2020, employers are not able to use the CJRS to claim served contractual or statutory notice periods. This includes redundancy, resignation, and retirement notice periods. It is important to note that a payment in lieu of notice (PILON) cannot be claimed under the rules of CJRS as it would be classed as a termination payment. Termination payments have always remained outside the remit of the CJRS. Q. An employee has sadly passed away and the employer wishes to make a payment to the family to assist with
funeral costs. How should this payment be treated for the purposes of tax and NICs? A: Under section 406 of the Income Tax (Earnings and Pensions) Act 2003 (https://bit.ly/2XSeera), a tax-free payment can be made on the death or permanent disability of an employee. These types of payment are not subject to NICs. Q: Can an employer split a payment for redundancy over tax years so that the employee can make use of the new tax
allowances in 2021/2022? A: Page EIM42290 in HMRC’s
Employment Income Manual (https://bit. ly/3sJ6fen) states that money earnings are treated as received for assessment purposes, and paid for PAYE purposes on the earliest of the following: ● when a payment of earnings is made or when a payment on account of earnings is made ● the time when a person becomes entitled to payment of earnings or a payment on account of earnings. An employer would not be able to delay part of the payment to the next tax year to allow an employee to take advantage of any new tax thresholds; this could be interpreted by HMRC as tax avoidance. An employer could agree with the employee to split the net value over several months, provided there is a written agreement in place. Q: A company is conducting interviews over the coming weeks. To give financial assistance to the interviewees, the company have agreed to pay their travelling expenses. How should these be treated for tax and NICs purposes? A: The interviewees are not employees so any payments made to them will not be subject to tax and NICs, as directed under section 62 of the Income Tax, (Earnings and Pensions) Act 2003 (https://bit. ly/3qpMN46). n
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| Professional in Payroll, Pensions and Reward |
Issue 68 | March 2021
*correct at time of publication
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