MY CIPP
The CIPP’s Advisory Service team provides answers to popular questions
Cycle to work schemes Q: It has come to our attention that our client failed to set up salary sacrifice agreements for a cycle to work scheme for tax years 2021/22 and 2022/23 but the employees concerned had use of hired bicycles. How should we correct this? A: A salary sacrifice is an arrangement whereby an employee agrees to sacrifice cash salary in exchange for a noncash benefit. Section 244 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 provides the tax exemption of the provision of a cycle or cyclist’s safety equipment to an employee. Please see: https://bit. ly/3imbIqR. We would advise that the client ensures a benefit in kind has not arisen on the provision of the bicycle, by ensuring the conditions set out in Section 244 are met. A retrospective salary sacrifice arrangement cannot be implemented for a previous tax period. However, if the employer and employee come to an agreement to implement a salary sacrifice arrangement going forward, they must ensure that a contractual change is agreed to prior to any deductions being made.
Tax treatment of payments made on the grounds of medical incapacity Q: A contractual payment on the grounds of medical incapacity is to be paid to an employee whose contract is ending on the grounds of ill health. As this payment is included within the contract can this be paid tax free? A: Section 406 of the ITEPA 2003 provides a tax-free payment for ill health if that illness renders the employee incapacitated. However, as this lump sum payment for ill health is included in the contract, an employer financed retirement benefit scheme (EFRB) will have been created under Sections 393 and 394 of the ITEPA 2003. An EFERB is an unapproved pension scheme which means it doesn’t share quite the same tax advantages of a conventional occupational pension scheme. As this has been created, the payment will not be an exempt benefit. However, it’s our understanding that if the illness renders the employee disabled and incapable of working again, Section 406 ITEPA 2003 takes precedence over Sections 393 and 394 ITEPA 2003, and the payment can be paid tax free. For reference, see https://bit.ly/3X8ZPmS, https://bit.ly/3VR8QQu and https://bit. ly/3VHa2pC. Deductions from pay for job-related tools Q: A client has purchased tools for employees to use in their jobs but wants to deduct the cost of those tools from them in case the tools aren’t returned.
Can a deduction be made and if it can, should it be from gross or net pay? A: We would advise that no deduction is made in respect of the cost of these tools, as stated in Regulation 12 of the National Minimum Wage Regulations 2015. This states that a deduction made by the employer in the pay reference period, or payments due from the worker to the employer in the pay reference period for the employer’s own use and benefit are treated as reductions. However, the inclusion of a clause within the employment contract that allows for the payment of damages to the equipment under Regulation 12(2) (a) of the National Minimum Wage Regulations 2015 can allow the employer to make a net deduction from the employee’s pay providing that negligence can be proven. For reference, see: https://bit.ly/3IuDHPQ.
Can employers make deductions from staff for job-related tools?
Confirmation regarding data item 58B Q: Our client is extremely confused over the pay items to be reported in column 58B of the full payment submission (FPS). Our client regularly makes payments to employees outside of the Bacs process, for example by cheque, and has been told by their software provider that all
How should an employer proceed where employees have had use of hired bicycles but no salary sacrifice arrangement was set up?
| Professional in Payroll, Pensions and Reward | February 2023 | Issue 87 10
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