Crowe Clark Whitehill LLPPension salary sacrifice duringmaternity leavePensions salary sacrifice operatesdifferently during unpaid maternityleave. This is because there is anexception in the maternity legislationrelating to ‘employment-related benefitschemes’ which includes normalpension contributions. It appears theintention was to leave the employer’sobligations under social securitylegislation unaffected, so that pensioncontributions are only payable duringpaid maternity leave.The social security legislation providesthat employer pension contributionsshould continue during any paid periodof maternity leave at the same rate asbefore leave, based on the employee’sactual salary. Any matchingemployee’s pension contribution onlyneeds to be based on the pay they arereceiving at the time — in this case,statutory maternity pay (SMP),However, it is unclear whether theexception can really override therequirement to continue the provisionof benefits throughout maternity leave.The upshot is that some employerstherefore do not feel obliged to continuemaking pension contributions duringunpaid maternity leave — the last 13weeks of the maternity leave period.Calculating SMP when salarysacrifice is in operationAn employee’s SMP entitlement forthe first six weeks of maternity leaveis calculated as 90% of her averageweekly earnings (AWE) during aset period immediately precedingher maternity leave. Her AWE forthis purpose are taken as her grossearnings which are subject to Class 1NICs. Such earnings would consist of:}}any salary or wages (including cashallowances such as a car allowance)}}any other element of the person’sremuneration which is chargeable toClass 1 NICs (including in verylimited circumstances Class 1B) —for example:- some non-cash benefits (suchas childcare vouchers wherethe excess over a tax and NICsexempt amount is chargeable totax and Class 1 NICs)- shares or share options- retail vouchers (where thecost is taxable under the P11Dprocedure and subject toClass 1 NICs)Where a salary sacrifice arrangement isin place during the set period, the SMPaverage weekly earnings calculationis based only on the revised grossearnings i( the salary after the salarysacrifice has been entered into andthe amount subject to Class 1 NICs.)This also impacts the amount that anemployer can claim back.For most employees, this will onlyaffect the first six weeks of SMP.For some part-time employees,the salary sacrifice may affect SMPpayments throughout the full 39 weekentitlement period. If 90% of AWEcomes to less than the flat rate paymentof SMP, the employee is entitled only tothe lower amount.Some employers choose to payadditional, or ‘enhanced’ maternitypay. There is no reason why this cannotbe based on the employee’s original,pre-sacrifice salary. However, SMPmust be based on the employee’ssalary post-sacrifice. Any reclaim forthe employer’s 92% rebate from HMRCmust be based on the actual amount ofSMP paid, not on any notional amountbased on the employee’s original salary.“The upshot is that some employers therefore do not feelobliged to continue making pension contributions duringunpaid maternity leave — the last 13 weeks of thematernity leave period.
Employers’ DigestAugust 2013Employee ownershipThe Employee OwnershipAssociation estimates thatUK based employee ownedcompanies had a turnover ofover £30 billion and employedover 130,000 people in 2011.Evidence shows that employeeowned businesses enjoy greaterstaff retention, innovation andmotivation than non-employeeowned businesses, which in turndelivers wider economic benefitssuch as increased productivity,profitability and resilience.The government wants to supportemployee ownership models andthe 2012 report Sharing success: theNuttall Review of Employee Ownershipincluded recommendations on howsuch models could be promoted.HMRC has recently publishedspecific guidance on two tax issuesrelated to implementing the review’srecommendations.}}Firstly, model Employee Share Trustdocumentation, a useful startingpoint for businesses consideringemployee ownership for the first time.}}Secondly, guidance on the main taxissues arising from new CompaniesAct regulations on share buy-backsfrom unquoted companies whichtook effect from April 2013.Consultation: supporting indirectemployee ownership structuresA further response to the findings ofthe Nuttall Review has the consultationdocument setting out proposals fortwo tax reliefs intended to “encourage,promote and support indirect employeeownership structures”.The two reliefs proposed are:}}Relief from capital gains tax on thesale of a controlling interest into anindirect employee ownership structure(such as an employee benefit trust(EBT)) such that any gain is whollyexempt from capital gains tax.}}An income tax and NationalInsurance exemption on “a certainamount of bonus or equivalentpayment” made by an entity withinan indirect employee ownershipstructure to employees of a companywithin that structure.Under the proposals, each employeewould be able to receive a certainamount free of income tax and NICeach year. This would also be free fromemployers’ NIC.See www.gov.uk/government/consultations/supporting-theemployee-ownership-sectorThe consultation closes on26 September, with the intention ofdraft legislation being published inautumn 2013 and then included inFinance Bill 2014.Further informationThe Nuttall Review of EmployeeOwnership: www.gov.uk/government/publications/nuttall-review-ofemployee-ownershipFor businesses that want to moveto employee ownership: ‘Employeeownership: model documentationand guidance’.For employees to learn more abouthow to request a move to employeeownership: ‘Moving to employeeownership: brief guide for employees’The EST, including a model trustdeed and other documents, has beenpublished by BIS at:www.gov.uk/government/publications/employee-ownershipcompany-model-documentationAn introduction to the main tax issuesconnected with the EST: ‘EmployeeShare Trust – introduction to taxissues’
Crowe Clark Whitehill LLPProfessional subscriptionsHMRC update List 3RTI andhours workedEmployees can claims anincome tax deduction forpersonal fees or subscriptionspaid to professional bodies orlearned societies, under Section344 of the Income Tax (Earnings& Pensions) Act 2003. Theconditions are}}membership of the body or societyhas to be relevant to the duties ofthe employment}}the body or society must be one thathas been approved by HMRC.A list of approved bodies is publishedby HMRC on their website and isknown as List 3 (no one can tell us whatbecame of Lists 1 and 2 or if indeedthey ever existed!)List 3 has recently been updated andcan be viewed online at www.hmrc.gov.uk/list3/index.htm. The listincludes all bodies approved by theCommissioners for HMRC up to31 July 2013.Employers should note that, despite thetax relief, professional subscriptionspaid on behalf of an employee must bereported annually on the employee’sP11D return unless they are covered bya formal dispensation from HMRC.HMRC recently reminded employersto record the correct number ofhours their employees have workedto ensure that they receive the rightamount of benefits and tax credits.Employers should record the hoursworked as follows:}}A: up to 15.99 hours}}B: 16 to 29.99 hours}}C: 30 hours or moreHMRC cautions that employers shouldonly select ‘D other’ if the employee doesnot have a regular pattern of employmentor the payment relates to an occupationalpension or annuity.Employers who have selected ‘D other’in earlier submissions but should insteadhave selected one of the other options,do not need to resubmit an earlier FullPayment Submission (FPS). Instead, theyshould report the correct hours on theirnext FPS.Employees canclaim an income taxdeduction for personalfees or subscriptionspaid to professionalbodies or learnedsocieties.
Employers’ Digest August 2013NICs and CroatiaCroatia joined the EuropeanUnion on 1 July 2013. This willaffect employers who send theiremployees on assignments toCroatia or who use the servicesof employees seconded to the UKby their Croatian employers.HMRC’s statutory residencetest indicatorHMRC has released the pilot versionof its Tax Residence Indicator,which can be found at http://tools.hmrc.gov.uk/rift.The indicator allows internationallymobile employees to check theirresidence status for 2010/11 andsubsequent years, so they canascertain how many ties and daysare allowed if they are not definitelynon-resident or definitely resident inthe UK. The opening screen warns thatthe statutory residence test rules areincluded in the Finance Bill 2013 and sowill not be enacted until the bill receivesRoyal Assent.As it is a pilot, there is a limit on thenumber of people who can accessthe tool at the same time, so if you geta ‘system error’ message, simply tryagain later. HMRC will review actuallevels of usage and will use the datato reassess access limits before theupdated version is released laterin the year.HMRC also provide a StatutoryResidence Test Guidance Note whichcan be found at: www.hmrc.gov.uk/international/rdr3.pdf.Normal EU rules have applied since1 July, so if employees are being sentto work in Croatia, they will need formA1 to exempt them from liability toCroatian social security contributions.If Croatian workers are assigned to aUK employer, they will need form A1from the Croatian authorities to exemptthem from UK NICs.If UK employees are sent on longerassignments to Croatia such that theydo not qualify for form A1 and becomeliable to Croatian contributions, the UKemployer may become liable to accountfor Croatian employer contributions.If these are not paid when due, theCroatian authorities have the rightunder EU law to apply to HMRC tocollect the contributions on their behalf.(This arrangement applies to allEU countries.)Additional information about changesto EU Regulations since May 2010 andthe way that they can affect NationalInsurance Contributions is available onthe HMRC website: www.hmrc.gov.uk/nic/work/new-rules.htmAdvice can be also obtained by callingthe NIC&EO International Caseworkerhelpline on 0300 200 3506.HMRC has released the pilot version of its TaxResidence Indicator.