Smith and Williamson’s Employer Solutions team provides expert advice on a range of issues faced by employers today. At their core, the services we provide are about managing risk and driving growth, whether this is through effective employment tax planning, optimising incentives, supporting global mobility or safeguarding compliance.
As organisations grow, managing staff ties in closely with the success of the business. As well as having a corporate strategy, having a people strategy safeguarding of employer and employee compliance, retaining and motivating staff, and protection from risk becomes crucial. Streamlining reward, maximising return on benefits and creating efficiencies in administration is key to a successful operation. A strong people strategy will make employees feel valued and invested in future success.
Business growth depends on having the right people in the right roles. Tax efficient incentives are among the most effective means of rewarding, retaining and motivating these key employees. We work with employers to devise, implement and maintain effective incentive packages, to make sure your people strategy supports your corporate strategy.
In an increasingly digitised world, HMRC is more effective than ever at monitoring employer compliance. We work with clients to identify areas of risk and to ensure that these are managed practically and proactively. In the event of any HMRC enquiries, we support clients in liaising with HMRC to achieve a positive outcome.
Supporting international mobility
Business is becoming increasingly international and employee mobility is greater than ever before. We work closely with colleagues across an international network of tax experts to advise on UK and international issues around global mobility. While you focus on having key people in the right locations when you need them, we can help reduce exposure to double tax and ensure the requirements in multiple jurisdictions are being met.
Bespoke, expert and holistic
Our service is tailored to the commercial objectives and talent requirements of your organisation. Throughout the business lifecycle, you will have direct access to senior employment tax specialists who will give you practical advice without the jargon. We pride ourselves on creative thinking and smart solutions aligned to your overall business strategy to keep you ahead of the competition.
Frequently asked questions
What do I need to think about when choosing an equity incentive reward package?
The plan that is best suited to your business will depend on a number of different factors, including your organisation’s stage in the business cycle; whether or not you want the plan to be available to all employees, and the business’s commercial objectives.
Equity incentives are a proven way to motivate and retain employees, and can be extremely tax-efficient. Your specific business objectives will have a significant impact on the decision when you are choosing an equity reward scheme. Whether you want to encourage employee retention, reduce employment costs, or increase growth before exit events, different schemes have different advantages. We have summarised a few of the popular choices below.
Enterprise Management Incentive (EMI) share scheme
EMI schemes are often introduced at early stages of growth as a tax-efficient way to incentivise key team members and retain their top talent.
Key tax benefits of an EMI scheme include:
- No income tax or national insurance contributions on grant or exercise if share options are issued at market value.
- Capital gains tax payable on sale of the shares, potentially at a reduced rate of 10% if Entrepreneurs’ Relief is available.
- Corporation tax deduction on exercise based on market value of the shares at exercise less exercise price.
There are various conditions that the company and employee must meet to qualify for EMI. In particular, companies can benefit from this scheme only if they employ fewer than 250 full time employees and their gross assets amount to £30m or less.
Company Share Option Plan (CSOP)
If your business does not qualify under the EMI scheme, it is often worth considering the Company Share Option Plan (CSOP). This is another tax-advantaged share option scheme, but with no limit on company size or number of employees, meaning that larger businesses can benefit.
Share incentive Plan (SIP)
SIP is a plan which has to be offered to all eligible employees. SIP allows companies to invite employees to acquire shares in their employer or employer’s parent company. The shares are held in a special type of employee benefit trust. SIPs can award various shares in various ways, and where certain conditions are met it is possible to award shares annually without creating an income tax or NIC charge. Additionally, no capital gains tax is payable while the shares are in the SIP trust.
We also assist companies in designing bespoke incentives, including employee trusts and growth share plans, tailored to the specific business objectives. You can read more about flowering shares and employee ownership trusts on our website.
How can I make my employer year-end reporting more efficient?
Optimising processes, outsourcing where necessary and utilising tax technology solutions can all help make year-end reporting as painless as possible, without compromising on accuracy.
We help businesses of different sizes with their employer compliance, both by assisting with the reporting itself and advising on how to de-risk compliance processes.
Of course, the easiest way to win back the time you would otherwise be spending on compliance is to outsource. We help clients with payroll operation as well as all aspects of year-end reporting, for both UK and international employees.
Stepping back from the detail, one of the most effective ways to achieve more efficiency in employer compliance is making sure there are adequate processes in place from gathering information to completing final checks and making timely payments. This is also an area of increased focus from HMRC in carrying out employer compliance checks. Some of the ways we can support clients with this include undertaking risk reviews, providing training, mapping processes and advising on the treatment of specific items.
Tax technology is also playing an increasingly important role in driving efficiencies in this area. We are currently supporting clients with implementing new technologies to enhance current ways of working, including robotic process automation, data analytics and specialised tax solutions. Find out more about tax technology.
What key tax issues should employers consider at the moment?
The issues you face as an employer will vary depending on the size of your organisation and the make-up of your workforce, but there are some key issues that every employer will need to get right.
For all employers, de-risking compliance processes is a priority. The number of employer compliance reviews (and penalties) issued by HMRC is increasing, and HMRC’s focus increasingly is on the procedures in place to ensure compliance and prevent any issues biting in the future.
For small businesses, incentivising employees and driving growth is often key. Rather than pay out remuneration in cash, these businesses may want to take advantage of generous equity reward schemes to give their employees a stake in the business.
For fast-growth businesses that are expanding internationally, and UK entities within larger global organisations, internationally mobile employees add another layer of complexity.
In the days of the ‘gig economy’ another key concern is around employment status and making sure that consultants or contractors are correctly being treated as such. The upcoming changes to the off-payroll working rules, known as IR35, make this an important consideration for medium- and large-sized employers in particular.
Specific tax considerations may include:
- Streamlining processes and taking advantage of planning opportunities in relation to key areas of employment tax compliance. Common ‘problem areas’ are around staff entertaining, optional remuneration arrangements/salary sacrifice and termination payments.
- Supporting agile working in an international setting, while making sure the relevant tax and reporting requirements are met in each jurisdiction.
- Preparing for the upcoming changes to IR35 (relevant for engagements with Personal Service Companies) and reviewing any engagements where payments are made “off-payroll”
- Choosing the most beneficial equity incentive package and making sure schemes are set up and maintained correctly to preserve any tax advantages
- We help employers of all sizes identify and maximise tax opportunities, as well as manage and mitigate tax risks across all areas of employer compliance.
What tax issues do I need to think about when employees are travelling to and from the UK?
In an increasingly global world, employers of all sizes are having to consider the impact of employees travelling between jurisdictions.
UK employers with international workforce have to juggle the income tax, NIC and PAYE regimes in the UK and overseas to come to the correct treatment.
For inbound and outbound employees, employers will also want to consider the availability of reliefs that could enable, for example, the provision of living accommodation overseas or the reimbursement of relocation expenses tax-free.
Where employees are visiting overseas offices or even working from home in other jurisdictions, employers will need to keep on top of overseas ta and reporting requirements as well as the UK’s. We operate as part of Nexia, a network of tax experts in different jurisdictions, to make sure this expertise is available wherever your employees end up.
For employees of foreign offices visiting the UK, whether there are any UK obligations depends on a number of factors, including the individual’s residency status; whether there is a UK payroll presence; and the nature of the work done in the UK.
Preventing double taxation often requires advance planning; however, depending on the facts, there are a number of potential agreements that can be entered into with HMRC to relax any UK payroll obligation for these employees. Even where there is no UK tax charge, however, there can still be a reporting requirement, and UK employers need to have processes in place to monitor inbound and outbound employees.
We help employers make sense of the complex requirements of a globally mobile workforce, assisting with reporting requirements and advising on planning opportunities. Find out more about our international tax offering.
How can I tell if a worker should be treated as employed or self-employed, and how will the IR35 reforms change this?
Getting employment status for tax right is a complex area that is subject to increasing HMRC focus. Businesses need to consider the working practices of each engagement, not just the written terms.
Whether a worker is an employee or self-employed depends on a range of factors that need to be considered as a whole. When engaging contractors, businesses need to look at the actual working practices (not just the written contracts) and consider the overall position to see if the effect is that of a person working in a self-employed capacity, or a person working as an employee.
Some of the key questions engagers will need to ask when determining the employment status are:
- Who has the right of control over how a worker performs his services?
- Does the worker set the working hours, days or location?
- Does the worker need to provide personal service or is he allowed to hire someone else (i.e. substitute) to do the work or provide substantial help?
- Does the worker face any financial risk in performing the job, such as vehicle costs or costs of running the office?
- Can the worker profit from sound management e.g. by completing a project earlier?
- Is the worker required to accept work?
- Is the worker allowed to work for other businesses providing similar services?
- Does the worker appear to be ‘part and parcel’ of the business? For example, do they attend team meetings? Would customers know that they are not employed by the business?
However, this list is not exhaustive and it might be necessary to consider other factors when determining the employment status of a worker.
Under current rules, the above tests only need to be applied when engaging with an individual directly (not through a company).
The forthcoming IR35 reforms will not change the key tests that need to be considered when determining the employment status of workers, but it will affect medium or large businesses engagement workers who operate through their personal service companies (PSCs). From 6 April 2021, the company benefitting from the services (the "end user"), will be responsible for determining the status of any individual engaged through a PSC and, if applicable operating PAYE on payments to the PSC. You can read more about the planned IR35 changes here.
What is the construction industry scheme (CIS) and how do I know if this applies to me?
CIS requires businesses engaged in construction to file monthly returns and, in some cases, to deduct tax at source from payments to subcontracted construction workers.
CIS affects contractors and sub-contractors engaged in construction operations.
Construction operations are widely defined for these purposes, and include construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not).
A CIS mainstream contractor is a business that pays subcontractors for construction work. This would usually be a construction business e.g. a property developer, although businesses that do not usually operate in the construction industry can also be caught. A CIS sub-contractor would typically be a business carrying out construction work for a contractor (including by sub-contracting this to another person). It is possible to be both a contractor and a sub-contractor.
Certain types of work are exempt from the scheme, including architecture and surveying, scaffolding hire, or delivering materials. However, if a single contract covers some construction operations as well as other matters, HMRC will treat the whole contract as falling within CIS. This is the case even if separate invoices are raised for the different jobs.
Can I still be impacted by CIS if I am not a construction business?
Even if a business is not strictly a construction business, it may still be affected by CIS, as a result of being a deemed contractor. Generally, a business will be a deemed contractor, if payments under construction contracts exceed £1 million per accounting period over three years (although the government indicated in the most recent budget that the definition of a contractor would be clarified).
What are contractors’ and subcontractors’ obligations?
Subcontractors must register with HMRC in order to be paid gross or, if certain conditions are not met, net of 20% CIS tax. If a subcontractor chooses not to register, the deduction would amount to 30%. These deductions count as advance payments towards subcontractors’ tax and national insurance bills.
The key obligations of a contractor under CIS are:
- Registering with HMRC
- Verifying the identity of its subcontractors
- If subcontractors are not registered for gross payment, deducting tax from payments to sub-contractors and providing statements to sub-contractors to inform them of this
- Making monthly returns to HMRC
Read more about property tax issues here.
Tax Card 2020