Tag: PAYE

Tronc Guidance

A summary of new rules for Tronc.

Summary

  • Coming in force from 1st October 2024
  • All tips (without any kind of deduction) to be passed to workers (agency workers included) by end of following month.
  • Businesses required to have a written tipping policy to ensure fairness and transparency.
  • Code or Act does not affect taxation of tips.
  • Cash tips (if no control exercised by employer) are out of scope of Tipping Act and Code.
  • Tips will be distributed in the restaurant where collected. One restaurant’s tips cannot be paid to staff of other restaurant.

Tipping policy – Factors to Consider

Businesses need to prepare and distribute the tipping policy to all staff members including agency workers. Tipping policy needs to inform staff the basis of tips allocation. Basis can be on several factors, see example list below:

a. Type of role/work e.g. distribution between front of house and backroom workers

b. Basic pay (and how workers are engaged)

c. Hours worked during period when tips are received

d. Individual and/or team performance

e. Seniority/level of responsibility

f. Length of time served with the employer

g. Customer intention

Employers should consult with workers to seek broad agreement in the workplace that the system of allocation of tips is fair, reasonable and clear.

Records

Workers can ask for past 3 years records. Employer will need to provide total tips collected during their employment and amount allocated to the worker making the request but not the specific amounts paid to other workers.

If a worker does not wish to participate in Tronc, Tronc master should get this in writing.

Action:

Restaurants should start preparing a written Tronc policy.

Employee Benefit – life insurance policies for employees

Group life insurance is a common benefit provided by employers, this blog explains its tax implications.

Group life policies are often purchased by employers see IPTM1125

Employees

Group life policies which insure individuals up to the age of 75 and only provide death benefits for the dependants of that person will not give rise to income tax charges see IPTM7020

For Full guidance see IPTM 7015 to IPTM 7060

A contribution paid by an employer in respect of their employee scheme is not taxable as earnings for the employee concerned; see PTM031100

Employers

Tax relief on employer contributions is given by allowing contributions to be deducted as an expense in computing the profits of a trade and so reducing the amount of an employer’s taxable profit ;
see PTM043100 and see BIM45525

Tax relief can only be given on contributions that have actually been paid. The amount shown in the profit and loss account in respect of the obligations of defined benefit schemes may be substantially different from the amount of contributions paid to the scheme, but it is only the amount actually paid that can be considered for tax relief. see PTM043200

Contributions in respect of members who are directors who are shareholders or connected to a controlling director

Broadly, the employer’s contribution will be wholly and exclusively for the purposes of the trade if the contribution paid in respect of a controlling director or a connected employee is in line with a contribution that would have been made for an unconnected employee in a similar situation.

Case law – Beauty Consultants Ltd v Inspector of Taxes [2002] SpC 321 see BIM45530

General guidance on employer’s contributions in the Business Income Manual at BIM46000.

Directors and PAYE

1.0 Basics

• Directors are employees.

• It is not necessary for Directors to be paid National living/minimum wage.
see HMRC Tax Bulletin 50 with examples and ICAEW Tax guide 07/00.

• Directors usually register for Self-assessment (SA). They will need to complete employment pages of the return.

• Two methods for computing National Insurance Contributions (NICs) for directors:

a) Cumulative ; or

b) Regular employee method

Please note both method give similar results at the end of the tax year.

1.1 Bonus facts

• Directors can register for `Annual Scheme` who are paid on an annual basis to avoid sending (Employee Payment Summary) EPSs every month.

• Dividends can only be paid when there are sufficient profits made in the business this could be current year profits or brought forward reserves.

• NIC is not due on Dividends.

• Record keeping: PAYE records needs to be kept for 3 years.

• Its advisable to keep records for 7 years.

2.0 Paying directors without running payroll
We can put up till £123 (LEL : tax year 24-25) x 52 = £6,396 as director’s wages.

For tax year 2025-26 ; as ST is lower than LEL we can only put £96 x 52 = £4,992 as director’s wages without running a payroll.

See link below:
https://www.gov.uk/paye-for-employers

3.0 Optimum salary for directors
If the employer is eligible for Employment Allowance , which will happen in case there are two directors husband and wife or two friends both directors in the company. We should pay them a salary equal to the personal allowance.

In other cases uptill the NIC secondary threshold.

Maths on the above:

Suppose A earns a salary of £12,500 (tax year 20-21), he pays no tax but NIC @ 12 % above primary threshold (£9,500). Thus he pays 12% on £3,000 i.e. £360.

But as the company does not pay Employer NIC, company can save 19% on £3,000 i.e. £570 , difference £210 saved.

For two directors saving are £210 x 2 = £420 per annum.

4.0 Minimum Salary for State Pension
Any individual (including a director) earning between £120 (LEL) and £183 (PT) a week, is treated as having been paid the contributions to protect your National Insurance record.

  • Employee starts paying NIC on salaries over PT and
  • Employer starts paying NIC on salaries over ST

See link below:
https://www.gov.uk/national-insurance

5.0 Method of payment of directors salaries
Usually Director’s salary is credited in their account via a Journal entry. This is alright when Director Loan Account is in Credit. In case Director Loan Account is in debit i.e. monies have already been withdrawn, it would be necessary to actually pay the salary, which director could transfer back to the company.

6.0 Interest on directors loans
If a director has given loan to his company and charges interest on it, this interest income will be covered by Personal savings allowance.

7.0 Auto enrollment
a) As per Pension regulator “organisation with one or more directors who do not have contracts of employment is not an employer if it does not have any staff other than the director(s).

The company will have no automatic enrolment duties and does not need to complete a declaration of compliance. In this case they should let us know that they’re not an employer.”

b) Employer can pay full 8% contribution; as per gov.uk .

See link below:
Pension Regulator website

8.0 Starting PAYE during the tax year 

Please see our note on related blog.

Employment Allowance: Group / Connected Companies

Employment allowance in group companies can only be claimed by any one company.

An employer gets £3,000 off their Class 1A (Secondary) National Insurance in each tax year.

The question arises – can two or more companies in a group claim £3,000 each.

The answer is No, only one of the group companies can claim employment allowance. Tax payer decides which company gets it.

I would highly recommend a read through the technical guidance link given below:

a) HMRC even includes unincorporated businesses in connected businesses.

b) Besides share-holding and control as under Corporation Tax Act 2010, HMRC has included within connected businesses – economically interdependent businesses as well.

Technical guidance in this case is highly readable with lots of examples.

Sources:

Basics

Technical guidance: Connected companies

PS – I came across this little gem of information among audience questions today on HMRC Webinar: Employers – what’s new for 2018. I will highly recommend subscribing to these webinars. They are free !

October 2019

HMRC’s latest Agent Update Issue 74 informs that from 6 April 2020 Employment Allowance will be restricted to employers with NICs liabilities of under £100,000.

That is employers will need to look at their last tax year’s Employer NIC expense and if its over £100k they cannot claim £3k Employment Allowance.

If employer is part of a group Class 1 NICs liabilities of all companies, and/or PAYE schemes, needs to be added together to assess eligibility for Employment Allowance.

May 2023

If one group company cannot claim full balance, balance cannot be transferred to another company.

Sep 2024

The Employment Allowance can only be used against your employer Class 1 NICs liability. It can not be used against Class 1A or Class 1B NICs liabilities.
Source : Claiming Employment Allowance: further employer guidance.