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What do you need to know for 2024 in order to get your year-end employment tax reporting right? Jonathan Berger shares guidance on responding to the latest expectations in compliance.
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Ensuring you’re aware of long-expected and recently announced employment tax changes will ensure that you're prepared for your year-end tax reporting.
Whilst no changes to employment tax thresholds or deadlines were announced during the Spring Budget on 6 March 2024, there was a further reduction to the main rate of Class 1 National Insurance for employees which is to reduce to 8% from the start of the 2024/25 tax year. Details of further announcements and their potential impact on employers can be found here:Spring Budget 2024: Tax response These are the upcoming changes that were announced prior to the Spring Budget that we're currently aware of.
HMRC have announced that from 6 April 2026 payrolling of benefits will become mandatory. While that may seem a long way off, employers may wish to start doing it now. To do so, they must register with HMRC prior to the start of the tax year they wish to commence it. This would be 5 April 2024 to payroll for the 2024/25 tax year.
For employers who haven't registered to payroll their benefits, all P11D and P11D(b) reporting must take place online from 6 April 2023. HMRC will no longer accept paper P11D and P11D(b) forms. They also need to remember that even where they payroll benefits a P11D(b) is still required to be filed and the Class 1A NIC paid after the tax year.
Employment-related securities - annual filings
The employment-related securities (ERS) annual filing requirements cover a broad range of events, and continue to catch employers out who may be unaware of their obligations in this regard.
Employers are obliged to return details to HMRC concerning, for example:
employee share and share option awards
the acquisition of other (non-share) employment related securities (eg, loan notes)
certain events relating to the award of ‘restricted securities’
share conversion events and exchanges (even where no tax charges arise)
For those unfamiliar with the requirements, HMRC won't issue a notification or reminder that a return is required. Employers are required to take specific action to first register on the PAYE online portal to make these filings.
National minimum wage rise changes
HMRC continue to strictly enforce the national minimum wage rules which can be complex to comply with. The headline national living wage rate will rise to £11.44 per hour from 1 April 2024 and will apply to those aged 21 and over (whereas previously eligibility was for those from age 23). Employers should take particular care that sufficient measures are in place to ensure they don't inadvertently pay their employees at a rate below the minimum wage threshold. This includes making sure all working time, including overtime, is documented and paid correctly as well as any salary sacrifice arrangements. Employers should ensure that they havea robust systemwithin their payroll, which is followed and regularly reviewed.
Hybrid working, home-working, and working from anywhere
Whether employers are incentivising their employees back into the workplace for a greater amount of time than has become the new norm, or offering a work from anywhere remote hybrid-working policy, the employment tax reporting and costs considerations should be worked through in advance to avoid any surprises. Recommended actions may include implementing return-to-work policies and reviewing previous policies(including for travel and home-working expenses)in light of the changing workplace rules and rising costs of living. There may also becorporate risks, such as permanent establishment and corporate residency.
With year-end reporting on the agenda, they should ensure correct reporting from a payroll as well as P11D and PAYE Settlement Agreement (PSA) perspective.
Tax risk: controls and governance
Tax risk can be a particular headache for employers. This is heightened when undergoing periods of change, such asmergers, acquisitions, investmentsor funding. Large businesses should be aware of the requirements placed upon them by the senior accounting officer (SAO) and Business Risk Review+ (BRR+) regimes, although ensuring that adequate controls are in place to minimise risk should be a priority for all employers. The corporate criminal offences (CCO) legislation places responsibility upon all businesses to implement procedures to prevent any associated persons from criminally facilitating tax evasion. With potentially unlimited fines for any business found guilty of the offence, it's crucial for employers to implement and regularly review their policies.
IR35 also remains a key governance issue for all employers, with HMRC actively investigating compliance with the rules. They have been focusing on off-payroll policies and processes. Employment tax health checks, which evaluate all of these risk areas, should be undertaken on a regular basis, and when there are changes in the business. This will allow employers to have confidence that their procedures are sufficiently robust, and that they're meeting their employment tax compliance responsibilities.
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As the cost of living crisis continues to bite, employers are feeling the pressure of increasing costs, directly impacting both their business and their workforce. Attention is turning to annual filing requirements for 2023/24 with HMRC.
PAYE settlement agreements (PSA) and taxed award schemes (TAS)
An agreement with HMRC for an employer to settle tax and NIC liabilities will be due on behalf of their employees on minor or irregular taxable benefits, or where it's impractical to operate PAYE, eg, staff entertainment and gifts. A PSA must be agreed with HMRC by 5 July 2024, which is also the deadline for adding new items to a PSA for the 2023/24 tax year.
For employers providing incentive awards to employees of a third party, a TAS is an equivalent voluntary agreement to settle the tax and NIC due which needs to be agreed and completed by 6 July 2024.
Short-term business visitor (STBV) agreements
These are voluntary agreements with HMRC to relax the otherwise strict PAYE withholding requirements on payments to certain business visitors to the UK. Complex conditions must be met, but there are significant advantages in terms of risk and administration reduction. The 2023/24 STBV Report(s) must be filed by 31 May 2024.
Forms P11D and P11D(b)
These are used to report taxable expenses and benefits provided to employees and report the Class 1A NIC payable by the business. Even where businesses payroll their P11D benefits, the P11D(b) must still be filed by 6 July with payment of the Class 1A NIC by 22 July. If a business wishes to formally payroll their benefits the deadline for notifying HMRC is 5 April prior to the start of the relevant tax year. Employers must also notify their employees of the change.
Payrolling will become mandatory from 6 April 2026 and there are a number of changes to be aware of and to prepare for prior to that date, even where businesses already payroll their benefits.
Employment-related securities (ERS) return
Employers are required to report to HMRC details of all employee/director share and share option transactions that have taken place during the tax year, whether via an employee share plan or any other arrangement. The return must be submitted annually by 6 July using the online ERS portal.
Where a ‘scheme’ has been registered with HMRC, a return must be filed with HMRC in order to avoid late filing penalties.
Post-termination benefits
When the employment of an employee or director is terminated, but they continue to be provided with a taxable benefit in kind, the reporting of the benefit differs to standard form P11D reporting. Employers are required to make a report to HMRC for termination packages exceeding £30,000, which are inclusive of non-cash items. Reports must be made by 6 July following the end of the tax year.
Payroll
Final payroll reports must be submitted to HMRC by 19 April 2024. Form P60s must be provided to employees (and any off payroll workers on the payroll as deemed employees under the IR35 legislation) by no later than 31 May 2024.
Employers who payroll their benefits in kind must ensure their employees have been provided with details of what has been payrolled by 1 June 2024 at the latest. The Class 1A NIC due on payrolled benefits must be included on the form P11D(b), which is due by 6 July 2024.
Deadlines for submissions
Specialist issues
There are a number of other specialist employer compliance returns and reports that sit outside of the normal employer compliance timeline. They may not apply to all businesses, but where they do apply, failure to comply may bring significant penalties.
Construction industry scheme (CIS)
Businesses that are mainstream or deemed contractors for the purpose of CIS must submit monthly returns of payments made to subcontractors. CIS returns are due by the 19th of every month following the last tax month.
Off-Payroll working & IR35
Employers with 250 or more employees on a specific ‘snapshot’ date each year must report and publish their gender pay gap data. Reports must be made within a year of the snapshot date.
Businesses engaging with off-payroll workers on a self-employed basis, such as contractors via intermediaries as well as directly with freelancers, need to ensure they address the significant tax risks.
It's important to be able to demonstrate the taking of 'reasonable care' with onboarding contractors and have embedded systems to determine employment status in order to manage IR35 and wider risks.
Construction industry scheme (CIS)
Off-Payroll working & IR35
