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Glasgow
+44 (0)141 221 2984

Edinburgh
+44 (0)131 225 6366

Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

French Duncan

Blog

Disentangling Savings Tax?

The way savings are taxed is being reviewed by the Office of Tax Simplification (OTS) – but don’t hold your breath yet.

The OTS is looking at the way in which savings and investment income is taxed, which can be very complicated. According to its paper, published in May 2018, the complex marginal rules mean that a lot of people are concerned about how their savings income may be taxed, even if they have no further tax liabilities, with the various specific complexities of the rules being a major issue. The paper also notes that even HMRC’s self-assessment software has sometimes made mistakes dealing with the complications.

To make matters worse, the OTS also found that 95% of people do pay not tax on savings income, thanks to a combination of the personal savings allowance (£1,000 for basic rate taxpayers and £500 for higher rate taxpayers) and the dividend allowance (£2,000).

The OTS paper makes a range of recommendations, including:

  • Changing the personal savings allowance and dividend allowance into genuine allowances. They are currently misunderstood nil tax rate bands.
  • Increasing the flexibility of ISAs by removing some of the rules about in-year subscriptions and transfers.
  • Reviewing the early withdrawal penalty on Lifetime ISAs which have experienced “slower than predicted” uptake.
  • Reviewing the use of emergency tax codes for lump sum pension withdrawals. The system generally results in an overpayment of tax and the need for a subsequent reclaim. Around £37 million of overpayments have been returned to date.
  • Ending the differential tax rates for dividends (7.5% at basic rate, 32.5% at higher rate and 38.1% at additional rate), to bring them in line with other tax rates on savings. 

We can expect to hear more, probably including the announcement of a formal Treasury consultation document, in the Autumn Budget. In anticipation of this, the OTS has already made the plea that, “it is important not to make piecemeal changes, which risk adding further layers of complexity”.

In the meantime, if the tax treatment of your own savings and investments is concerning you, do talk to us. Remember, even HMRC struggle to get it right.

Non-Conforming Uniforms…

A number of well-known brands have been marred in the media in recent months for failing to pay the correct minimum wage.  We have seen 179 employers being ‘named and shamed’ by the government, in particular within the hospitality industry, including Wagamama, TGI Fridays and the Marriott hotel group.  

However, before we start branding these high profile companies as rogue employers, the reason for their failure to pay the correct rates has been a misunderstanding of the rules around staff paying for or providing their own uniforms.   In short, these employers (and likely a raft more in the hospitality and other sectors) have been working under the incorrect assumption that either charging staff for uniforms or requiring them to provide their own uniforms does not impact on the National Minimum Wage.  This is sadly not the case, and collectively these non-conforming employers will have to repay £1.1 million to the 10,000 affected workers along with government fines of £1.3 million. 

It is fair to say that the vast majority of the working population would accept it is their responsibility to wear the correct attire for work, whether that be business dress for an office job, protective clothing for working on a construction site or a specified uniform in a hotel, restaurant or shop.  However, the relevant legislation sets out that if an employer requires a worker to purchase specific items or wear a particular colour of clothing, any deductions from wages, payment to a third party or the worker’s own pocket will reduce the national minimum wage pay. 

So, in the example of Wagamama, the company provide branded t-shirts at no cost, but the staff have to wear their own black jeans or skirt – the mere fact of specifying the colour of clothing the staff had to wear took the company below the national minimum wage calculation.  Similarly in the case of TGI Friday’s, staff were provided with a uniform, and had to provide their own black shoes, and again this was considered enough to see them fall short of the minimum rate.   

What is clear from these cases is that where employers require staff to either purchase or provide their own uniform, it is essential that they understand the implications in terms of the national minimum wage.  Going forward, affected employers either need to fund the uniform costs, provide an allowance for the specific items of clothing or increase the hourly rate of affected staff to ensure they do not breach the rules.  

HMRC are clearly clamping down on this area of national minimum wage compliance.  By focussing on some high profile brands in the hospitality sector, it has been made loud and clear to employers paying the minimum wage that the common practices around uniform provision are no longer acceptable.  Aside from the reputational damage and the headache of arranging back pay, the fines are not insignificant with up to a whopping £20,000 per underpaid worker.

So, employers requiring their staff to “dress to impress” will now also now need to be mindful they impress HMRC and avoid non-conforming uniforming! 

Don't risk missing the Employment Related Securities (ERS) deadline

When you hear the term Employment Related Securities what do you think? Do you know this term is used to refer to both tax advantaged schemes such as EMI, CSOP, SIP and non-tax advantaged schemes where options can be granted or shares gifted/sold to employees? Do you understanding all the reporting requirements involved? Do you know how to register for the service? Do you understand the tax implications and whether a scheme is tax advantaged or not? Do you even want to know, or is your time better spent elsewhere growing the business?

Where you are considering using share schemes to incentivise employees or merely awarding an employee with a bonus in the form of shares, these are questions that should be asked.

Following the filing changes so that all reporting must now be done online, the ERS online service has proven not to be a user friendly service. This has led to numerous employers getting in touch with us to assist with the filing of their annual returns and in the other cases where they have missed the 92 day notification deadline for EMI share options. The latter can have serious tax consequences. Where the notification is not made on time the EMI scheme would lose the numerous tax advantages that go with EMI scheme and instead for tax purposes would be treated as a non-tax advantaged scheme. The current deadline for ERS online filing is Friday 6th July 2018 – just over eight weeks away.

Our flyer touches on the recent filing changes as well as the additional specialised services we can offer to you. Get in touch and don’t leave it too late.

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