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Tax relief for pension contributions

Tax relief for pension contributionsThe UK operates a system encouraging pension savings by providing tax relief on contributions to registered schemes (and some overseas schemes) by employers and individuals (for both employed or self employed). Benefits paid from the scheme are generally taxable, though there are significant tax-fee benefits available in specific circumstances, see the Pension income and lump sum allowances from 6 April 2024 guidance note.Savings can accumulate in a tax-free environment within a registered scheme. If the pension scheme is a defined contribution (DC) scheme then the investment risk is entirely borne by the member. If the scheme is a defined benefit (DB) scheme, poor investment returns can result in the employer (and possibly the members) having to pay more into the scheme than anticipated, in order to meet the benefit promises associated with the scheme. The parameters of tax relived contributions are outlines below, together with the mechanism of giving relief.For the self employed and for higher rate relief for those in self assessment, completion of boxes 1 to 4 at the top of page TR4 of the main tax return allows a taxpayer to claim tax relief on pension contributions made in the tax year.Most contributions to registered pension schemes are paid net of basic rate tax relief (via a relief at source scheme), so the only additional relief sought by entry on the tax return is relief at higher rates of tax.For Scottish taxpayers, relief at source is at the Scottish basic rate. From

Bonus and incentive schemes — legal points

Bonus and incentive schemes - legal pointsMany employers operate bonus or incentive schemes in addition to paying basic salaries to their employees. Such schemes will normally make it clear whether entitlement is discretionary or contractual.Discretionary bonuses usually give employees a contractual right to be considered for a bonus or incentive payment under the scheme, but not necessarily to receive one. In the absence of express agreement a bonus entitlement may be implied on the basis of established custom and practice, eg a right to be paid a Christmas bonus may be implied where it has been paid to all employees for a number of previous years (see Frischers v Taylor (unreported EAT 386/79)).Any bonus entitlement should be included in the employees' written statement of employment particulars. See the Written statement of particulars or terms and conditions and Definition of wages guidance notes. Bonus schemes are generally intended to ensure that employees focus their efforts on key objectives of their employer's business. The benefit for the employee is that he may receive greater financial reward. The benefit for the employer is that employees are motivated to work harder and not lose their bonus entitlement by leaving employment.Where a bonus is paid in cash, it is liable to PAYE tax and Class 1 national insurance. Bonuses paid in kind are taxable in accordance with the benefit in kind rules.Types of schemeMost bonus schemes link bonus payments to some measure of performance. In this way they can be used to motivate employees.

Gifting cash and assets to charity

Gifting cash and assets to charityThere are a number of tax reliefs available for gifts to charities. This note sets out the UK tax treatment of gifts to organisations established in part of the UK with purposes regarded as charitable under the law of England and Wales. See the Foreign charitable trusts and other foreign charities guidance note for information on gifts to other entities of a charitable nature.Gift aidGift aid is a way for charities or community amateur sports clubs to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate of tax paid by the donor.See the Gifts of cash guidance note in the Personal Tax module for details of the conditions for a qualifying donation and the tax relief available to the individual.Record keepingA charity must maintain evidence to satisfy HMRC that a payment has been made and by whom. For full details of the records to be kept by a charity and the format in which the records may be stored, see the HMRC website.Planning issues for charities Charities should encourage all donors to make use of gift aid. If a charity receives a simple cash gift it should consider contacting the donor to ask whether it would be appropriate to send him a gift aid declaration. The charity can bank the donation in the meantime.Payroll givingPayroll giving (often called 'give as you earn') is a way for employees to make regular payments to charity directly from their salary. People who

Flexible benefits schemes ― an overview

Flexible benefits schemes ― an overviewAn introduction to flex schemesA flexible benefits scheme allows an employee some degree of choice in how their remuneration package is structured. The terms ‘salary sacrifice scheme’ and ‘flex scheme’ are often interchangeable, because they usually refer to the same thing. The main difference, if there is one, is that ‘salary sacrifice’ may refer to a degree of employee choice given on a single employment benefit. A flex scheme on the other hand often applies choice to a number of different employment benefits at the same time, therefore the considerations on implementation are more numerous.This document sets out the basics of how a flex scheme might work, alongside the usual steps involved when implementing a successful scheme. A number of additional guidance documents then provide further assistance on the various practical steps and considerations, as listed below:DescriptionGuidance notesPreliminary work around feasibility prior to implementing a flex schemeFeasibility study for a flexible benefits schemeEmployee car or company car, matters to considerOwn car v company carRules applicable for valuing benefits when employee has the choice between cash or a benefit in kind, including exceptions to the rulesOptional remuneration arrangementsWhat are the potential areas of salary sacrifice and the risk factors?Salary sacrifice arrangements ― overviewInteraction between salary sacrifice and national living or minimum wageSalary sacrifice and national minimum wageWhen and how often may an employee change a salary sacrifice agreement?Changing the terms of a salary sacrifice agreementInteraction between salary sacrifice

Agency workers

Agency workersA worker who offers his services to a number of different clients may choose to sign up to an agency who will seek work on his behalf. The work secured for the individual by the agency may only be hours in duration or it may go on for months. Whatever the duration, the worker has a contract with the agency rather than with the individual clients. The agency generally bills the clients for the worker’s services rather than the client paying the worker direct. The agency then pays the worker an amount as agreed in the contract between them. The agency is responsible for assigning jobs on hand to the various workers it has under contract. Agencies are particularly common in the nursing, domestic care and temporary work sectors.Although the employment status tests (see the Employment status tests guidance note) may suggest that this sort of arrangement is not an employment relationship, it may come within particular tax provisions in ITEPA 2003, ss 44 and 688 (the agency provisions) and NIC provisions in SI 1978/1689, Sch 1, Part I (the categorisation regulations). Those provisions can apply to treat the agency worker’s income as employment income and, in most cases, make the agency responsible for the operation of PAYE on that income and make the agency liable to secondary Class 1 NIC in respect of the worker’s income.HMRC guidance is provided at ESM2001 onwards.When do the provisions apply?The agency rules apply if a worker personally provides services to a

Restricted securities

Restricted securitiesIntroductionThe application of the restricted securities legislation is complex. This guidance note summarises the key tax implications and looks at some of the practical issues for employers in analysing and handling the potential risks associated with the acquisition of restricted securities by employees and directors in private and unlisted public companies.The definition of securities is found within ITEPA 2003, s 420. It includes, amongst other things, shares (the most common type of security issued in a private company and the focus of this guidance note), loan stock, warrants and units in a collective investment scheme. Key considerationsWhen might the restricted securities regime apply?The restricted securities regime is most likely to be relevant where a director or employee acquires shares at less than market value (disregarding any restrictions on the shares) that are subject to compulsory transfer arrangements. For example, the director / employee is required to sell the shares on leaving the employment for less than the market value at that time.Restrictions are not limited to those contained in the company’s Articles of Association. They can also include restrictions contained in any ‘contract, agreement, arrangement or condition’. For example, restrictions contained in shareholders agreements would be caught under the legislation. Restrictions of any nature are covered if their effect is to decrease the market value of the shares. They include:•good and bad leaver clauses that determine the price an employee receives on termination of employment•forfeiture of shares if performance conditions are not met•requiring the consent

Annual parties

Annual partiesIntroductionMany employers provide social functions to their staff. Often this will include some sort of annual event, usually taking place in the summer or at Christmas. See also Simon’s Taxes E4.741A. HMRC guidance is at EIM21690.The amounts incurred by the employer in respect of the social function are taxable unless there is an exemption from tax as it is considered a benefit to the employees attending.Exemption for annual parties ― qualifying eventsThere is an exemption from tax and NIC in ITEPA 2003, s 264 where the employer provides employees with a social function and a number of conditions are met:•the function is an annual party•the event is available to all employees in the business, or all employees at one location where the employer has multiple locations•the cost per attendee does not exceed a set amount ― currently £150Although the legislation includes the term ‘annual’, HMRC has not to date expected the employer to hold the same event every year. However, the event should be of an annual nature such as a Christmas party or summer barbecue. Events which, by their nature, are one-off events will not be covered by this exemption. For example, if an employer is having a celebration because it has been in business for 50 years, this would not be classified as annual for the purposes of these provisions.For the treatment of social events which are not annual parties, see the Entertainment ― staff

VAT liability ― overview

VAT liability ― overviewThis guidance note provides an overview of the concept of VAT liability along with links to further practical guidance on the subject.In-depth commentary on the legislation and case law associated with VAT liability is covered in:•De Voil Indirect Tax Service V4.1 ― VAT exemption•De Voil Indirect Tax Service V4.2 ― the zero rate of VAT•De Voil Indirect Tax Service V4.4 ― the reduced rate of VATIntroduction to liabilitySupplies of goods and services which are made by taxable persons in the course of their UK business activities can be subject to one of four VAT liability treatments:•standard-rated•reduced-rated•zero-rated•exemptStandard, reduced and zero-rated supplies are often referred to collectively as ‘taxable supplies’. This distinguishes them from exempt supplies. The distinction between supplies that are taxable and supplies that are exempt is important because of its consequences for input tax recovery. VAT can generally be recovered on costs which are used to make taxable supplies. However, VAT cannot generally be recovered on costs which are used to make exempt supplies. This distinction is covered in greater detail in the Input tax ― overview and Partial exemption ― overview guidance notes. The reduced-rate, the zero-rate and exemption are sometimes referred to collectively as ‘VAT reliefs’. This is because VAT is either not chargeable on sales or is chargeable at a lower rate than the standard-rate. Despite being a ‘relief’, exemption will not necessarily be a more desirable treatment than the standard-rate because of its impact

Utilities, council tax and other bills in accommodation

Utilities, council tax and other bills in accommodationThe payment of an employee’s council tax or utility or other bills is usually linked to the provision of living accommodation to the employee.Whether or not the payment of council tax or utility bills is treated as a taxable benefit depends on whether the reason for the provision makes it an exempt benefit under specific legislation.Payments in respect of gas and electricity made by an employer in relation to employer-provided accommodation are always taxable. However, how and why the benefit is provided to the employee determines both the value of the benefit and reporting requirements.Council tax and utility bills ― exemptionsWhether or not the payment of council tax or utility bills on behalf of the employee constitutes a taxable benefit depends on why the amounts have been paid.If the payment of council tax does not fall into one of the exemptions below then the full amount is taxable. The section on ‘reporting requirements’ below sets out how it should be reported and taxed.Exemptions applicable to council tax or utility billsThe payment of council tax or utility bills (specifically council tax, water charges or sewerage charges) is not taxable if it is provided in connection with living accommodation which is exempt from tax either as job-related accommodation or due to a security threat; this is confirmed by HMRC guidance at EIM11332. Broadly, there are two exemptions:•job-related accommodation ― where either the accommodation is necessary for the proper performance of the duties, or

NIC settlements for inbound employees with UK employer

NIC settlements for inbound employees with UK employerHMRC offers two arrangements that relax the strict PAYE procedures in respect of NIC. One of these is the modified NIC arrangement covering inbound expatriate employees who have been sent to work with a UK employer or host employer, known as an ‘EP Appendix 7A ― Modified Class 1 and Class 1A National Insurance contributions for expatriate employees subject to an EP Appendix 6 agreement’ (EP APP 7A). The EP APP 7A application form for employers to complete who operate a tax equalisation agreement for employees coming to work in the UK from abroad is available at PAYE82003.Scope of agreementAs the name suggests, this arrangement can only apply to employees who are included in an EP Appendix 6 Modified PAYE agreement. This means that in order for an EP Appendix 7A agreement to apply the employee must be a foreign national assigned to the UK who is tax equalised (see the Tax equalisation guidance note) and has an employer or host employer in the UK liable for secondary UK NIC. Unlike with tax, the employer can, but is under no legal obligation to, pay the employee’s primary Class 1 NIC liability as part of the equalisation process. If the employer bears the cost of the employee’s NIC, this should be calculated on a grossed-up basis. HMRC provides information and an example on making settlements with grossed up NIC in COG908060.Many such employees remain in their home country social security systems and are