Employment Tax Services to Public Bodies

PSTAX is the leading provider of employment tax services to the public sector. Its reputation is built on an understanding of the sector and an ability to provide tailor-made practical solutions to all employment tax-related problems. As our helpline responds to over 4,000 queries per year, we are aware of the issues and concerns of our customers and committed to supporting them through a combination of technical knowledge and problem-solving skills.

We can add value to our clients in many ways. The following list of areas reflects some of our core business streams.

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  • The Construction Industry Scheme (‘CIS’)

    Background

    Most public bodies are ‘deemed contractors’ under CIS. This status creates statutory obligations including verification and other processes and monthly CIS returns.

    We offer a full CIS compliance review to our public body clients. This will check whether arrangements are compliant in respect of determining the status of suppliers, applying the scheme rules to construction operations, identifying mixed contracts, verification, dealing with the cost of materials and consideration of employment status and the off payroll working rules.

    The review will consider the internal processes that are in place to prevent errors from occurring and make recommendations where more robust procedures are required.

    Visit the CIS Review page

    Risks

    Many of our client enquiries arise because:

    • There were significant changes to CIS in April 2021, including to the definition of a deemed contractor.
    • CIS is commonly targeted as part of HMRC employer compliance reviews.
    • There are associated Domestic Reverse Charge risks.

    Benefits

    The CIS review can provide assurance to a public body that it is compliant with the CIS legislation. It can lead to improved processes and consequent mitigation of risk.

    Added benefits include the education of internal resources, which can be supplemented by bespoke training, as required.

    Who for?

    This review is recommended for public bodies spending more than £3m on construction operations over a rolling 12-month period. We can also support public bodies who are considering whether they can deregister due to not meeting the rolling 12-month turnover test.

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  • Employee Benefits & Salary Sacrifice

    Background

    With the Covid pandemic and now the cost-of-living crisis gaining much attention, employees are looking to find more balance in their working lives but also to ensure their remuneration package is the best it can be. Employers are wanting to attract and retain employees and are competing for the best talent. Therefore, it is imperative that your current benefits and reward package is reviewed from a tax and NIC perspective and revised and updated to take account of all relevant tax/NIC efficiencies.

    The review will consider the expenses and benefits currently offered and the internal policies and processes that are in place. These should identify both the employer’s rules for claiming and the employment tax implications.

    Our review will ensure that staff communications are clear and effective and mitigate the risk of errors occurring. We will make recommendations where more robust procedures are required.

    Finally, we will recommend additional staff benefits where they support recruitment and retention objectives and are tax efficient.

    Risks

    Organisations that do not proactively update their benefits offering risk the following:

    • Employees will be tempted to leave for better benefits elsewhere, leading to additional recruitment and training costs.
    • The cost of benefit provision will be significantly higher if potential tax exemptions are not properly considered.
    • Unless benefits are dealt with correctly via payroll or reporting, the risk of tax/NIC and related penalties will arise.

    Benefits

    As HMRC is active in conducting employer compliance reviews, we recommend that public bodies make corrections and improvements a priority.

    PSTAX can support public bodies with new ways of working, as the following examples show:

    • We can help review or introduce with you an agile working policy that is compliant with the tax and NIC legislation and efficient for you as an employer and your employees
    • Review your existing expense policy to ensure it is up to date and using the correct processes and rates – mileage rates for example
    • We can refresh your benefits offering by exploring the possibility of adding new benefits such as green cars/vans, wellbeing benefits, purchase of additional holiday days and shared cost AVCs
    • Ensure that salary sacrifice is implemented and operated correctly, driving much needed savings for employers and employees
    • Review your benefit reporting on P11Ds and PAYE Settlement Agreements

    Who for?

    This review (and related activity) is aimed at all employers who want to attract and retain the best talent and not fall foul of their compliance with tax and NIC legislation.

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  • Agile Working

    Background

    The end of the pandemic has not meant an end to working from home. Many organisations continue to operate with a combination of permanent home and hybrid working, with employees going into the office one or two days a week.

    Many clients have approached us for advice on home and hybrid working. They need to understand what tax breaks are available to such workers and how the arrangements impact on expenses and benefits such as travel and subsistence and the use of provided or employee-owned vehicles.

    Pre-Covid working practices and employment contracts are unlikely to be suitable for typical post-Covid working.

    Our role, as your chosen employment tax expert, is to support your organisation through the myriad of issues to consider when modernising your agile or home working policies. For example, when is home a permanent workplace, identifying business travel (use of hubs, freedom to work from any office, area-based workers, etc) and tax relief for home working and related costs.

    Risks

    Not obtaining professional advice can lead to the following risks:

    • Compliance issues where hybrid workers incorrectly view their home as a permanent workplace.
    • Employers not fully taking advantage of the flexibility, efficiency and costs savings inherent in home working arrangements as a result of not revising expenses and benefits policies.
    • Recruitment and retention issues.

    Benefits

    The main benefit to public bodies for our professional advice and support is the assurance that current and new policies are tax/NIC efficient and compliant with new ways of working.

    Additionally, we can provide support for implementing new arrangements, including the revision of policies where needed, and resolving any existing compliance issues.

    Who for?

    All organisations that have already started to move towards an agile or hybrid workforce and those that may be considering doing so.

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  • Overseas workers & relocation

    Background

    As an employer you have an obligation to make the correct income tax and social security payments, wherever your employee is based.  The fact that you are a UK employer, employing individuals under a UK contract, does not protect you from foreign income tax and social security burdens if you have an employee working overseas.

    Increasingly, public bodies are recognising that they have staff working abroad and no procedures in place to deal with the arising tax and social security implications. We therefore offer a residency review as well as generic consultancy advice and support.

    Risks

    With many employees now working from home it is important that employers are made aware of employees who are based abroad on a temporary or permanent basis.  The tax and social security rules can be difficult to navigate in such circumstances, leading to potential liabilities to the UK employer if these are not followed correctly.

    Other than the tax and social security implications of having employees overseas, there are other items to consider such as:

    • Immigration Law
    • Employment Law
    • Data Protection
    • Employer Liability
    • Health and Safety

    Benefits

    PSTAX can assist employers to correctly establish where an employee is resident for tax purposes and advise on the UK obligations and where an overseas payroll may be necessary. We have an association with a global network of advisers and can provide an overseas contact point, where appropriate.

    Who For?

    All employers who have employees working from based overseas.

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  • Provision and use of Emergency vehicles

    Background

    The emergency services sector requires the use of vehicles fitted with blue lights and other specialist equipment. Where such vehicles are available to be used for private journeys, tax implications can arise.

    This area of law can be complex as the tax rules differ according to the equipment/how it is fitted and the permitted use of the vehicle. Where the conditions of the emergency vehicle exemption apply, an officer can have use of such vehicle without a taxable benefit arising. However, outside of these conditions, a vehicle would be subject to P11D reporting and a tax liability, either based on the company car or use of asset rules.

    We provide a bespoke service to emergency services employers to understand their operational requirements and ensure vehicle use policies are appropriately written and adhered to. We also help to communicate key tax-related messages to operational staff so that they understand the importance of the conditions and maintain the necessary mileage records.

    Click here to be notified of our next Emergency Vehicles seminar

    Risks

    Due to the complexity of the law, employers are at risk of reporting vehicle benefits incorrectly on forms P11D.

    In addition to the potential for errors in relation to vehicles, mistakes can also be made in dealing with fuel provision and when offering cash alternatives to vehicles.

    With public bodies so keen to meet their targets around reduction in emissions, increasingly they are looking to fully electric and hybrid vehicle alternatives. Without appropriate advice, this can also lead to tax risks.

    Benefits

    Vehicles are generally used by the most senior personnel within an emergency services organisation. This makes it imperative for all risks to be identified and minimised to guard against unanticipated tax liabilities and reputational risk. We can provide the necessary assurance for this.

    We will also consider the most tax-efficient arrangements for the employer to adopt, together with improving the relevant processes. Colleagues in our VAT team will support the review to ensure full compliance with the VAT rules and maximise the VAT recovery opportunities.

    Given the changing landscape, clients also benefit from regular e-alerts and our training programme designed to keep Finance/HR staff fully up to date with HMRC rules and developments on emergency vehicles.

    Who for?

    This work is recommended for all emergency services bodies, regardless of their current vehicle provision and use.

    Contact Us

  • Termination Payments

    Background

    Depending on the circumstances, the tax treatment of termination payments can be extremely complex, requiring great care. Termination payments will often have many constituent elements. It is necessary to consider the correct tax/NIC treatment for every element within the package as well as the package as a whole.

    Increasingly, we are seeing Settlement Agreements that include payment for ‘hurt feelings’. These cases must be checked by a professional tax adviser to ensure compliance.  Rarely is it as simple as just applying the £30,000 rules. Since April 2018, employers must calculate post-employment notice pay (PENP) which is subject to tax and NICs and since April 2020 termination payments that exceed £30,000 are subject to Class 1A employer NICs.

    We strongly recommend that clients seek a review of any individual termination payments where large sums are involved. We can also provide a more generic overview of existing arrangements and in-house training for HR, payroll and legal teams.

    Risks

    Clients can fall foul of their tax obligations without being aware of it. Agreements to make payments need to happen in the full knowledge of the tax/NIC implications, otherwise the employer will end up footing the bill for any additional tax arising. Seeking timely professional advice is therefore essential.

    Benefits

    A review of a termination payment can provide assurance to a public body that it is compliant with legislation and will not be exposed to claims by HMRC for tax/NIC liabilities, interest and penalty. It can lead to a better understanding of the key termination rules and consequent mitigation of risk.

    Added benefits include the education of internal resources, which can be supplemented by bespoke training, as required.

    Who for?

    This review is recommended for public bodies making termination payments to employees on a case-by-case basis. Support is available for HR, Legal and Payroll professionals.

    Contact Us

  • Status & Off-Payroll Working aka ‘IR35’

    Background

    Employment status has been a targeted area of HMRC employer compliance activity for a very long time. Since April 2017, the public sector has also had to manage its obligations in relation to off-payroll working.

    Despite over five years of working with IR35, public bodies continue to struggle with the principles underlying it. For some, this area represents a significant level of risk. This goes some way to explaining why HMRC has both an Employment Status & Intermediaries team, as well as the Off-Payroll Working team that focuses on cases involving the use of intermediaries (IR35).

    The HMRC LAUPSTREAM01 campaign for local authorities started in November 2022 and has brought status and Off-Payroll Working into sharp focus once again. It is fair to say that there has never been a better time for public bodies to review their relevant processes and get ready to show they are taking ‘reasonable care’.

    Learn more about our IR35 e-learning solution

    Risks

    Failure to correctly assess the employment status and IR35 rules can lead to significant arrears of tax, National Insurance Contributions and interest charges from the end client. Penalties may also be sought by HMRC.

    It has been widely reported that HMRC has recovered significant liabilities running to tens of millions of pounds from Government departments which have failed to take reasonable care in engaging workers on off-payroll terms.

    In addition to these liabilities, public bodies also potentially face exposure to an unlimited fine under the provisions of the Criminal Finances Act 2017 where they are considered to have facilitated tax evasion.

    Public bodies also need to be mindful of adverse publicity and damage to reputation that can arise as breaches of the relevant rules that result in a liability are likely to be reported in the media.

    Benefits

    We can undertake a detailed review of current policies and procedures regarding status and IR35, which can help to identify any key risks faced by your organisation. We can then work with you to update these in such a way as to demonstrate to HMRC that employment status and IR35 are given the necessary attention that HMRC requires. This can be supplemented by a detailed review of any difficult cases faced by your organisation.

    We can also provide training for key staff through a bespoke course tailored to the needs of the organisation and/or through our e-learning modules that will help to equip your organisation’s hiring managers with the capability of making accurate status/IR35 assessments.

    Who for?

    HMRC takes a keen interest in employment status/IR35 across all parts of the public sector (and commercial sector), so our service offering in this area will be of benefit and interest to all.

    Contact Us

  • P11D, payrolling and PSAs

    Background

    Most public bodies provide benefits in kind or reimburse expenses to their employees. In the case of the former, in the absence of a tax exemption, provision of the benefit will impose a reporting requirement for the employer to account for the appropriate tax and NIC charges. These benefits can either be declared to HMRC on annual P11D forms, where the tax is then recovered through coding adjustments, or processed through RTI via ‘payrolling’ where the tax is accounted for on a month-by-month basis without the need for completing forms P11D.

    There may be instances where a benefit is provided or an expense reimbursed, where the employer would rather meet any tax/NIC charges on their employees’ behalf. In such cases, it may be possible to arrange a PAYE Settlement Agreement (‘PSA’) with HMRC, although certain benefit/expense types are excluded. Some public bodies use the PSA process as a general ‘catch-all’ and will often include certain items that may instead be covered by a tax exemption.

    We offer a holistic approach to these areas, offering a range of bespoke services to meet the client’s requirements. We offer a review service in relation to P11D reporting, policy documentation, Benefit Payrolling and PSAs. Where errors are noted, we can work with clients to ensure that all errors are corrected, and any underpayments are properly disclosed to HMRC.

    In addition, we run several related training courses covering a range of expenses and benefits, the Optional Remuneration Arrangements rules, Benefit Payrolling, and the often-tricky travel legislation.

    Visit the P11D submission support page

    Risks

    Understanding the rules in relation to the calculation of benefits is key to a compliant process, as well as understanding their taxation treatment. Underpayments in relation to misunderstanding the tax rules, or not being aware of significant changes to HMRC guidance, can result in significant employer liabilities, often calculated on a grossed-up basis, together with associated interest and penalty charges.

    Benefits

    Our expenses and benefits review process can provide assurance to a public body that it is compliant with the relevant and most recent legislation.  Policies should be appropriately communicated to employees through updated policy documentation, with any tax implications clearly set out.

    Added benefits include the education of internal resources, which can be supplemented by bespoke training, as required.

    Who for?

    Our bespoke reviews and training are recommended for any employer who is providing benefits in kind to staff or is considering doing so.

    Contact Us

  • Recruitment and retention in the NHS

    Background

    Following the pandemic and with the current cost of living crisis, recruitment and retention are even more important as public bodies ensure they have enough staff to service public demand. An increasing number of employers are acting to retain certain key staff including senior staff who are likely to be impacted by the tax and pensions legislation. In response to this, employers, particularly in the NHS sector, may decide to offer greater flexibility in how their reward packages are put together. The BMA is actively calling for action by employers.

    Visit the Pension Recycling and Education for the NHS page

    Learn more about PSTAX NHS Club Membership

    Risks

    The problem is that many senior staff who are impacted by the annual and/or lifetime allowance charge are choosing to leave the NHS or turn down extra shifts, rather than face additional tax charges.  This leaves Trusts with rota gaps which then of course affects the NHS delivering their service to the public.  Doing nothing will not alleviate this issue.

    Benefits

    One option Trusts have is to allow employees to opt out of the NHS Pension scheme and to recycle the equivalent employer pension contributions into a discretionary additional salary payment. This is often referred to as ‘recycling employer contributions’. The Trusts employment costs are thus maintained at the same level with the senior employee benefiting from increased take home pay and a reduction or elimination of their tax and pension charges. These senior staff are therefore more likely to continue their employment with the Trust and take on additional shifts. Before going down this route a Trust will of course need to undertake a review of the technical and regulatory issues associated with this significant change and this is where we can help implement a compliant and successful scheme.

    Who for?

    Pension recycling is gathering momentum in the NHS and we are ready to assist.  We are also exploring this for other parts of the public sector, so please get in touch to find out more.

    Contact Us

    Download the PSTAX NHS Club Brochure

  • National Minimum wage

    Background

    The National Minimum Wage (NMW), for those aged under 23 or an apprentice, and the National Living Wage (NLW), for those aged 23 or over, are the minimum amounts that should be paid by an employer to a worker for the hours worked.

    The rates change on 1 April every year and are as follows:

    23 and over21 to 2218 to 20Under 18Apprentice
    April 2023£10.42£10.18£7.49£5.28£5.28

    Apprentices are entitled to the apprentice rate if they are either:

    • aged under 19
    • aged 19 or over and in the first year of their apprenticeship

    Risks

    HMRC is very active in carrying out audits to recover arrears for workers and being subject to such a review is not something to be underestimated.  HMRC will go back over 6 years automatically and there is no form of negotiation on the amounts to be paid.  Employers will face a penalty of up to 200% of the arrears, reduced to 100% if the arrears are paid within 14 days of the issue of a notice of underpayment.  Worse still, the employer will also be named and shamed for their errors; not the PR wanted by any employer wanting to attract and retain employees.

    Benefits

    PSTAX has NMW specialists who have helped many employers with their compliance.  Carrying out a review on our own timescales can be invaluable and takes a lot less time that undergoing a HMRC NMW audit.  We can help identify any errors and correct them.  Common errors include:

    • deducting too much pay from workers’ wages, for items such as uniform costs and expenses;
    • failing to pay workers for all the time they had worked, such as when they worked overtime or attended a team meeting outside their usual working hours; and
    • paying the incorrect apprenticeship rate, when the apprentice didn’t have the correct agreements in place, or they were over 19/past their first year of their apprenticeship.

    Who for?

    All employers will have NMW issues once they start to look more closely.  All too often we are told that pay is way above the NMW rates, but once you take out elements that are not permitted to be included for NMW purposes, breaches occur.  Correcting them now means avoiding a drawn-out HMRC audit, significant arrears and bad PR by being named and shamed.

    Contact Us

    Read more on the National Minimum Wage and Real Living Wage