NHS Payroll departments have been contacting staff who may be eligible to receive a refund of Tax and National Insurance (NI) contributions, paid in error, whilst they were in full-time education.
Her Majesty’s Revenue and Customs (HMRC) have stated that employed staff also in full-time education are exempt from Tax and NI up to an annual allowance on earnings of £15,480, whilst in training, provided they meet the following conditions:
The claimant must have been:
An existing NHS employee when starting a training scheme (this could have been at another NHS organisation).
Looking to widen their knowledge.
In full-time attendance at an educational establishment for at least one academic year, and must have attended the course for at least 20 weeks in that academic year. If the course is longer, the employee must attend for at least 20 weeks on average in an academic year over the period of the course.
Claims for refunds of tax and NI can be made for the period September 1999 to March 2013.
HMRC normally only accept refund claims for the previous 6 tax years. However, this restriction has been extended back to September 1999, to coincide with the start of a specific training scheme; the Widening Access Training Scheme.
Workers have been advised to contact you to confirm if you’ve already sent a claim to HMRC on their behalf. You may need to ask them for further information or evidence to support their application for a refund.
Training courses attended after 6 April 2013
If workers attended a qualifying WAT course starting on or after the 6 April 2013 the refund should be dealt with by you through your payroll system.
Training course only
If an employee attended a qualifying WAT course and is entitled to a refund, you should complete a Full Payment Submission (FPS):
Enter the full amount of training income paid to the employee in the field ‘Value of payments not subject to Income Tax or NICs in pay period’.
Enter the tax code for the year.
Don’t complete any of the NICs fields.
Training course and paid work
If the employee did a combination of training and paid work and is entitled to a refund for the training income, you should complete an FPS:
Separate the training income from the earned income.
Subject any additional earnings to Income Tax and NICs in the normal way.
Enter the amount of training income received in the field ‘Value of payments not subject to tax or NICs in pay period’.
Enter the tax code number for the year.
If you’ve already sent your final FPS for the years starting 6 April 2014 onwards, you should complete an Earlier Year Update.
By now you will have already processed your payroll year end and submitted the final RTI submissions.
You have to pay your PAYE by 19th April and issue P60’s by 31st May.
So the next main date is P11D Benefits in Kind! due by 6th July
Last year Dispensations ended and Payrolling Benefits became an option but you must be registered
If you choose to payroll you can tell HM Revenue and Customs (HMRC) online. You need to register online before the start of the tax year you want to payroll for.
You must add the cash equivalent of the employees’ benefits to their pay and then tax them through your payroll.
HMRC will make sure the value of the benefit is not included in your employees’ tax codes.
If you use the service you:
won’t need to use form P11D
still need to work out the Class 1A National Insurance contributions on benefits and complete form P11D(b)
You can exclude employees from payrolling once you’re registered, but you’ll need to send a P11D to declare the non-payrolled benefits.
Once the tax year has started you’ll have to payroll the benefits for the whole of the tax year, or until you stop providing them.
At the end of the tax year you’ll usually need to submit a P11D form to HM Revenue and Customs (HMRC) for each employee you’ve provided with expenses or benefits.
Over 150,000 business are in the Hospitality Sector and they employ over £2m staff, tipping is common place, so the government launched a consultation on 2nd May 2016 which will run till 27th June 2016 to seek opinions on tipping, gratuities, cover and services charges.
The Government wants everyone to be paid fairly so the proposals focus on:
Option 1:
Ensure transparency to consumers that discretionary payment for service is just that – ‘discretionary’.
Option 2:
Ensure workers receive a fair share from discretionary payments for service.
Option 3:
Increase transparency for consumers and workers regarding the treatment of discretionary payments for service.
If your employees receive tips directly from your customers and are allowed to keep them, then you do not need to do anything for PAYE tax or NICs. There are no NICs due on the money, and the tax due is the employee’s responsibility. Your employees should declare the money to HMRC, who will usually adjust their tax code to collect any tax due.
A tronc is an arrangement for pooling and distributing tips and service charges and the person who operates the tronc is known as a troncmaster. If your employees use a tronc you must tell HMRC who the troncmaster is so that they can set up a PAYE scheme for the tronc.
Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:
• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.
Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore standard rated.
If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.
Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food
your PAYE Coding Notice – you usually get this a couple of months before the start of the tax year and you may also get one if something has changed but not everyone needs to get one
form P60 – you get this at the end of each tax year
P9D Expenses payments and income from which tax cannot be deducted
Bank and Building society statements
Pension Tax Deductions
Is your National Insurance correct?
Unlike Income Tax which is cumulative and assessed across all earnings, National Insurance starts from zero on each individual employment and you also pay National Insurance on Self Employed earnings.
So if you are a Director of multiple businesses paid as an employee its easy to see how you could over pay and you might not even realise because National Insurance is not shown on your Self Assessment Return.
You can also over pay National Insurance if you are a part time employee with multiple employers and irratic earnings, this because National Insurance is calculated on a weekly/monthly basis, not a cumulative basis and its by employer.
What you need to do
Write to HM Revenue and Customs confirming:
your National Insurance number
why you’ve overpaid
the tax year(s) you’ve overpaid
You should include your P60 or a statement from your employer showing the tax and National Insurance for each year you’re claiming for.
You should apply within 6 years of the tax year you’re claiming for.
HM Revenue and Customs
Payment Reconciliation
National Insurance Contributions Office
Benton Park View
Newcastle upon Tyne
NE98 1ZZ
Basically, if an employer makes a declaration on the P11D, which the employee and HMRC agree can be counted as tax deductible, this is referred to as a S336 Claim. In order to claim the employee would need to show the expense was wholly and exclusively for business.
Here are some suggestions of expenses employees may claim….
Flat Rate Expenses by Occupation – HMRC have a list EIM32712 for example Healthcare staff in the National Health Service, private hospitals and nursing homes – Uniformed ancillary staff: maintenance workers, grounds staff, drivers, parking attendants and security guards, receptionists and other uniformed staff – get a flat rate of £60 per year – this link explains how it works – Money Saving Expert
Mileage in your own vehicle on business – the approved rates are list below if your employer pays you mileage already deduct the rate from the amounts below and claim the difference
Tax: rates per business mile
Type of vehicle
First 10,000 miles
Above 10,000 miles
Cars and vans
45p (40p before 2011 to 2012)
25p
Motorcycles
24p
24p
Bikes
20p
20p
3. Professional Subscriptions – if you personally pay for a professional subscription that you need for your work you can claim the cost against tax – here is a list of HMRC approved professional organisations
4. Traveling Costs – you may have business travel costs for hotels and meals that haven’t been reimbursed and these costs can be reclaimed against your tax
7. Training – where training was an intrinsic contractual duty of the employment (see also EIM32535 & EIM32546) and where any personal benefit, unlike most CPE/CPD courses, would be incidental and not therefore give rise to a dual purpose of the expenditure.
8. Other costs – where the cost is wholly and exclusively for business
If you are an employee use this form to tell HMRC about employment expenses you have had to pay during the year for which tax relief is due.
Only fill in this form if your allowable expenses are less than £2,500 for the year.
If your claim is more than £2,500 you will need to fill in a Self Assessment tax return. Please contact the Self Assessment Helpline on 0300 200 3310 or register at
There have been several tax changes in the Budget:
Changes to Personal Allowances –
The Personal Allowance is the amount of income you can earn before you start paying Income Tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017.
The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.
Employment Allowance – The employment allowance is £3,000 but there is a restriction on it being used by single person companies.
Dividend Tax -From April 2016 you’ll pay tax on any dividends you receive over £5,000 at the following rates:
7.5% on dividend income within the basic rate band
32.5% on dividend income within the higher rate band
38.1% on dividend income within the additional rate band
This simpler system will mean that only those with significant dividend income will pay more tax.
The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.
Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.
These changes also make it more complicated in deciding whether to incorporate, so I have added a new calculator to help you decide http://stevejbicknell.com/tax-calculators/
The £5,000 dividend allowance is a bit confusing because its an allowance and not an exemption, so it becomes part of your overall income.
Basically, most small business owners will either choose £8,060 as a salary (free of tax an NI) or £11,000 (tax free)
Because your salary is tax deductible in companies the difference £11,000 – £8,060 = £2,940 plus 13.8% NI = £3,345.72 which saves 20% corporation tax = £669.14
There will be NI to pay 12% employee and 13.8% employer = 25.8% x £2,940 = £758.52 – £669.14 = £89.38 net tax
Beyond this you will pay income tax at 20%.
So in summary, I think the optimum salary is £11,000.
Above this you should take dividends.
This is a simplification and you should speak to your accountant about your specific tax affairs.
most pensions, including state pensions, company and personal pensions and retirement annuities
interest on savings and pensioner bonds
rental income (unless you’re a live-in landlord and get £4,250 (£7,500 from April 2016) or less)
benefits you get from your job
income from a trust
dividends from company shares
So how can you pay less income tax?
Here are 10 suggestions…
Pension
When you pay into a pension you get income tax relief on your contributions .
Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)
40% Tax Rate
20% Tax Rate
Year
Pension
No Pension
% Diff
Year
Pension
No Pension
% Diff
1
£10,700
£6,252
71%
1
£10,700
£8,336
28%
2
£22,470
£12,954
73%
2
£22,470
£17,272
30%
3
£35,395
£20,131
76%
3
£35,395
£26,841
32%
4
£49,564
£27,808
78%
4
£49,564
£37,078
34%
5
£65,077
£36,013
81%
5
£65,077
£48,017
36%
6
£82,036
£44,773
83%
6
£82,036
£59,698
37%
7
£100,555
£54,119
86%
7
£100,555
£72,158
39%
8
£120,754
£64,081
88%
8
£120,754
£85,441
41%
9
£142,761
£74,692
91%
9
£142,761
£99,590
43%
10
£166,715
£85,987
94%
10
£166,715
£114,649
45%
11
£192,765
£98,000
97%
11
£192,765
£130,667
48%
12
£221,070
£110,771
100%
12
£221,070
£147,694
50%
13
£251,801
£124,337
103%
13
£251,801
£165,782
52%
14
£285,140
£138,740
106%
14
£285,140
£184,987
54%
15
£321,285
£154,024
109%
15
£321,285
£205,365
56%
16
£360,445
£170,233
112%
16
£360,445
£226,978
59%
17
£402,846
£187,416
115%
17
£402,846
£249,888
61%
18
£448,731
£205,621
118%
18
£448,731
£274,161
64%
19
£498,358
£224,901
122%
19
£498,358
£299,868
66%
20
£552,006
£245,309
125%
20
£552,006
£327,079
69%
Even when you consider:
Your money is locked up till you are 55
You pay tax when you take money out of the pension
You can get 25% out of the pension tax free
The difference in growth is massive
If you do salary sacrifice you can increase the tax effect by saving national insurance too.
2. ISA
Individual Savings Accounts have been around for a few years and very soon the Help to Buy ISA will be launched
Top 10 facts and rules…
Its only available to ‘First Time Buyers’
‘First Time Buyers’ can only have one Help to Buy ISA with one provider
You can pay in £1,000 when you open the account and then save a maximum of £200 per month
The maximum government bonus is £3,000 (but you can lower amounts of bonus if you have less than £12,000)
The scheme will run for 4 years from the date it opens (Autumn 2015)
Couples can have a Help to Buy ISA each which means if they don’t want to wait 4 years could save £12,000 in 25 months where as a single saver would need 55 months
Unlike ISA’s where you open one per year, the Help to Buy ISA will continue for 4 years
You can withdraw funds but if its not to buy a home then you won’t get the bonus
More than 100,000 homes have now been bought with government backed schemes
You will be able to get them at banks and building societies
3. Salary Sacrifice
Salary Sacrifice is a very tax efficient way to give your employees benefits and the most popular benefits are Pensions and Childcare. I wrote a blog back in 2011 which explained how it can save 45.8% in tax and NI
HMRC decided on 9th April 2013 that it was time to “clarify” in their Manuals what are successful and unsuccessful salary sacrifice schemes and have added some further guidance. Their Staff are instructed not to approve schemes (Employment Income Manual EIM42772)….
You (HMRC) may get requests for advice:
on how to set up a salary sacrifice arrangement, or
on whether draft documentation will achieve a successful salary sacrifice.
You (HMRC) should not comment on either of these areas. Salary sacrifice is a matter of employment law, not tax law. The nature of an employee’s contract of employment is a matter for the employer and employee.
The specific updates are:
EIM42750 – Salary Sacrifice – updated – this contains the examples of schemes
EIM42777 – Contractual arrangements – this has interesting comments on childcare and pensions
4. Employment Expenses
As an employee you can claim tax relief for expenses incurred in doing your job, for example business mileage, cycling on business, hotels, meals, business phone calls, in fact anything as long as its business related
If your claim is less than £2500 you can make your claim using Form P87 http://www.hmrc.gov.uk/forms/p87.pdf if its more than £2500 you will need to complete a Self Assessment Return (you need to phone HMRC to request a Self Assessment Return – contact details below), if you know your UTR number you can register and file your Self Assessment Return on line.
5. Dividends
When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year, try the Dividend Calculator above to see how much difference it could make.
6. Tax break for Couples
A new tax break as launched this week from 6 April 2015, which will be eligible to more than 4 million married couples and 15,000 civil partnerships.
The Allowance means a spouse or civil partner who doesn’t pay tax – therefore is not earning at all or is earning below the basic rate threshold (£10,600) – can transfer up to £1,060 of their personal tax-free allowance to a spouse or civil partner – as long as the recipient of the transfer doesn’t pay more than the basic rate of income tax.
7. Tax Free Benefits
Getting tax free benefits will save you lots of tax, here some ideas…
Pensions – Up to £40k can be paid in to you pension scheme by your employer (2015/16) and you can use carry forward to pay in even more
Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115) – these rules are changing soon.
Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £121,200 or above.
9. Green Company Car
A calculator is available here: http://www.hmrc.gov.uk/calcs/cars.htm and rates are shown in the table below for zero emission vehicles and some of the lower CO2 vehicles.
10. Check your P800
The P800’s are likely to contain errors because:
Large amounts of data are manually input
Estimates especially for Bank Interest and Investment Income
So check the following carefully:
P60 – you get this at the end of each tax year
P45 – you get this when you leave a job
PAYE Coding Notice
P11D Expenses and benefits
P9D Expenses payments and income from which tax cannot be deducted
Bank and Building society statements
Pension Tax Deductions
Its expected that around 3 million people will be asked to pay more tax and around 2 million people will have overpaid.
