Continuing our discussion of COVID-19 relief for UK businesses, Mike Whitacre interviews Jonathan Clark, a Tax Director in Frazier & Deeter’s London office. Listen now for information on UK employment tax assistance and issues regarding global mobility.
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Untangling the Technical – UK Tax & Global Mobility
This transcript was assembled by hand and may contain some errors.
It has been edited for readability.
Mike Whitacre Hello everyone, and welcome to Untangling the Technical UK edition. Untangling the Technical is Frazier & Deeter’s podcast in which we take a look at complex topics to break them down for business people navigating today’s ever-changing tax and regulatory environment.
I’m Mike Whitacre, and today we’re excited to have Jonathan Clark with us again from Frazier & Deeter’s London office. Jonathan is an expert in U.K. employment taxes and other areas, such as personal tax and global mobility. Jonathan, great to have you back.
Jonathan Clark Mike, great to be here again.
Mike Today, we want to talk about specific U.K. employment tax and global mobility matters for U.K. employers and businesses coping with the COVID-19 virus. Before we get into the details of our topic, could you give us some background about your career and your experience in these areas?
Jonathan Sure, Mike. I’m a U.K. chartered tax advisor by trade with U.K. Chartered Institute of Taxation. Prior to joining Frazier & Deeter in London, I spent the last seven years working for a big four firm. My role there was involved in supporting multinational businesses with their employer and employee tax compliance, all related to the movement of their employees around the world.
This would involve personal taxation of the individual, but also the corporate compliance for the employer, essentially lots of experience advising businesses about UK payrolls, employer taxes, reporting requirements for employers, and also global mobility from a tax compliance and planning perspective.
Mike Thanks, Jonathan for that, it sounds like you’ll have a pretty broad perspective on these matters. What are some of the key U.K. employment tax matters businesses should be aware of as a result of COVID-19?
Jonathan One of the main schemes announced by the U.K. government to support employers through COVID-19 is the Coronavirus Job Retention scheme. This scheme provides a reimbursement for up to 80% of the furloughed employees salary, up to a maximum of two and a half thousand pounds per month, and it’s currently available for up to three months from the 1st of March 2020, but that may be extended further post-June depending on how the situation goes.
In addition to the reimbursement in the salary costs, employers can also claim the employees national insurance contribution costs and the minimum level of their employer pension contribution costs under the auto-enrollment regulations. With employers National Insurance being approximately 13% and the minimum employer pension contribution at being 3%, if you have a furloughed employee where you’re reimbursing the maximum two and a half thousand pounds per month, that’s over two thousand eight hundred pounds of your employer costs funded by the UK government each month for each furloughed employee.
Mike That all sounds very generous to employers. Are there any key points employers should be aware of before applying for the scheme?
Jonathan Yes, there are. In some cases, it’s not always straightforward to calculate that 80% of an employee’s salary for someone who is not on a fixed full-time contract. A lot of employees these days have zero-hour contracts and/or flexible arrangements, so employers need to know what they’re eligible to apply for for each employee they’re placing on furlough. For anyone that’s been employed for the last 12 months, the calculation to do this is based on either the higher amount of what they were paid this time last year or the average monthly earnings during the 2019/20 tax year.
For employees on flexible contracts who haven’t been employed for you by twelve months it’s based on their average earnings since time since they started working for you. To reiterate, anyone that was employed by you before the 28th of February, 2020 will be eligible for this scheme. The key thing to highlight here is that although the HMRC online service to apply for reimbursement of employees cost is not yet open, what employees can be doing now is calculating exactly how much they are eligible to claim for each employee they place on furlough.
Outside of tax, I would also like to add that HMRC have highlighted a few key points the employers need to be careful of and consider in relation to their obligations of putting employees on this scheme and the furlough process. Firstly, you need to reach an agreement with each employee on furlough and that includes the amount which will be covered by this scheme and any excess amount the employer may choose, which they are eligible to pay on top of that. They need to consider about the equality and discrimination legislation for whom they’re choosing to put on furlough.
They also need to think about any existing benefits already in place and how these will be treated during this leave of absence for the employee. For example, if they have a company car, you’re not going to remove that company car for a 2-3 month period. The default position is they’ll probably continue to have that and make sure the employment benefit in kind is reported accordingly for that period. Be aware that these employees placed on furlough still have the same UK employment rights as they would normally for any other of your employees, and that applies to everything from parental arrangements, sick pay, redundancy, and unfair dismissal.
The final point I would add is that the scheme is very clear that employees on furlough cannot provide any services or generate any revenue for their employer. If they do, that cost cannot be reclaimed under the job retention scheme. HMRC are saying that they will be implementing audits after the scheme closes to make sure that employers only claim what they were eligible to do so for eligible employees, so it’s very important employers are aware of the rules, what they can claim and keep adequate records to support what they’ve done.
Mike Okay, that’s great information. Are there any other government releases related to employee pay that employers need to be aware of?
Jonathan Yes, there are. For employees that are still working, and that’s being remotely from home or at their usual place of work, as they’re deemed an essential worker. The government is bringing forward legislation to allow small and medium sized businesses to reclaim statutory sick pay for their employees who are absent due to COVID-19.
Normally, statutory sick pay is paid from day four of being off sick, and the employee is required to get a doctor’s note to be eligible for this pay. What this legislation is doing is it means that sick pay can be paid from day one and it will also be available for up to two weeks, all they need to do is get a valid isolation note which they can do by contacting NHS-111; much simpler than going to the doctor.
The whole point of this is to encourage sick employees to stay at home and quarantine themselves if they have any symptoms, it means the employer knows they can seek those statutory sick pay costs back from the government. The only thing I’d say is that this is only available to small and medium sized businesses so that is businesses with fewer than 250 employees.
Mike Okay, that’s really clear. So, employers should consider the job retention scheme for employees they want to place on a leave of absence, and the statutory sick pay rules for employees still working but unable for a short period due to sickness and quarantine.
Jonathan That’s right, Mike.
Mike Okay. With lots of employees now working remotely for the first time, is there anything else employers should be thinking about?
Jonathan Great question, Mike. Just before the end of March, HMRC released targeted guidance for employers covering the tax implications of providing equipment to employees working at home during COVID-19.
This guidance was released to make it easier for employers to understand various employment tax implications that they might not have to consider before, but I must stress that any of the existing employment benefit-in-kind tax rules would not change. It’s only just that they were providing guidance on how employees should apply that to these new expenses in these different circumstances.
Mike Okay. Could you give us an overview of what was in this guidance and some examples?
Jonathan The guidance highlighted some potential expenses employees might be claiming from their employers on the first time. So, for example, a mobile phone, a laptop, a printer, a second monitor screen, all to enable them to work from home. Phones and laptops are non-taxable if provided to the employee by the employer, and the main purpose is for business use with private use being insignificant.
What the guidance warns employers is that might also apply to printers and second desktop screens. However, under the existing rules, they don’t qualify for exemption in the same way and they would still be taxable. The guidance also comments on eligible amounts employees can claim towards costs, such as broadband or electric bills while working from home. The key point, as I mentioned before, none of these rules have changed it’s just to make sure employers have the correct internal processes in place so that they can review and report the correct expenses on their employer reporting at the end of the year.
I would say I would recommend that our listeners go to HMRC guidance on this matter if they need further support or understanding as it gives a lot of detailed links about things you might want to be thinking about, especially with your year-end benefit-in-kind reporting.
Mike Okay, that all makes sense. Are there any other announcements that businesses should be aware of related to employment tax?
Jonathan Yes, there are. There were two key ones that were announced recently, the first one was in relation to the off-payroll working rules for contractors, which is commonly known as IR-35, these rules were due to come into effect from the 6th of April 2020 in relation to contractors working in the private sector for large and medium sized companies. Most businesses would have been aware about these rules, they’ve been talked about for a while coming into effect, but what the government has said is due COVID-19, they’ve agreed to delay the start date until the 6th of April 2021.
The idea being is to not just severely disrupt contractors or businesses during these uncertain times. Now, in my view, this is likely to be welcomed by contractors and medium-sized private businesses as it removes any kind of cash flow disadvantage they might have been expecting from April, and also any additional compliance burden for the immediate future. I would like to stress that the current IR-35 rules still apply, it’s just not until 6th of April 2021 that it’s the contractor’s responsibility to still assess their employment status, not the large, medium sized company.
And IR-35 is a very complex area; if you’re an employer who is not ready for these new changes, or you’re an individual operating through a personal service company and not sure where you stand in the employment status under the rules, I’d be very happy to have a more detailed conversation, with you specific to your circumstances.
Mike Okay, got that. What was the other announcement?
Jonathan The other announcement was that the gender pay gap reporting for the 2019/0 tax year has been suspended, this is just to ease the administration burden on employers during these unprecedented times. Employers are still welcome to voluntarily publish their gender pay gap report if they want to, and I would like to add, that even though the reporting has been suspended for 2019/20, it’s still important that organizations retain that data for that year as it will be required for that gender pay gap reporting in 2020/21 next year.
The gender pay gap reporting is applicable to any employers with more than 250 employees in the UK. If you’re a business close to this threshold and not sure what your obligations are under this legislation, I’d be very happy to discuss your more specific requirements with you.
Mike Thanks, Jonathan. I’m sure our listeners would welcome that. We also wanted to discuss global mobility today, what can you tell us about that? And what should businesses be doing and thinking about in this area at the moment?
Jonathan Global mobility is all about the movement of people and getting your employees in the right place at the right time to support your business needs. This would include all types of employee movement from business travel, international relocations to a new country and temporary international assignments.
With many global travel restrictions in place at the moment by various government authorities, there isn’t a significant amount of people movement that’s happening between countries right now, but that doesn’t mean there aren’t things employers should be thinking about for employees who might have travelled before these restrictions came to place or planning to travel as soon as restrictions lift. With global mobility, every country has different tax and immigration rules and you will likely need to approach each of these points I’m going to address on a country by country basis, particularly now more than ever with COVID-19 and all different types of concessions, but what I want to do is just highlight what I think are some of the key points employers might want to be thinking about for their global workforce at the moment.
Firstly, I would say visas and work permits. An employee might have been in the country for the past year on an international assignment and have been due to return to their home country. Let’s say that was due to move back in April, but due to current circumstances, they’re unable to leave that country. Do you have to do anything for your employee in terms of immigration in that country? Will there be an automatic extension to their visa? Will they be required to file an extension form? These are all things you should be thinking about with an immigration attorney and getting the appropriate advice.
The other one, and this might be obvious, but just making sure your global employees have the appropriate access to healthcare and medical insurance in whichever country they are working for you. The third one is to take stock of where your employees are, some of your employees might have been on a three-year assignment. Let’s say they’re through one year of that three-year assignment, but due to the Coronavirus, or maybe more general personal circumstances, they want to go back to their home country at the earliest possible convenience.
I would say that to all employers, have you touched base with your employees to make sure they’re happy where they are and if any of their original assignment plans or intentions might have changed. Finally, once you have taken stock, to think more about the more practical implications of that. If someone’s left the country abruptly, before the travel restrictions were put in place, have you put them back on the payroll? The home country payroll? Is there anything you need to do about these people that might have changed locations before any of these travel restrictions were put in place and just make sure taxes are being paid in the correct location.
Mike Okay, so essentially it’s important employers take stock of where their internationally mobile employees currently are and see if there have been, or intend to be, any changes to their original circumstances.
Jonathan That’s exactly right. Obviously, the health and safety and the well-being of your employees is the number one priority, but it’s worth making sure that the appropriate tax and immigration compliance is in place just to avoid any potential complications in the future.
Mike What can businesses be doing that had plans to send employees overseas that have been cancelled by these travel restrictions that have been put in place?
Jonathan Obviously, this can be frustrating times for businesses and employees who maybe had planned to move with their family and all of sudden it’s been upended by the COVID-19 pandemic. At the moment, when they might be able to move is a bit of a crystal ball question, and who knows when normality may resume again, but that doesn’t mean employers can’t use this time now to plan for the future and make sure they’re ready to go as soon as restrictions lift.
For example, if it’s not already done, now is an ideal time to plan the immigration tax support you might need in the international move, you can also make sure you’ve got all the appropriate assignment documentation and cost estimates in place before they go. I would also recommend in these busy times you don’t forget or miss any actions that may still be required for the tax year that is just finished or about finished. Not all deadlines have been changed or pushed back by governments, and you may still have some employer reporting requirements for mobile employees in the 2019 or 2020 tax year they still need to think about.
Mike That’s useful to bear in mind, is there any specific advice that you’d give to international mobile employees?
Jonathan Firstly, only travel when it’s safe and recommended by the appropriate government authority to do so. In the U.K., the Foreign and Commonwealth Office provides great guidance for people traveling, returning to the U.K. or maybe quarantine abroad. But I’d also say to anyone that’s a serial business traveller and works with their accountant and tax adviser over the years and they’ll know how much emphasis their tax adviser places on the importance of a travel calendar.
I would say now more than ever is an important time to keep your travel agenda up to date with accurate details of where you’ll be working, where you may be stuck and why. The reason I say this is, for example, in the U.K., we have what’s called a Statutory Residence Test to determine someone’s tax residence position. This involves counting an individual’s days in the UK during the tax year, looking at the connecting factors in the U.K. and effectively determining if they are tax resident or not.
What HMRC have said, is that anyone that’s stuck in the UK due to the Coronavirus will not be unduly impacted on a UK tax residence position and will be able to claim exceptional circumstances on that day spent in the UK when filing that return. So that means if you’re quarantined in the UK it would kind of effectively make you UK resident where you wouldn’t have been in normal circumstances, there could be concessions available to you.
Now all I would say is I expect other countries may or may have already announced similar sorts of exemptions, so it just places the emphasis on keeping track of where you are and having the data for your tax filing at the end of the year.
Mike Thanks for sharing all this information and joining us today Jonathan.For any of our listeners who may want to discuss specific cases or queries with you additionally, what should they do?
Jonathan I’d be delighted to help our listeners in any way that I can with their employment tax or global mobility queries, they should feel free to reach out to me via email or just contact us via the normal “contact us” link on the Frazier & Deeter website. Either way, I’d be happy to support them anyway I can..
Mike Okay, great so your email address is firstname.lastname@example.org, but they can also find that in the usual contact details at www.frazierdeeter.com and www.frazierdeeter.co.uk.
Jonathan That’s right.
Mike Thank you listeners for joining us for this edition of Untangling the Technical UK.