Key Changes for Employers in 2022/23 – Looking Ahead to the New Tax Year

As we enter the new tax year, in our final Employer Tax Year-End Update series, we highlight some of the key employment tax and National Insurance changes that employers need to be aware of:

Off-payroll working (“IR35”)

Undoubtedly, HMRC scrutiny on IR35 compliance will increase now that the new legislation for the private sector has been in place for 12 months. Read our previous articles: Off-Payroll working rules (“IR35”) expansion into the private sector – one year on and IR35 – one year on.

Coronavirus Job Retention Scheme (“CJRS”)

Now that furlough has ended, we are also starting to see HMRC contact employers to review the accuracy of CJRS claims. Employers need to be aware of this and ensure that they have appropriate records and an audit trail in place. We can provide advice and support in dealing with HMRC reviews.

Health and Social Care Levy (“HSCL”)

National Insurance rates rose by 1.25% on 6 April 2022.  From 6 April 2023, NIC rates will revert to their pre-6 April 2022 rates and the new HSCL will be introduced at a rate of 1.25% on employees, employers and on dividend income.

Employers should be thinking about possible ways to mitigate this significant increase in employment costs, as well as the impact on employees. One way to do this may be to review current employee benefits packages, to ensure these are structured in the most tax and NIC efficient way.  The use of salary sacrifice for pension contributions is also likely to become a more attractive option for both employees and employers.

Covid easements

Temporary easements which were put in place as a result of the increase in home working are now coming to an end, specifically:

• Cycle to work – from 21 December 2020, employees who were already participating in a cycle to work scheme were no longer required to use their bike for qualifying journeys, in order to meet the conditions of the tax exemption. This easement ended on 5 April 2022, meaning that the usual ‘qualifying journey’ condition will now have to be met by all participating employees, in order to qualify for the cycle to work tax exemption.
• Homeworking allowance – Employees required to work from home, for all or part of their working time, are able to claim tax relief equal to the £6 per week home working allowance, for 2020/21 and 2021/22. This temporary ability for employees to make a personal claim ended on 5 April 2022.
• Home office equipment – a temporary tax and NIC exemption applied for 2020/21 and 2021/22, where employers reimbursed employees for the cost of office equipment for use at home. Again, this temporary exemption ended on 5 April 2022, and so employers should reconsider how office equipment is provided for homeworking in the future and ensure that the reimbursement of any personal expenditure is dealt with correctly for tax and NIC purposes.

National Minimum Wage

National Minimum Wage (NMW) and National Living Wage rates increased on 6 April 2022, across each age band. HMRC’s focus on NMW compliance has also greatly increased in recent tax years.  Employers must have robust systems in place to ensure full compliance with NMW legislation and failure to do so can result in significant penalties and ‘naming and shaming’ by HMRC.

Pensions

Consideration should be given to whether the annual allowance (“AA”) and lifetime allowance (“LTA”) will be exceeded for any employees in 2022/23. Broadly, the AA is the maximum amount of pension savings an individual can save each year that benefit from tax relief and the LTA is the maximum amount that can be paid from an individual’s pension scheme that can be made without triggering an extra charge.

For 2022/23, the AA will remain at £40,000. For every £2 of adjusted income (broadly, UK taxable income) over £240,000, an individual’s AA is reduced by £1 down to a minimum of £4,000. In addition, for 2022/23, the LTA is £1,073,100, and will remain frozen at this level until April 2026.

How can we help?

At Alvarez & Marsal Taxand, our Reward and Employment Tax team have extensive experience in advising employers on their ongoing employment tax and NIC obligations.

We can offer a range of advice and services to assist employers in respect of P11D, PSA and ERS Annual Return compliance, as well as providing bespoke advice on all areas of employee reward and employment tax, including short term business visitor returns and special arrangements for tax equalised employees or overseas workers in the UK (App4-8 agreements). Please contact your usual A&M point of contact or Louise Jenkins, Tracey Norton, Linda Cameron or Monica Houston.

https://www.alvarezandmarsal.com/insights/key-changes-employers-2022/23-looking-ahead-new-tax-year