Woefully, there is no specific exemption within the legislation for a gift to be made to an employee when they retire from their employment. However, we may be able to employ the Long Service Award (ITEPA 2003 Section 323) exemption depending on the type of gift made and meeting certain conditions.
If the gift comprise of cash then the sum would always be treated as taxable (and NICable) under section 62 ITEPA 2003 because the gift is being received by basis of the employment. If the company comprises a watch, this may meet the qualifying conditions for exemption as a Long Service Award.
However, there have been a number of alterations to the policy over recent years. This article sums up the key points and will aid ensure you and your clients are fully alert of how it now works.
Recap
Essentials – the option can only be used if:
- the tax owed is less than £3,000
- the taxpayer already pays tax through PAYE, for example as an employee or in receipt of a company pension. (Note that the online tax return must have been presented by 30 December and be very careful if the client’s tax return has not yet been submitted as the payment option is now not available.)
The amount of income received/PAYE paid is relevant to whether the option can be used. The PAYE code option can’t be used if:
- there is not enough PAYE income for HMRC to gather the tax owing
- using the option would mean that the taxpayer would pay more than 50% of their PAYE income in tax
- the taxpayer would anyways pay more than twice as much tax as they normally do
- Class 2 NIC contributions can only be paid through the PAYE code if they were compulsory starting before April 2015.
Q: A director takes a minimal salary (say, £10,000) through the company payroll and although the employer was issued with a form sl1 (notice to make student loan deductions) her salary is below the relevant threshold and no withdrawal has been made. However, she is also a shareholder in the company and receives dividends of £20,000. How are these treated for student loan reasons?
A. It is correct that if the employee has gross below the relevant threshold, no Student Loan deductions will be made through the payroll.
If the former student has any other sources of income, then any loan refund will be computed and paid via the Self-Assessment Tax Return. Dividends (or other “unearned income”) of £2000 or less per annum are ignored – however, if the total unearned income overreach £2000 then the whole amount is taken into account. The first £2000 is not exempted.
National Minimum Wage and National Living Wage will grow on April 1st. Those aged over 25 on the National Living Wage will have advantage from an increase of 4.4%, with hourly payments rising from £7.50 an hour to £7.83 an hour. Younger workers and trainee will also have advantage from similar improvements, with the new rates as follows:
- 21-24 years old – £7.38 per hour
- 18-20 years old – £5.90 per hour
- Over obligatory school age – £4.20 per hour
- Apprentice – £3.70 per hour
There is likely to be added attention surrounding the incoming wage grows due to the release of the government’s latest ‘naming and shaming’ list of those employers who flunk to pay staff minimum wage. The government is increasing imposition in this area and considerable financial penalties can be issued to your clients if they flunk to meet the new legal requirements.
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