Golden handshake and freelance consultants alert
HM Revenue and Customs (HMRC) are well aware many firms are looking to reduce costs in the current climate and seem to have geared up enquiries into two related areas to collect more tax and National Insurance Contributions (NIC). Far too many tax-free termination/redundancy payments are being challenged by HMRC leaving firms (ie, not their former employees) facing unwanted bills for tax, NIC, interest and fines. Most firms know about the £30,000 tax relief for qualifying termination payments but much can also be done to avoid, reduce (or at least defer) tax and NIC on other parts of the package, including:
– PILONS (payments in lieu of notice)
– Post termination perks (eg, BUPA/car)
– Tax-free enhanced redundancy pay – in addition to statutory tax free pay
– Tax/NIC free death or disability payments
– Foreign service
– Legal expenses
– Outplacement counselling
– Qualifying tax-free pension payments (which can usually be commuted, in part, tax free)
– Making payment after form P45 is sent to deduct basic rate tax only under PAYE
– Spreading payments over two or more tax years for lower rates of tax
Much can also be done to reduce the hassle of increasing numbers of HMRC tax and NIC “enquiries” by:
– Filing the required details of termination payments promptly to avoid any “discoveries” by HMRC
– Telling clerical staff who have no knowledge of the terms of any termination agreements to refer any HMRC enquires to directors of the firm who do
– Ensuring the terms of original contracts of employment do not contradict the terms of any termination agreements
Please do get in touch if you wish to discus any points in further detail.
Payments to freelance self-employed consultants
Similarly, far too many firms are being assessed for PAYE and NIC on payments made to freelance self-employed consultants and contractors who HMRC believe to be disguised employees. As ever, it is the employer (ie, whoever pays the consultant/contractor) who is assessed for PAYE and NIC interest and fines as it is the employer (ie, not the consultant/contractor) who has to correctly categorise the consultant/contractor as employed or self-employed. Many large PLCs just refuse to be exposed to this risk and will only pay the consultant/contractor’s one man band personal service company instead – ie, pay “Fred Ltd” instead of “Fred” personally. This simply allows HMRC to assess Fred Ltd for PAYE/NIC on payments it makes to Fred if HMRC decide Fred would have been an employee of the PLC if it were not for Fred Ltd. We see more and more firms following the example of large PLCs as a way of avoiding PAYE and NIC on payments to freelance self-employed consultants and contractors but we can discuss any individual cases at any time.
Don’t forget you can easily insure against the cost of almost all HMRC investigations (including VAT and personal tax returns) from day one by signing up to our fee protection scheme. Large costs can easily arise – especially in relation to eliminating the new fines for careless behaviour outlined in earlier updates.