Employer Tax Considerations for Restructuring, Redundancies, and Recruitment
As a result of the COVID-19 pandemic, many businesses have needed to restructure. Their budgeting will have included any payments from various Government support schemes, such as the Coronavirus Job Retention Scheme (CJRS), Job Support Scheme (JSS), and Job Retention Bonus (JRB), and any potential redundancy costs.
What is the background?
The process of restructuring is time consuming. Some employees will remain on their existing contracts, but others will either have a change of role or will be made redundant. Employers face a challenge as they need to ensure they follow the correct procedure, but they also need to handle the whole process sensitively.
Whilst the current focus is likely to be in relation to reducing costs, when the pandemic is over businesses will need to recruit workers, as they re-open and business increases. There are a variety of ways in which they may engage those workers and the method chosen will impact on the cost.
What’s the issue?
The tax and NI treatment of redundancies is complex as changes have taken place in recent years that employers must be aware of. If an employer makes a mistake then HMRC will usually pursue them for the liability, plus interest and penalties.
Given the current fragile nature of the economy, with various restrictions in place throughout the country, employers are considering carefully how they engage and motivate their remaining workforce going forward.
Going forward, if a new worker is engaged other than as an employee (PAYE via the payroll) there could be a potential tax and NI risk for the engager.
What do employers need to consider?
Employers will need to ask themselves a number of questions relating to restructuring, redundancies, and recruitment. These include:
- Are our existing employee benefit packages motivational and tax and NI efficient?
- Do we need to introduce additional motivational benefits and how are we able to do that without significant cost increases?
- Have our redundancy payments, Post Employment Notice Pay and claims for Coronavirus Job Retention Scheme support been calculated correctly?
- How are we reporting termination packages to HMRC that include a benefit or continuing benefits, such as medical insurance?
- Did any employees have loans and were they recovered or written off? If they were written-off how were they dealt with for tax and NI?
- Are any employees likely to be re-engaged when business picks up?
- Will we be looking to use more contractors going forward and will IR35 be an issue?
The answers to these questions will depend on existing policies, contracts, specific situations, and future requirements. Employers need to carefully consider the contractual obligations and practices and then determine how they deal with payments and benefits provided to employees and workers.
What must employers do now?
As we mentioned in our October release, HMRC will be increasing their compliance activity shortly and it is important that employers are ready for any enquiries, so they can avoid any financial penalties and/or statutory interest for inadvertently getting things wrong.
All employers need to ensure they have correctly calculated taxable and tax-free elements of any termination packages, considered how they cost efficiently motivate their workforce and decide how they are going to recruit going forward and what type of worker they will use.
Please contact Lee Muter or Paul Tucker using the contact details below if you have any immediate questions or would like further information.
Employment Taxes Partner
T: 07810 852 362
Employment Taxes Senior Manager
T: 07392 870 199
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