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Experts: HMRC Closely Watching Payroll Transactions

By Kerry Cole

Her Majesty’s Revenue and Customs (HMRC) is keeping a close eye on non-taxed per diem payments and other payroll arrangements, two Deloitte experts explained in the GPMI webinar “U.K. Employment Taxes: A Legislative Update.”

During the webinar, John Lewis, Partner, and James Dye, Associate Director with Deloitte Tax LLP Global Employer Services, walked their audience through several changes and updates to legislation in the United Kingdom. The webinar is available on demand for those who missed it.

While non-taxed per diem payments are a popular method of funding employee business trips and many companies had worked out dispensation agreements prior to new rules taking effect in April 2016, the government is making a renewed effort to police such payments.

“Ultimately, HMRC is trying to do away with any excess cash being paid to employees,” Lewis said. “We’re having some fun and games with the authorities over these allowances and being able to prove that they should stand.”

Dye added that HMRC is “historically skeptical” about dealings with traveling employees.

“What is actually happening is that employees are being paid an allowance for expenses, perhaps 10 pounds, and then only incurring five pounds of expenditure and pocketing the rest, which is essentially untaxed income,” he said.

The webinar covered a variety of topics relevant to U.K. payroll legislation, including:

  • Changes to benefits and expenses reporting
  • New rules relating to optional remuneration arrangements
  • The Apprenticeship Levy
  • Termination payments
  • Short-term business visitor reporting and non-resident directors
  • Increases to the National Minimum Wage and National Living Wage rates
  • Personal service companies in the public sector
  • HMRC’s “Know Your Customer” initiative
  • New corporate criminal offense

Lewis and Dye recommended that companies review arrangements they have in place with HMRC. In cases where grandfathering rules apply, they urge companies to monitor variations that fall outside of those rules so that employees are not adversely affected.

“I think it’s fair to say the legislation has been around [forever], but the authorities in the U.K. haven’t necessarily imposed it too strongly on us,” Lewis said. “That changed about five or six years ago, so it’s always worth refreshing. The tracking of employees is one of the biggest global issues we have. In the U.K., it is becoming a massive problem for us.”

One area where the government is especially mindful involves employees of overseas branches coming to work in the U.K.

“As far as HMRC is concerned, the moment those employees set foot in the U.K., in effect they are working for a U.K. entity; therefore, they should be taxed and there is no exemption,” Lewis said.

They also touched on the U.K.’s National Living Wage and National Minimum Wage rates, which in April will increase from £7.50 to £7.83 per hour for those age 25 and over and from £7.05 to £7.38 per hour for those ages 21-24.

“This has absolutely become one of the hottest topics in the United Kingdom that we’ve seen in many a year,” Lewis said.


Kerry Cole is Senior Editor of Membership Publications for the American Payroll Association and GPMI.