If so, are you getting the tax right?
Dave Gosling – H&L Specialist
Many hotel and restaurant businesses provide workers with accommodation, food, or both, due to long shifts. With increasingly complex tax rules, the expensive consequences of getting this wrong mean it has never been more important to understand the rules.
Below is a list of the most common situations on the assumption that the temporary workplace exemption does not apply to help determine if your current arrangements are effective or whether you need to take action.
If the workplace does not qualify as temporary, then accommodation provided to employees will be taxable unless it falls within another exemption. There are exemptions that can apply to workers where either they are unable to undertake their duties if they do not live in, or it assists them to perform their duties and it is customary for accommodation to be provided. However, these are hard hurdles to clear and the vast majority of accommodation provided to employees is taxable. The first thing to check is whether the employee falls within an exemption and if so, what costs are exempt and what remains taxable?
For the majority of employees, the provision will be taxable and it is important to understand that there are different rules depending on whether the accommodation is owned or rented by the employer and what its normal use is, as well as, the terms and conditions associated with its provision. The key point to understand is that providing accommodation to employees and directors is likely to give rise to tax implications one way or another. Given the different possibilities here, we recommend taking professional advice to ensure you get the tax compliance right.
This is an area which is potentially more complex than accommodation to determine whether tax is applicable because there are a number of exemptions available to employers that can enable the tax-free provision of food to employees. Exemptions are available for food at the workplace, annual events, and trivial benefits, but the rules are complex and a slight infringement makes everything taxable. The conditions differ for each exemption and these are even stricter than usual where the employer is a hotel, restaurant or cafe. Careful planning and strict controls are essential to avoid the risk of an expensive settlement to HMRC.
There is a great deal of confusion regarding tips with restaurants frequently getting this wrong and leaving themselves at risk of a tax settlement. To put this as simply as possible, there are three possibilities as follows and it is important not to confuse the rules between these:
- A cash tip is paid directly to the employee by the customer – This is outside of the payroll and the employer has no involvement or responsibilities. The tip is taxable on the employee and is responsible for declaring tips to HMRC.
- Tips are distributed by the employer with the employer either influencing or determining the distribution policy. It does not matter whether a Troncmaster, independent of management, is in place or not, PAYE tax and NIC is applicable as if this is employment income.
- Management has no involvement in the distribution of tips and an independent Troncmaster distributes tips in accordance with the policy determined entirely by the employees. The Troncmaster needs to subject the tips to tax through a PAYE scheme, but these are exempt from both employees and employers NIC.
National Minimum Wage (NMW) and Living Wage (LW)
Where an “inclusive” package is provided to employees consisting of pay, accommodation and perhaps food, extra care is required in relation to NMW and LW. The regulations are extremely complex at the best of times with employers commonly falling foul of the regulations because while they meet the requirement overall, they do not for every individual pay period.
This can leave employers exposed to arrears, penalties, and the possible public naming and shaming as NMW defaulters. Reducing pay in lieu of accommodation, etc. further complicates the calculations and it is important to understand that a straight £1 for £1 reduction may not be permitted. Tips must be ignored when considering whether the NMW or LW obligations have been met.
How Menzies can help?
There are some generous tax breaks available to employers, but the complex rules, intended to prevent abuse, can catch out the unwary.
Menzies has dedicated Employer Solutions specialists to help you structure these arrangements correctly so that you maximise use of the tax breaks and minimise the risks. Please take advice to ensure you get things right, rather than assuming you will qualify for relief. HMRC are unlikely to take a sympathetic approach to errors and are much more likely to take the view that this is either exempt or taxable. There is no middle ground and if you fail to meet the exemption conditions – then it is taxable.