Employment tax update - June 2023

07 June 2023

Following the release of the May HMRC Agent Update (Issue 108), we have summarised the updates most relevant to employment taxes and reward activities.

This update includes details on Employment Related Securities, the new tax year basis for self-assessment income tax returns and changes to the self-assessment income threshold.

End of year reporting deadline for Employment Related Securities (ERS) – 6 July 2023

  • The deadline for employers to file their annual ERS returns for the 2022/23 tax year is 6 July 2023.
  • An employer must submit an ERS return for every incentive scheme that has been registered with HMRC (including nil returns).
  • Missing the deadline or failing to file may result in late filing penalties being levied on the employer.
  • Outside of the Agent Update, it is worth mentioning in connection with this deadline that where there is a requirement to report the value of any ERS via PAYE, there may be circumstances where the PAYE is not recovered in full. To prevent a section 222 charge arising, all outstanding PAYE from the 2022/23 tax year should be recovered from the employee by 6 July 2023.

The new tax year basis for calculating taxable profits for income tax self-assessment purposes

  • The basis on which HMRC calculate taxable profits for sole traders and partnerships is changing to align with the tax year, rather than being based on the accounting year ending in a tax year.
  • The change takes effect from tax year 2023/24 onwards (affecting the return that must be submitted by 31 January 2025), with 2023/24 being considered a “transition year” where any overlap relief carried from when the business first started can be used.
  • From tax year 2024/25, where accounting periods are different to the tax year end, taxable profits will be calculated by apportioning the profits of the accounting periods that straddle the tax year.
  • For further information relating to the new tax year basis for income tax self-assessment purposes, read the “Preparing for the new tax year basis — Income Tax Self Assessment” section of the HMRC Agent Update.

Changes to the self-assessment threshold for income taxed through PAYE

  • From tax year 2023/24, the self-assessment threshold for individuals with income taxed through PAYE only is increasing from £100,000 to £150,000 (the threshold remains at £100,000 for tax year 2022/23 with returns due by 31 January 2024).
  • Individuals who submit a 2022/23 return with income taxed through PAYE between £100,000 and £150,000 (and who do not meet any other criteria for submitting a self-assessment return) will receive a self-assessment exit letter from HMRC.
  • If individuals want to check if they are required to submit a self-assessment return, there is a helpful tool on the Gov.uk website.

In case you missed it, Philip Swinburn joined Senior Knowledge Lawyer, Matthew Ramsey, on the HR briefing podcast to discuss employment tax matters including IR35 and off-payroll working.