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Income Tax and Parish Clerks
Income Tax and Parish Clerks
The taxation of payments made to Clerks is often a problem area identified during our audit work. HMRC guidance is very clear on the tax status of Parish Clerks, it states very clearly that "The Clerk is an office holder and emoluments received, whether described as an honorarium, a salary, a payment towards expenses or a combination of these, are chargeable as employment income and there is liability for Class 1 NICs." What this means is that a Parish Council must operate a PAYE scheme for it's Clerk. It also means that any Gratuity amount paid to a Clerk must also be subject to Income Tax when paid. You cannot treat a Clerk as self employed and pay salary gross.
Working From Home Allowance
Working From Home Allowance
HMRC Rules allow for payments to be made, for fixed amounts, towards the costs incurred when working from home. These amounts can be paid without deduction of PAYE and without any liability for National Insurance. The current rules (as at 2022) do not permit this to be paid to employees who chose to work from home, it can only be paid to those who have to work from home. The rules were different during COVID, but these no longer apply.
If you do have to work from home (perhaps because your council does not have permanently available office space) then you should have a look at the website below to see what you may be able to claim.
PAYE and Sub Contractors
PAYE and Sub Contractors
Another area that is commonly identified as a problem area is payments to individuals who provide services to Councils. This includes such staff as part time admin 'cover' staff, handymen, cleaners, litter pickers etc. Councils often state that the person is 'self employed' and that, because they receive an invoice, they can treat the person as self employed and not as an employee.
Unfortunately HMRC will not accept this and will focus instead on the nature of the relationship between the Council and the individual providing services. What you must do if you have a person providing you with regular services (such as cleaning) is to use the HMRC Employment status checker (see the link below). This will give you a clear answer as to whether you can, in fact, treat them as self-employed. You should print off the output of the Checker and retain it for your records.
PAYE and Pensions
PAYE and Pensions
Another area that can cause problems is the tax treatment of pension contributions made by Employees. Note that this relates to the Employees Contributions, not the contributions made by the Employer
There are basically two ways in which Employees can receive tax relief on their pension contributions;
The amount they have paid into the pension is deducted from their gross pay, before tax, and they are taxed on the net amount. This is called a 'Net Pay Arrangement' and is the way in which a Superannuation Scheme such as the Local Government Pension Scheme (LGPS) pension contributions should be taxed.
The second way is that the employee pays 80% of the pension contribution from their salary, after tax, and the pension fund then reclaims this 20% from HMRC on their behalf. This is called 'Relief at Source'. This is the way most (but not all) private sector schemes work - NEST works this way.
Unfortunately what often happens is that a person operating the payroll who is not familiar with the LGPS treats it as a 'Relief at Source' scheme so employees end up paying too much tax. This is because most private sector schemes operate as Relief at Source .
It is worth checking your payroll to make sure that your pension is being handled properly. If you are in the local government pension scheme your taxable pay should be less than your gross pay by the amount you have paid into your pension. If not you should query this with whoever prepares your payroll.
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