Returning NHS and local authority staff
- How payments to returning NHS and local authority staff will be taxed
- Tax avoidance schemes targeting workers returning to the NHS
How payments to returning NHS and local authority staff will be taxed
HMRC has published guidance on the taxation of payments to staff who return to work for the NHS and local authorities during the coronavirus (COVID-19) pandemic. Income tax and NIC will be deducted as normal on all payments of salary and overtime under PAYE. A rejoining employee should complete a starter checklist form. If they have been furloughed from another employment, they should complete Statement C.
If a rejoining employee has received a termination or redundancy payment at the end of their previous employment, the tax treatment of that payment does not change and they will not have to pay additional tax on it. For details of termination payments, see the Termination payments ― overview guidance note.
Tax avoidance schemes targeting workers returning to the NHS
HMRC has published Spotlight 54. Spotlight is a regular series bringing attention to tax avoidance schemes.
This edition brings attention to tax avoidance schemes targeting workers returning to the NHS to help respond to the coronavirus outbreak, who are not PAYE compliant. These are aimed at those workers who will not be employed directly by the NHS on payroll, but through a third party such as an umbrella or personal service company.
For an introduction to working through a third party, see the Introduction to indirect and third party relationships guidance note and other notes in that topic.
These schemes usually come from umbrella companies who will offer workers a higher rate of take-home pay than is possible while correctly operating PAYE. The type of scheme is described by HMRC below:
‘Usually, the wages will consist of two payments to you: the first payment is declared as earnings and will go through the umbrella company payroll, often at around National Minimum Wage levels or a flat rate payment, for example, £100 per week. The second payment, which the umbrella company will claim is not taxable, may be described as a loan, annuity, shares, a capital advance involving mutual, joint or co-ownership, or a payment derived from a revolving line of credit facility, or some other non-taxable form.’
These set-ups are not compliant with PAYE and should be avoided. They often advertise as being ‘HMRC approved’. Please note that HMRC does not provide approval for any schemes, therefore this claim cannot be true.
Here are some risk factors to look out for that suggest the company may be operating in a way that is non-compliant:
- often, these companies will advertise using high rates of take-home pay, such as 80% to 85% of the gross amount received
- being asked to sign documents agreeing to receive loans, advances, shared or any other income that is not simple employment income and benefits
Even where workers are not aware that there is a compliance issue, they might result in owing tax and interest to HMRC.
Advice to workers potentially engaging with an umbrella or similar company
A good way to see whether a company appears compliant is to check how much your take-home pay as a direct employee of the NHS would be, by using HMRC’s online PAYE payroll calculator. If the amount differs significantly from that offered, then a clear explanation of the breakdown of the pay and deductions should be made, and the worker should also be made to understand any charge that the umbrella company makes for running the scheme.
Previous Spotlights have covered this type of scheme ― see more detail here. HMRC has also published further guidance for contractors and agency workers.