Tips, taxes and holidays
We send out monthly newsletters to our clients concerning items which will impact their businesses. Below is our June 2023 newsletter which covers three topics.
This month we are taking a quick overview of three changes which are coming in the next year;
Tips changes - for hospitality businesses
Rolled up staff holidays - for all on you using hourly labour
Increase in corporation tax - for all companies making profits
This is just one for hospitality businesses and we’ve highlighted this before, but it is worth repeating; starting next year, for the first time in this country, the way in which tips are shared out to staff will be subject to legislation. The main points are;
You can’t make ANY deductions from tips. For any reason. Whatsoever.
Tips must be paid out in full the month after received by the company at the latest
Tips mean anything paid by the customer for service, so service charge falls under this
Tips must be shared out fairly
Tips must be paid to any temps you have working
Employees have a right to see the workings on how tips have been shared (up to 5 years)
If tips are not shared out fairly the employees can seek redress at employment tribunal
Now there are still some unknowns; we don’t know exactly when this kicks in (but we’re expecting Q2 2024) and we don’t know exactly how you need to share tips (that information is soon to be released). But there is some good news; the tax benefits from troncs still remain (no NI for the company or the employee on tips). And as an added bonus, if you are using a tronc, it is the troncmaster who is responsible for keeping records and sharing tips fairly. The company is protected from claims from employees if a tronc scheme is in place. It is for this reason we have started our troncmaster service, Fairshare. If you would like to learn more about the changes coming and what changes you need to make in your business as a result, please drop us a line. ROLLED UP HOLIDAYS This is a bit of an HR point really. As part of the government having to unpick UK legislation from EU legislation we will
soon see a change in holiday entitlement law! (I know, it’s exciting). Most things are staying the same and a lot of the things that are changing are only interesting to payroll geeks. But one thing announced is that rolled up holiday pay is planning to make a come back. If you don’t know; rolled up holiday pay is the practice of paying out the holiday casual staff have ‘earned’ each payroll, so when they go on holiday you pay them nothing (as you have already paid it). It used to be popular for a number of reasons
oosts pay in the short term as for every hour worked you pay basic + holiday (+ tronc in hospitality). This means the ‘headline’ rate you tell new staff is higher than it would otherwise be so making it easier to attract casual / seasonal staff (as you are paying holiday on top).
It helps support slightly lower wages (for the same reason above – you are adding holiday on top so it doesn't look so bad week-to-week).
It encourages staff not to take time off which is simpler for operations top manage (as staff don’t get paid when off).
It reduces the faff of managing holiday for casual staff to approximately ‘sod all’.
The EU deemed this way of managing holidays illegal and so we have not seen this in operation for quite some time now. But some businesses will be considering whether they can use rolled up holidays to their advantage when the legislation updates come next year. Whether or not staff will want to go back to this way of being paid remains to be seen. For short term seasonal staff it would probably be a preferable option, but for long term members of staff it’s not likely going to be a winner. If you want to talk holidays and payroll, drop us a line. CORPORATION TAX The corporation tax rate increased from April 2023. Up until now, profits have been taxed at a flat 19%. Going forward sma
ll companies will be taxed at 19% whilst large companies will be taxed at 25%. All the companies in between get taxed at a ‘marginal rate’. On first look it’s a bit baffling. So lets break it down;
Small company – taxable profits up to £50,000 will be taxed at 19%
Large company – if you have profits over £250,000 all your profits will be taxed at 25%
If you fall in between the figures – the first £50k of profits are taxed at 19%. All profits above this are taxed at 26.5%
This is a high rate in the margin, but essentially it is a way to give a sliding scale of corporation tax. For instance
profits of £75k are taxed at 21.5% in total
profits of £110k are taxed at 23.1% in total
profits of £180k are taxed at 24.4% in total
More profits always mean more taxes, but now it also means a higher rate of tax as well.
The above limits (£50k / £250k) get adjusted down for the more trading companies you own, which means you can end up paying a high rate of tax on low levels of profits. It’s worth making sure that you have planned your tax position properly in relation to these changes. This will really only start to hurt for years that end from July onwards (this impacts profits from April 23). If you would like to speak to us about reviewing your tax position, please get in contact before your year end whilst there is still time to take action!