Inside Hospitality - Issue two

INSIDE HOSPITALITY Issue two

How you can reduce the impact of rising NICs for staff

buzzacott.co.uk

HMRC target incorrect EOTHO scheme claims

Government Bill expected on ‘fair’ tipping imminently

In this edition Welcome from Mark Taylor....................3 Here’s how hospitality businesses can reduce the impact of rising National Insurance Contributions for staff......... 4 HMRC target incorrect Eat Out To Help Out scheme claims......................... 6 How troncs are helping hotels recruit and retain talent............................................8 2022 National Living/Minimum Wage – ensure you’re compliant.........................11 Government Bill expected on ‘fair’ tipping imminently.....................................12

Welcome

As Head of Buzzacott’s Troncmaster Services team, I would like to welcome you to our latest edition of Inside Hospitality. This issue, and all editions to follow, will assist businesses and staff working in the hospitality industry with insight into topics and challenges affecting the sector, including the latest HMRC news and actions.

As a result of both Brexit and COVID-19, the hospitality industry faces an unprecedented staffing issue. We look at how hoteliers can introduce tronc schemes to retain and reward their best staff.

While HMRC eased some of its compliance activity during the early period of COVID-19, we are seeing a return to increased compliance checks of hospitality claims in relation to the Coronavirus Job Retention Scheme and the Eat Out to Help Out Scheme, plus National Minimum Wage. We provide a recent case study.

Mark Taylor Partner Head of Troncmaster Services

Finally, we provide details of the 2022 National Living/Minimum Wage changes and look ahead to the proposed legislation to tipping practices, being introduced to protect and enhance a workers’ rights.

We hope you enjoy this issue, and look forward to receiving your feedback.

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Here’s how hospitality businesses can reduce the impact of rising National Insurance Contributions for staff The increase in National Insurance Contriubtions (NICs) announced by the Prime Minster in September 2021 is now only a stone’s throw away. Here, we share what employers can do to soften your staff’s potential loss of income and keep them motivated in the process.

National Insurance Contributions set to rise From April 2022, employees and the self-employed who earn over £10,000 will pay more tax in the form of a 1.25% increase in NICs. Introduced to help the NHS recover from the COVID-19 pandemic, the increase could impact hospitality staff more so than others - their salaries will be affected but so could their tips depending on how you manage them.

Here’s how you could minimise the impact.

By reducing their salary, the employee will no longer pay NIC (or the future Health and Social Care levy) on the amount of salary they exchange.

So, in comparison to their previous position, they’ll experience an increase in net pay, as they now pay less NIC. From April 2022 the saving in NIC (and the subsequent H&SC levy) will be between 13.25% and 3.25% of the sacrificed amount, depending on earnings.

Pension salary sacrifice Pension salary sacrifice, or more accurately salary exchange, is the contractual agreement between an employer and an employee to a reduction in salary, in exchange for an employer pension contribution of at least the same amount.

For employers, the key benefit is the saving in employer NIC (and the future H&SC levy) on the aggregate amount of the employees’ reduced salaries. For example, consider an employer with 25 employees, an average salary of £35,000 p.a., and each employee contributing 5% gross into the pension i.e., a total gross employee pension contribution of £43,750 p.a.

Employer-paid pension contributions are not a taxable benefit. Therefore, an employee who’s currently paying employee contributions into a pension, could instead, agree to ‘swap’ the amount of salary equivalent to their gross contribution on condition that the employer pays this as an employer pension contribution.

Under a correctly structured agreement, there is no difference in the total pension contribution made on the employee’s behalf (although the employer can decide to increase it by adding some, or all, of the resulting employer NIC saving) and there’s no tax charge for the employee.

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If all employees made their contributions via salary sacrifice, the employer would save over £6,500 per year in NIC (based on the Employer NIC rate of 15.05% applicable from April 2022.)

Tronc scheme It’s well-documented that hospitality staff rely on tips as an almost guaranteed form of income so the rise in NICs will be a true loss to them. As employers, it’s disappointing to see your hard-working employees take home less but by introducing a tronc, you can reduce the impact of the NICs rise and save your staff money.

If you pass tips, gratuities and service charges (tips) onto your staff by adding them to the general payroll, your staff will be taking home much less than they should, because the tips will be paid net of both Income Tax and NICs. By continuing to share tips this way, your staff are set to lose even more as the collected will be subject to the 1.25% NIC rise from April 2022.

By distributing tips via a tronc, the need to pay NICs for staff and businesses is removed providing significant savings for both. This means that regardless of whether the NIC rate is to be increased, using a tronc managed by an independent troncmaster will ensure your employees hardearned tips will be exempt from NICs. How we can help Whether you’re a new or an established business, we can help you reduce the impact of rising NICs. If you’re considering a pension salary sacrifice or reviewing an existing arrangement, we can provide advice and support, and assistance with employee communications. Please contact Paul Nelson.

Our specialist Troncmaster Services team can also help you set up and implement your bespoke tronc scheme quickly, within four weeks of your initial engagement. Please contact Samantha McCarthy.

Get in touch Paul Nelson Senior Manager (Employee Benefits) T +44 (0)20 7556 1355 E nelsonp@buzzacott.co.uk Samatha McCarthy Manager (Troncmaster Services) T +44 (0)20 7556 1227 E mccarthys@buzzacott.co.uk

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period, there was no reason at the outset to suspect that the claims may contain errors.

We worked with Olivia and conducted a full review of the businesses’ affairs to establish the feasibility of the claims. We closely examined the number of covers for each claim period, the size and number of maximum covers for both premises, the business’ opening hours, and the level of turnover in the same period of the previous year of trading.

HMRC target incorrect Eat Out To Help Out scheme claims F

or many, the Eat Out To Help Out (EOTHO) scheme may seem like a thing of the past.

However, HMRC is still reviewing the claims of thousands of hospitality businesses that used the vital relief during the COVID-19 pandemic. As such, we share how our Tax Investigations and Dispute Resolution team helped a business whose EOTHO claim came under HMRC’s spotlight.

The Eat Out To Help Out Scheme On 7 July 2020, the government announced the EOTHO scheme where every Monday, Tuesday, and Wednesday throughout August 2020, restaurants could offer a 50% discount on food or nonalcoholic drinks to eat or drink in, up to a maximum of £10 discount per diner. A reimbursement could then be claimed back from HMRC for the equivalent amount.

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While the EOTHO scheme proved to be successful, it’s estimated that of the £81.2 billion invested into COVID-19 support schemes by the UK government, 8.5% has been lost to fraudulent and erroneous claims in respect of the EOTHO scheme. As a result, HMRC has now introduced a new Taxpayer Protection Taskforce to recover this lost revenue, which Buzzacott and our client Olivia* have seen first-hand.

Testing the feasibility of EOTHO claims In May 2021, Buzzacott was contacted by Olivia, a Director of a hospitality business in need of professional representation. Her business had received a letter from HMRC, notifying her that it had opened a check into EOTHO claims made by her business. While the business had made claims on behalf of its two cafes throughout the EOTHO

From this review, we concluded that the business was capable of dealing with the number of diners submitted within the EOTHO claims – which had been its key risk when HMRC launched the claims check. We presented this to HMRC, who fully accepted our analysis work and agreed. However, HMRC then went on to undertake its own analysis work in respect of the cafes’ till reports comparing these with claims for each EOTHO period. As a result, HMRC believed there to be errors within the claims.

Buzzacott carefully tested HMRC’s analysis work from which we concluded it contained some crucial mistakes. We established that the EOTHO claims for certain periods had been inadvertently mixed up between the two cafes, which in turn, resulted in overclaims and underclaims being submitted.

After further discussions with Olivia, we discovered that the employee who ordinarily handled the business’ financials had been furloughed during the EOTHO scheme, leaving her to deal with the claims herself. Upon reflection, she accepted that because of her lack of expertise in data analysis, coupled with the immense pressure of running a business during the pandemic, it was possible that she had made mistakes when entering the figures into HMRC’s portal. While the business had made a moderate overclaim in the first week of the scheme, this was offset by a sizeable underclaim during the final week of the scheme.

In what circumstances can businesses correct their claims?

Controversially, HMRC has maintained that EOTHO claims cannot be adjusted in favour of the taxpayer, as the scheme has now ended. HMRC currently only allow for amounts overclaimed to be corrected and paid back to HMRC. Therefore, if a business has

inadvertently submitted an underclaim through the EOTHO scheme, there is no avenue to now recover this.

We argued that HMRC’s current stance on adjustments to EOTHO claims was unfair. Given HMRC accepted that the errors in our client’s claims arose from innocent mistakes, HMRC agreed to our request to off set the underclaimed and overclaimed amounts with no further questions or adjustments required. While the client was still in a net underclaim position, she was happy to bring the enquiry to closure so she could concentrate her time and efforts on her business.

Most notably, HMRC did not seek to recover the overclaim or charge any penalties even though its published guidance would suggest being necessary for an overclaim period.

How can we help?

This case demonstrates how the assistance of a tax investigation specialist can make a difference, even when HMRC’s own guidance suggests that there is no alternative. We expect HMRC to continue probing EOTHO claims. If you have concerns about your claims, we can carry out a review and help you correct any inaccuracies.

For a free and entirely confidential discussion regarding how we can help you correct any inaccuracies in your EOTHO claims, please call +44 (0)20 7710 3389. *This clients name has been changed to protect their confidentiality

About the author Paige is a Tax Consultant in Buzzacott’s Tax Investigations & Dispute Resolution team.

She is a recent law graduate and is currently working towards becoming ATT/CTA qualified. Paige uses her up to date knowledge of the UK tax system to provide assistance to senior members of the team.

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How troncs are helping hotels recruit and retain talent With staffing shortages being one of the biggest challenges hoteliers face right now, staff retention has never been more important. Here, Samantha McCarthy shares how introducing a tronc scheme can help your hotel recruit and retain talent.

Life before tronc Employer

Life after tronc

Employee

Pays £20 tax Pays £13.80

National Insurance contributions

Employer

Employee

Pays £20 tax

Pays £12

National Insurance contributions

£68

goes to the employee

£80

goes to the employee

£20

tax collected by HMRC (£20 + £12 + £13.80)

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e typically see hotels share tips, gratuities, and voluntary service charges (tips) through the main payroll, which means they’re taxed as salary and staff receive them net of income tax and employees National Insurance Contributions (NICs).

By doing so, hotels are required to pay employers NICs to pass these tips onto staff leading to increased costs.

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retaining staff. In addition to staff taking home more, using an independent troncmaster gives staff the peace of mind that there will be no influence by the employer when sharing tips, thereby removing the possibility of bias or favouritism. This in turn makes staff feel valued and improves morale across the business, often leading to increased staff retention and better service provided to customers.

In some circumstances, we also see hotels use the tips collected to cover the employers NICs costs, meaning the total pool of tips available to share among staff is less. This significantly reduces staff take home pay, which lends itself to poor morale and low retention, as staff search for higher paid positions elsewhere. So how can a tronc help?

Case study: How Buzzacott helped a leading hotel chain We were recently approached by a leading hotel chain, who were looking to improve their tipping practices and better reward and motivate their staff.

They had been receiving tips but were paying them via their payroll.

How does a tronc work?

By sharing discretionary tips through a tronc scheme where all qualifying conditions are met, tips are exempt from employers and employees NICs. Given that employer and employee NICs total over 25%, this represents significant savings for both the employer and staff. See our diagram showing life before vs after a tronc.

We met with both management and employees to create an arrangement that was mutually beneficial, introducing key performance indicators in the tronc that would reward staff for hitting targets. This tailored tronc, run for the benefit of staff, has in turn led to the tips being utilised fully and increased staff take home. The hotel has also seen an improvement in retaining staff and attracting new joiners.

Having a tronc can be a real competitive advantage over other hotels when it comes to recruitment and

“Introducing a tronc has given us the platform to use Service Charge so much more effectively for our

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business. By rewarding the right people at the right times and giving our employees extra confidence in the transparency and security of the tronc, we have better engagement and can target more productivity from our teams which in turn generates rewards for all. The professional knowledge and confidence Buzzacott brings to the Troncmaster service has been fantastic.“ Client - People & Development Director Legal requirement?

This year, it’s expected that the government will introduce the Employment (Allocation of tips) Bill, which will make it a legal requirement for hotels to pass on the full amount of tips paid by customers to staff. This means that businesses will not be able to deduct fees from tips collected and will be required to follow a Statutory Code of Practice.

At Buzzacott, we already champion the allocation of tips to staff through tailored tronc systems that are fair, ethical, and protect our clients from any challenges from HMRC. We can help you prepare to meet the requirements and will guide you through any challenges that may arise with the proposed new legislation.

Get in touch Whether you’re an independent or large hotel chain, we can help you set up and implement your bespoke tronc scheme. For further information regarding a tronc scheme or reviewing your current tipping practices, please contact us on +44 (0)20 7710 3389 or email buzzacotttroncmaster@buzzacott. co.uk.

About the author Samantha is a Manager in Buzzacott’s Troncmaster Services team. She has the dayto-day responsibility for the management of our tronc portfolio and our specialist tronc staff. Samantha’s in-depth knowledge of tronc’s and HMRC’s procedures ensures our independent tronc schemes are ethical, bespoke and conform fully to HMRC rules.

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2022 National Living/Minimum Wage – ensure you’re compliant “We have used Buzzacott Troncmaster Services for just over two years now. We were initially concerned about moving from service charge to tronc payments for our staff, but I have to say the team provided and managed a very clear transition, which was to everyone’s benefit.

They are extremely professional, communicate very effectively and the integration with our payroll team has been excellent. We have not had a single issue with their service, which represents very good value for the monthly charge and I highly recommend them.”

David Needes, Director - Rock and Rose

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ith the National Living/Minimum Wage set to rise from April 2022, hospitality businesses must enforce the new rates or face serious penalties. Owen Russell shares how a National Living/Minimum Wage review can ensure your business remains compliant and avoids possible fines.

The National Living/Minimum Wage is a statutory requirement for a minimum hourly wage to be paid to workers in the United Kingdom.

From April 2022, the National Living/Minimum Wage rates are as follows: • • • • •

The rate for workers aged 23 and over will increase from £8.91 to £9.50 The rate for 21-22 years olds will increase from £8.36 to £9.18 The rate for 18-20 years olds will increase from £6.56 to £6.83 The rate for 16-17 years olds will increase from £4.62 to £4.81 The apprentice rate (for apprentices aged under 19 or in their first year of apprenticeship) will increase from £4.30 to £4.81.

Failure to correctly meet and operate the new rates is not an option. If identified by HMRC, your organisation could be issued with severe penalties and be named and shamed on HMRC’s website.

This applies to businesses with arrears of more than £500 in National Living/Minimum Wage payments to their workforce.

For businesses operating tronc schemes, allocations from tronc cannot count towards the National Living/Minimum Wage.

Finally, if you require your staff member (the worker) to purchase specific items, such as overalls, then any deductions made from employee pay or payments

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made to you (the employer) in respect of those items, will also need to be considered for National Living/Minimum Wage purposes, as relayed by Mark Taylor here.

How we can help We provide hospitality businesses with assurance by offering National Living/Minimum Wage audits.

Our reviews will confirm the impact the proposed increases will have on your business, outline any concerns we may have, and advise you on the options available to ensure you meet the demands made by HMRC. If your organisation operates a tronc scheme, upon request, we’ll analyse your existing processes and provide a detailed report highlighting whether your arrangement correctly provides an exemption to National Insurance Contributions.

For further information regarding a National Living/ Minimum Wage review, please contact Owen Russell on +44 (0)20 7710 3389 or alternatively, please complete the form below.

About the author Owen is a Senior Associate in Buzzacott’s Troncmaster Services team. He helps businesses implement ethical tronc schemes that fairly distribute tips given by customers.

In doing so, he provides clients with tronc schemes that operate according to HMRC guidelines, ensuring national insurance is exempt on all allocations, helping clients to retain their staff.

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Government Bill expected on ‘fair’ tipping imminently A

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round two million people work in one of the 190,000 businesses across the hospitality, leisure and services sectors, where tipping is commonplace. Hospitality workers, many of whom are earning the National Minimum Wage or National Living Wage, rely on tipping to supplement their income.

discretionary payments for service, after tax where appropriate, should be received by the worker; or managed separately from the employer through a tronc system.”

It’s estimated that around 80% of all UK tipping now happens by card, rather than cash going straight into the pockets of staff. Businesses who receive tips by card currently have the choice of whether to keep them or pass them on to workers. However, government research shows that many hospitality businesses that add a discretionary service charge onto customer’s bills are keeping part or all of these service charges, instead of passing them onto staff. As such, the government is set to introduce legislation designed to overhaul tipping practices.

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What can we expect to see in the legislation?

In the government’s 2016 response to the consultation on tipping gratuities, cover and service charges, it stated “The government believes that all

Should you act now?

Any hospitality business that is utilising tips, gratuities, and services charges in any way and not passing these in full on to their staff must act now.

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Therefore, in accordance with the government’s response, the legislation is expected to include:

• •

A requirement for all employers to pass on tips to workers without any deductions, potentially no later than the end of the month following the month in which it was paid by the customer.

A Statutory Code of Practice setting out how tips should be distributed to ensure fairness and transparency.

New rights for workers to make a request for information relating to an employer’s tipping record, enabling them to bring forward a credible claim to an employment tribunal.

It is expected that tronc systems will remain in place and, without question, these are the most cost-effective way of passing tips onto staff. With employers expected to be required by law to pass on all tips in full to staff, National Insurance Contribution (NICs) exposure will increase, at a time when both employers and employees NIC is set to rise. Therefore, there has never been a more vital time to ensure you have an effective rewarding tronc system in place. The benefits of implementing a tronc system are: • • • •

The arrangement can be genuinely independent, free from employer interference, run for the benefit of staff.

Offer significant savings to staff and businesses through exempt NIC. Staff can get up to 100% ownership of their hard-earned tips with a say in how they are shared out.

Improve staff motivation and retention as employees feel valued and rewarded.

Get in touch For further information regarding the expected tipping legislation or how we can help you introduce a compliant tronc scheme, please contact us on +44 (0)20 7710 3389 or email buzzacotttroncmaster@buzzacott.co.uk.

About the author Mark is a Partner and heads up both Buzzacott’s Troncmaster Services and Tax Investigations & Dispute Resolution teams.

He has experience of troncs both in his time at HMRC dealing with investigation cases, and since being in private practice where he has been responsible for the implementation and administration of troncs. Mark’s unique background at HMRC ensures that all Buzzacott independent troncs operate according to guidelines, safeguarding you from HMRC challenges.

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Directory About us People trust Buzzacott. We blend pragmatism with the insightful knowledge of an industry leader, driven by attention to detail.

We’re big enough to display deep knowledge over a broad range of specialisms and small enough to understand the power of personal connections. The values we identify with, the consistency of our advice and our ability to tailor-make solutions means that Buzzacott can be trusted to do the right thing.

Contact details www.buzzacott.co.uk Email enquiries@buzzacott.co.uk Phone +44 (0)20 7556 1200 LinkedIn: www.linkedin.com/company/buzzacott Twitter: @BuzzacottLLP Office address Buzzacott LLP 130 Wood Street London EC2V 6DL This document is prepared to keep readers abreast of current developments, but is not intended to be a comprehensive statement of law or current practice. Professional advice should be taken in light of your personal circumstances before any action is taken or refrained from. No liability is accepted for the opinions it contains, or for any errors or omissions. Buzzacott LLP is a limited liability partnership and is registered in England and Wales with registered number OC329687. Registered office is 130 Wood Street, London EC2V 6DL. © Buzzacott LLP 2022. All rights reserved.

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