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Minimum wage increase on 1st April will cost employers almost £1,200 extra per employee

From the 1st April, the National Minimum Wage for employees aged 25 or over increases from £6.70 per hour (the current rate for all employees aged 21 or over) to £7.20 per hour to fall in line with the Living Wage.

The government plans to increase this amount year on year to bring the minimum hourly rate for those over 25 to £9 per hour by 2020.

Whilst this is good news for low paid employees, the cost to smaller business will be significant – around £1,200 more per employee per year once National Insurance contributions and Auto-Enrolment pension contributions are added in. With what is effectively a new minimum wage bracket being introduced, the gap between the minimum wage for employees aged between 18 and 25 is now £1.90 per hour – almost £4,000 per year for a full time employee.

To this end, I wouldn’t be surprised to see a significant decrease in unemployment for people under 25, as employees try to manage their costs by hiring younger workers ahead of the more expensive, older ones.

To lessen the impact on employers, the government are increasing the Employment Allowance on 6th April from £2,000 to £3,000. So the first £3,000 of employers National Insurance incurred in the 2016/17 tax year doesn’t need to be paid over to HM Revenue & Customs. While this is welcome, it may mean very little to employers who have more than one employee going up to the new £7.20 rate.

It’s worth noting that none of the other National Minimum Wage rates are changing at this time. These are usually tinkered with on 1st October every year so don’t be surprised to hear more on this in Budget 2016 next Wednesday, 16th March.

Tax breaks for employees

.Over the past couple of years, you have no doubt seen companies advertising that they will reclaim tax for you if you had to pay for uniforms for work, or spent money travelling for work. There’s nothing wrong with what these companies are offering, however they do take a hefty enough chunk of any payment you are due back. For the most part, it’s simply a case of filling out a single form.

So what can you claim for and how do you go about it?

Uniforms/work clothes & tools

You are allowed to claim for the cost of cleaning, repairing or replacing uniforms or specialist work clothing or specialist tools you had to buy for your job. However, you are not able to claim for the initial cost.

You can either claim for the actual cost of these expenses or, HMRC has a table of flat rates for each occupation that you can use instead. You are fully entitled to claim the higher amount.

Mileage

Most people are aware that when you use your own car to travel for work purposes (not travelling to work from home, or vice-versa), your employer can pay you a mileage rate. This payment is tax free so long as it isn’t more than the approved HMRC rates (currently £0.45). But what if your boss pays you less than this rate (which he or she is perfectly entitled to do)?

Well, the HMRC rates are deemed to be the cost incurred per business mile – an average of total fuel costs, insurance, road tax, wear & tear, depreciation, tyres etc. So if you don’t get the full 45p per mile, in the taxman’s eyes you are out money. As such, you are allowed to claim tax relief on this difference.

If you do very few business miles, this isn’t going to be worth your while. However, as an example, if you do 5,000 miles a year at a mileage rate of 25p, you have incurred costs of 5,000 x 20p which is £1,000. For basic rate (20%) taxpayers, that equates to £200.


Professional Fees & Subscriptions

If you have to pay a subscriptions or membership fee to certain approved organisations either because it is a requirement of your job or is helpful in your job, you are entitled to claim tax relief on this. Your organisation must be on the list of approved professional bodies and you can’t claim any relief if your employer covered the cost.

How to claim

If the total of your expenses is less than £2,500 (and you don’t currently fill in a tax return) you need to submit form P87. If your claim is for more than this amount you must claim on your tax return, even if you don’t currently file one.

Now for the good news – you can go back up to four tax years to make a claim.

If you think you have incurred expenses for work and I haven’t mentioned it, have a look at the HMRC guidance on this. As a rule however you should be able to claim for any expenses which were incurred “wholly and exclusively” for work purposes.