The principal social security tax cost in the UK is National Insurance (NI). NI is payable by both the employer and the employee on all earnings of the employee over a minimum level. The employer is responsible for collecting all NI contributions, including the employee contribution and paying them to HMRC, together with Pay-As-You-Earn (PAYE) tax deducted from payments made to the employees.
The rate of NIC payable by an employer on earnings over £8,160 pa is 13.8%.
The UK has several reciprocal social security agreements with other countries and employees seconded from those countries may be exempt from UK NI for a period of time.
An employee’s liability to UK income tax depends principally on his domicile and tax residence position and where the duties of his employment are carried out.
Careful planning is advisable, ideally before the individual comes to the UK, taking into account both income and capital transactions, to avoid unexpected tax liabilities.
In addition to salary and bonus, an employer may provide additional benefits to an employee. This could include accommodation, a car and fuel, private medical insurance, shares in the company, share options, etc.
Employers are generally required to notify HMRC annually of each employee’s total pay, benefits and expenses paid or reimbursed.
The rules concerning the provision of noncash benefits can be complex and advice should be taken before they are provided. Some benefits can result in an income tax, and in some cases an NI liability on the employee, based on the value of the benefit. An employer’s NI liability can also arise in some cases.
Some benefits, however, can be given in a tax-efficient manner including options over shares, mobile ‘phone, childcare vouchers, relocation costs etc. These are all subject to conditions.
In addition to National Insurance the employer is responsible for deducting income tax from the earnings of each employee and paying this over to HMRC. See section ‘Personal income tax’ on page 11.
Between 2012 and 2018, starting with the largest employers, a requirement is being phased in for every employer in the UK to provide access to, and contribute to, a pension scheme for its employees. Generally, employees are not subject to tax on payments into HMRC-approved pension schemes by their employer.