In a significant development for the hospitality industry, the Employment (Allocation of Tips) Act 2023 (the Act), which received Royal Assent on May 2, 2023, is set to revolutionize tipping payment practices across the UK.

Due to come into force on 1 July 2024, and affecting approximately two million workers in the sector, this new Act presents substantial implications for employers’ cash flow and payroll processes.

Understanding the Act

The Act helps to delineate tips or gratuities as voluntary payments made by customers, distinguishing them from service charges, which are typically added to the bill by default.

Under the new legislation, employers are mandated to distribute all qualifying tips to workers fairly and without undue deductions, save for necessary tax withholdings.

Ahead of the change in legislation, the Government has published a draft Code of Practice to complement the Act (the Code).

Whilst still under consultation, this Code aims to clarify the criteria for achieving a distribution of tips that is both fair and transparent, as mandated by the Act, ensuring that workers fully understand their entitlements:

• Scope: This section clarifies the Act’s coverage, including the definition of “tips” and the acceptable methods of payment.
• Fairness: At the heart of the Act lies the principle of fairness. This part of the Code offers guidance on factors employers might consider when allocating tips, such as the performance of individual employees and the intentions of customers.
• Transparency: It mandates that employers must maintain and make accessible to their employees a documented policy on the distribution of tips. This policy should detail the allocation and distribution process for tips, alongside the measures the employer will adopt to adhere to the Act.
• Addressing Problems: This ensures that employers establish equitable procedures for resolving disputes related to tip distribution. These procedures should apply not just to direct employees but to agency workers as well.
• Glossary of Terms: To aid understanding, this section provides clear definitions for essential terms used throughout the Code, including “agency worker” and “basic pay.”

Historically, the legal regime around tips and service charges has varied, with different rules applying to cash tips, tips paid into a communal staff box, and those paid by card.

The introduction of the Act necessitates a more uniform approach, ensuring tips are distributed fairly among workers, managed transparently through a tronc system under an independent troncmaster, and reported accurately to HM Revenue & Customs (HMRC).

The implications for the hospitality industry

This legislative shift aims to rectify longstanding controversies around the retention of tips by employers, spotlighted by media scrutiny and public outcry.

The Act is intended to deliver fairness in the distribution of tips, especially in light of the financial strains imposed by the pandemic and the evolving cashless economy, where the majority of tips now transact via card payments.

The Act introduces several key requirements:

• All tips must be passed on to employees, barring a few specific exceptions.
• Companies must disclose their tipping policies to their employees.
• Employers are obligated to maintain accurate records of how tips are distributed among staff.

Under the Act, employees will gain the right to request a copy of their tip distribution records. This provision is designed to empower workers to assert their rights through employment tribunals, if necessary.

For hospitality sector employers, adapting to these changes requires a strategic rethink of how tips and service charges are handled, including the potential creation of a compliant tronc scheme.

Businesses also need to consider the immediate cash flow consequences of these changes.

The Act’s introduction at a time of economic uncertainty poses additional challenges, necessitating adjustments in operational practices to ensure compliance while maintaining financial viability.

Employers must now develop written policies outlining the fair and transparent distribution of tips, keep detailed records for three years, and adapt to the inclusion of agency workers under the Act’s provisions.

Non-compliance carries the risk of claims in Employment Tribunals, with potential financial penalties.

As businesses navigate these changes, the support and expertise of knowledgeable professional advisors become essential. If you require guidance, please speak to us.

The initial provisions of the Economic Crime and Corporate Transparency Act 2023 came into effect on 4 March 2024.

These updates mandate that from 5 March 2024, every company must, when submitting their next Confirmation Statement (form CS01):

1. Provide a registered email address for communications – Companies House will utilise this email for correspondence with the company, though it won’t appear on the public record; and
2. Verify that the company’s planned future operations are lawful.

If we are already managing your Confirmation Statement submissions, you can be confident that we will submit your forthcoming statement adhering to these updates.

Should you handle your Confirmation Statement filings independently, note that you will need to include a registered email address and confirm the company’s commitment to lawful activities before you can finalise your submission.

Further measures effective from 4 March 2024 include:

• A ban on using PO Box addresses as a company’s Registered Office address;
• Enhanced authority for querying information submitted to Companies House and demanding supporting evidence;
• More rigorous checks on company names before the registration of new companies;
• A requirement for all companies to affirm their lawful purpose upon formation and to verify that their intended future operations will be lawful with each subsequent Confirmation Statement;
• The option to mark the register when details seem ambiguous or misleading;
• Initiatives to cleanse the register, employing data matching to identify and eliminate incorrect data; and
• The sharing of data with other Government departments and law enforcement bodies.

Companies House changes beyond 4 March

Additional features of the Economic Crime and Corporate Transparency Act 2023, will be introduced in the coming months and beyond, including:

Companies House fee adjustments

You must also brace for a rise in fees from 1 May 2024. Companies House plans to revise its fee structure to accommodate new expenses and ensure the coverage of existing costs.

Identity verification

A key change will be the requirement for individuals involved in setting up, running, owning, or controlling a company to undergo identity verification.

To facilitate this, Companies House will introduce a service allowing you to verify your identity directly with them or through an authorised agent.

Changes to Accounts Filing

In line with the trend towards digitisation, Companies House is moving towards mandatory electronic filing of accounts, highlighting the push towards software usage.

This transition to online filing will occur over two to three years, though the exact timeline remains to be confirmed. Changes to filing options for small company accounts are also planned.

Limited Partnership Reforms

If you operate a limited partnership, prepare for procedural adjustments. Enhancements aimed at boosting transparency and accountability will require limited partnerships to submit information through authorised agents and provide additional details to Companies House.

Enhancing company ownership transparency

To further transparency efforts, you will need to supply additional information about shareholders in registers.

This includes the full names of individuals or corporate entities and their companies and a one-time comprehensive list of shareholders

Additionally, there will be new restrictions on the use of corporate directors, with specific details provided.

We will keep you updated on each new development. However, if you have any enquiries, do not hesitate to contact us.

If you are a business owner and work or run your business from home, then you may be entitled to reclaim VAT on certain costs.

In practice, this means that you can reduce the amount of VAT you have to pay on business income against the amount of VAT you have had to pay on services rendered to your business.

What can I claim?

Legislation around VAT claims for business owners recognises that you may incur a range of different costs in the course of running your business.

You can claim some of the cost of working from home as a business owner on plant and machinery and other assets needed for your home office, including:

• A proportional percentage of your utility costs
• Office furniture such as a desk or desk chair
• Certain redecoration costs
• Security costs for sensitive documents
• Office cleaning costs.

You will need to report any home working expenses that you choose to reclaim VAT on through your VAT return.

Is there anything I can’t claim for?

In general, you can claim VAT costs on anything that you use for running your business from home.

However, some costs are more obviously business-related than others, such as office furnishings.

Remember to keep a record, including VAT receipts or invoices, of how much you have had to pay in relevant VAT costs as you may need to defend your decision to claim for certain items.

You should also consider whether a claim can be considered ‘fair and reasonable’.

For example, you should only claim for a reasonable proportion of costs such as heating or electricity.

One way of working this out could be the percentage of time in the day you spend in your home office, or the percentage of the floor plan it occupies.

With working from home becoming more common, there are likely to be further debates over what constitutes reasonable costs for VAT claims.

We advise that business owners keep an eye on regulations relating to reclaiming VAT and make sure that they keep accurate records in case any claims are challenged.

Contact us for further information or advice.

Following changes to the Working Time Regulations 1998 in January 2024, further amendments are set to come into force on 1 April 2024 relating to leave entitlement for workers on irregular hours.

Upcoming changes will apply to workers on zero-hours or irregular hours contracts, as well as those who are on ‘part-year’ contracts, such as those who work seasonally.

By definition, these are workers whose hours:

• Are laid out in their contract as variable for each pay period
• Only require them to work for part of the year.

For example, a worker on a zero-hours contract is not guaranteed a certain number of hours each pay period, so they come under the scope of the new regulations.

Alternatively, a student worker who is only contracted to work during term time also meets the definition of irregular hours.

What will these changes look like?

These new regulations aim to reduce confusion around the holiday entitlement for workers on irregular hours.

They are also designed to avoid workers accidentally being assigned more or less holiday than allowed by their entitlement.

Irregular hours workers will accrue holiday based on 12.07 per cent of the hours worked within a particular pay period.

This means that entitlement will be calculated in hours instead of days.

Permitted methods of holiday pay

Updates to the Working Time Regulations also provide for two ways of paying holiday pay to workers.

Employers can either:

• Pay for holidays in the pay period in which they are taken
• Use the ‘rolled up’ method, which adds a percentage of total holiday pay onto each pay period

Although not previously allowed, rolling up holiday pay will be permitted from 1 April – but it must follow certain rules.

If the ‘rolled up’ method is used, you must make it clear on a worker’s payslip what proportion of their pay comes from holiday pay. You must also pay it in the period in which the holiday accrues and calculate it based on total earnings during a pay period.

When do these rules apply?

New regulations will come into force on 1 April 2024 – but it is more complex than this.

Workers will be entitled to their new holiday entitlement starting from the next holiday year after 1 April.

For example, if your holiday year runs from 1 April to 31 March, the new regulations will apply straight away.

However, if your holiday year runs from 1 January to 31 December, then new holiday allowances will apply only from 1 January 2025 and for every holiday year following that.

For more payroll advice and support with planning for staff costs, please get in touch with us.

You may have already heard that the Chancellor, Jeremy Hunt, has announced an end to the preferential tax treatment that non-domiciled individuals (non-doms) currently receive.

At the moment, a non-dom – someone living in the UK but domiciled in another country – has two options when it comes to taxation.

They can opt to be taxed on the remittance basis, where they only pay UK taxes on foreign income and gains that are brought into (remitted to) the UK.

They do not need to pay UK tax on their foreign income and gains that are kept outside the UK.

However, once an individual has been resident in the UK for seven out of the previous nine years, they must pay a Remittance Basis Charge (RBC) of £30,000.

If they have been resident for 12 of the previous 14 years, they must pay an RBC of £60,000.

Alternatively, non-doms can choose to be taxed on the arising basis, where they are taxed on their worldwide income and gains, regardless of whether the money is brought into the UK.

They might choose this option if their overall tax payments would be less than having to pay the respective RBCs.

However, the new rules for non-doms change everything.

The Spring Budget 2024 specifically targeted non-doms

The Chancellor targeted non-doms in his Spring Budget speech on 6 March, saying: “We will abolish the current tax system for non-doms, get rid of the dated concept of non-doms and we will replace the non-dom regime with a modern, simpler system from April 2025 based on residency.”

The Government plans to effectively end the current non-dom system in favour of a new residence-based regime.

New residents of the UK will remain as non-doms for the first four years of their residency, after which they will become domiciled and be required to pay UK taxes on their worldwide income.

Before, an individual could remain non-domiciled for 15 years – with careful planning.

This four-year rule only applies if the individual can demonstrate a consecutive period of 10 years as a non-resident of the UK before their arrival.

Crossing over to the next regime

For those individuals currently deemed as non-doms, there will be a transition period to the new scheme.

Non-doms who do not qualify for the new regime will only be required to pay tax on 50 per cent of their foreign income for that year, though this does not extend to profits from the sale of foreign assets.

Additionally, those owning foreign assets will have the option to adjust the base value of these assets to their market value as of April 5, 2019, for any sales occurring after April 6, 2025, meaning tax will only be due on any increase in value from that date.

To encourage the movement of overseas wealth into the UK, a temporary repatriation facility will allow current non-doms to bring pre-April 2025 foreign income and gains into the UK at a reduced tax rate of 12 per cent for the years 2025/26 and 2026/27.

A quick note on changes to Overseas Workday Relief (OWR) 

The OWR currently provides a tax advantage for non-doms working in the UK, as it allows them to claim relief on income tax for earnings related to their duties performed overseas.

Starting in April 2025, the Overseas Workday Relief (OWR) framework will also see significant simplification, introducing an accessible four-year scheme for those who qualify.

This development aims to make the UK more attractive to international talent by offering more straightforward tax relief opportunities.

While full details are still pending, it has been confirmed that eligible individuals will benefit from income tax relief on the portion of their salary related to duties performed abroad during the first three years of UK residency.

Moreover, the existing barriers to repatriating these earnings to the UK will be eliminated, further enhancing the appeal of the OWR scheme to overseas professionals.

What should you do now?

If you are currently classified as a UK-based non-dom when it comes to your global taxes, you’ll need to reconsider your strategies.

If you wish to remain in the UK, you will need to work out whether you are eligible for any of the transitionary schemes available and if you will be required to pay full UK taxes once the legislation comes into effect.

You might have to adjust the way you structure your current finances and plan for future liabilities in the years to come.

You will also need to:

• Review and possibly restructure your investments: Analyse your investment portfolio to identify opportunities for tax-efficient structuring under the new rules.
• Explore gifting and Inheritance Tax planning: To mitigate potential tax liabilities, review your gifting strategies and inheritance planning. Transferring wealth to non-domiciled partners or heirs under the current rules might offer tax advantages.
• Reinvestment in UK-based assets: The changes might provide an impetus to reassess your investment focus. Reinvesting in UK-based assets or your business could not only align with the new tax regime but also potentially benefit from certain tax reliefs and incentives for UK investment. Incidentally, the Chancellor announced the addition of the British ISA during his Spring Budget speech, which might allow you to make £5,000 of tax-free investments in British companies.
• Diversify your income sources: Diversifying your income sources, especially by increasing the proportion derived from UK sources or tax-exempt investments, could reduce your overall tax burden under the new regime.
• Re-evaluate your residency status: For some, it might be worth reconsidering your residency status in the UK and moving elsewhere if necessary. This is a complex decision with far-reaching implications, not just for taxes but also for your personal and professional life.

In any case, you should always discuss your tax liabilities with a qualified and experienced tax adviser.

We can help you mitigate your taxes, reduce your liabilities, and save money.

Please do not hesitate to get in touch with one of our team for more information or tailored guidance.

The Chancellor delivered his 2024 ‘Budget for long-term growth’ in the face of an upcoming general election.

Although the headlines have been dominated by the news that employee National Insurance Contributions will be cut further to eight per cent, Mr Hunt also announced several measures, which changed how certain property taxes will be applied.

Largely impacting owners of second or additional homes and Furnished Holiday Lets, the new measures attempt to balance individual tax cuts and bolster The Treasury in other areas.

Capital Gains Tax

From 6 April 2024, higher-rate taxpayers will be subject to a lower rate of Capital Gains Tax (CGT) on the sale or disposal of second or additional residential properties that they own.

Currently, gains made on the sale of these properties are subject to a special rate of CGT of 28 per cent for those who pay tax at the higher rate (with an income of £50,271 or more).

The Chancellor’s new measure will bring this rate down to 24 per cent, with the basic rate unchanged at 18 per cent.

This policy aims to encourage and incentivise disposals of second homes and buy-to-let properties and enhance the residential property market for homebuyers.

Multiple Dwellings Relief

A key relief for Stamp Duty Land Tax (SDLT) has been abolished in the Spring Budget.

Multiple Dwellings Relief (MDR) will cease on 1 June 2024. This means that anyone purchasing two or more properties in a single or linked transaction will no longer be eligible for SDLT relief on this basis.

The Chancellor said that little benefit has come from MDR under its original goal of reducing barriers to investment in residential and rental properties.

Furnished Holiday Lets tax regime

Following consultations with a number of MPs from key constituencies, the Chancellor outlined the abolition of the Furnished Holiday Lets (FHL) tax regime.

The measure comes as those in holiday hotspots raise concerns over the supply of residential homes in areas such as Devon, Cornwall and the South Coast.

Previously, owners of qualifying properties were eligible to be taxed under special rules that carried significant tax advantages, including:

• Plant and machinery allowances on items of fixtures, furniture, furnishings and equipment, including the Annual Investment Allowance and Full Expensing
• CGT benefits, such as Business Asset Rollover or Disposal Reliefs
• Profits counted as earnings for pension purposes.

From 6 April 2025, the FHL scheme will be abolished, ostensibly saving The Treasury around £245 million per year.

The implications for holiday let owners could be wide-ranging, including making owning a holiday let financially unviable for those without significant reserves to cover additional costs.

In collaboration with a lower level of CGT for higher-rate taxpayers, the Chancellor hopes to encourage early disposals of holiday homes or second properties, thereby enhancing the housing supply in certain areas.

We understand that changes to property taxes can be complex, so we’re always here to offer advice to those who own property or are considering investing.

For expert, tailored advice, please get in contact with us today.