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Are we driving our talent over a cliff, and where’s the safety net?

Posted on: 24 Apr, 18

No one expected the Brexit process to be easy, but with the government’s current fixation on net migration targets and increasing obstacles, will the UK continue to be able to attract the migrant talent it needs to achieve growth and innovation in a post-Brexit world.

Oury, we’ve got tax deadlines and all sorts of things to worry about, and you’re just sitting there staring into thin air… what’s occupying your mind?

Clark says...
Oury says...

I’m trying to get my head around what it’s like to sit on an airplane for 17 hours. You know there’s now a commercial non-stop flight from London to Perth, Australia every day and it takes 17 hours…

Wow – I struggle with a short flight to Europe, not sure how I’d cope for 17 hours. I guess though, I’d get time to swat up on technical things that excite me without too many interruptions…

Clark says...
Oury says...

Funny that you should mention Europe… I’m still lamenting the fact we’re leaving the EU and have been following the Facebook and Cambridge Analytica whistleblowing story with keen interest …Brexit is less than 1 year away… our clients are super reliant on accessing the enormous talent pool of European workers yet… our government is fixated on a net migration number, which is so short-sighted.

Well there’s a bit of good news on that front as the draft agreement for our withdrawal from the EU specifically addresses concessions for EU workers right up until 31 December 2020…

Clark says...
Oury says...

How so?

Well, in a walnut shell, EU nationals who have resided in the UK lawfully for 5 years before 31 December 2020 will be entitled to “settled status” which means after this date they can continue to live and work in the UK. This status isn’t automatically granted though and they’ll need to apply and they can’t have left the UK for a continuous period of more than 6 months during this 5 years, which is how things are currently. EU nationals who arrive in the UK before 31 December 2020, but who haven’t lived here for 5 years will be able to apply for what is known as “pre-settled” status and can live and work here until their 5 years is up and then they can apply to settle.

Clark says...
Oury says...

That’s a good positive statement from our government… finally… but… even with continued access to the talent pool of our EU neighbours, we’re still going to need access to talent from further afield with our unemployment rate hovering around 4.3%. Has the government made any further announcements about new visas for Australians or Canadians or citizens from other Commonwealth countries?

Sadly not, and to be honest, because they have this obsessive fixation on this net migration target, it just seems to be getting harder, and certainly more expense to apply for a visa to live and work in the UK. The government will increase all the visa application fees by 4% from 6th April and there’s currently a proposal to double the immigration health surcharge from £200 per year to £400. This is in addition to the immigration skills surcharge and the visa fees, so it’s just becoming really expensive.

Clark says...
Oury says...

Sounds just like a stealth tax on migrants!

It sure is, and I think the government’s in danger of creating a perfect storm as far as migrant workers go against the backdrop of Brexit. There’s increasing competition too from countries like Canada and Australia, where it seems that those respective governments positively encourage skilled people to move there.

Clark says...
Oury says...

Speaking of Canada, that reminds me. Remember we ran a competition back in March this year where we challenged our readers to answer the following question:

Which city or place would you go to set up your business, work with groovy people and have a groovy time – in the world?

Well the guy who won wrote about Canada, and we paid for him to go there, and this is what he had to say

Oury, What has antlers and sucks blood?

Clark says...
Oury says...

I don’t know

A moose-quito!

Clark says...
Oury says...

I swear I didn’t read “stand-up comedian” on your CV!

You didn’t as you never read my CV to start! Did you know that if the UK government continues to make it difficult for skilled migrant workers to enter and stay in the UK, they are just going to go elsewhere. In January this year, without much noise, the government slipped through a change to the requirements for dependants of points-based system migrants when applying to settle in the UK. In order to settle in the UK on certain visas, you can’t have spent more than 180 days outside of the UK in each of the 5 years before applying for settlement. This is known as the “residency requirement”. Prior to 11th January 2018, it was just the main applicant that had to meet this requirement, and all dependants were exempt. Now dependants are subject to the same requirement for all periods of leave extensions granted after this date. There have been assurances from the Home Office that this will not be retrospective in its application, but the rules will apply to any leave extended after the 11th Jan.

Clark says...
Oury says...

Totally confusing and unnecessary. Really if the government wants to attract talent and live up to the mantra of being “open for business” then it needs to encourage and not discourage.

Absolutely, I remain eternally optimistic in this respect! I might take a leaf out of your book and ponder whether I could sit on a plane for 17 hours…

Clark says...
Oury says...

Before you bounce off, I wanted to ask if you knew about the changes to the tax treatment applying to payments received by an employee on or after 6th April in circumstances where their employment is terminated on or after this date?

Sure. Currently if there is a payment in lieu of notice clause, known as PILON, in an employment contract, and the contract is terminated, and the employee doesn’t work their notice period, but rather receives a PILON, the PILON payment is subject to income tax and employer and employee NI.

Clark says...
Oury says...

Ok, that’s as things currently stand?

Correct but also, if there is no PILON clause and the employee doesn’t work their notice period, and receives a PILON payment, the payment is viewed as damages for breach of contract and the first £30,000 of this amount is paid tax free and is not subject to either employer or employee NI BUT, that will no longer be the situation after 6th April this year.

Clark says...
Oury says...

Really?

Absolutely, all payments made in lieu of notice, irrespective of whether the employment contract has a PILON clause or not will be treated as earnings and subject to income tax and both employer and employee NI.

Clark says...
Oury says...

Wow, that means providing termination payments just got more expensive for employers!

They sure have! The employer is now required to split a termination award between amounts treated as earnings and amounts benefitting from the £30,000 exemption.

Clark says...
Oury says...

In other words, employers must treat a slice of a termination award, which reflects basic pay for any part of a notice period that is not served, as earnings and subject that slice to tax and employer and employee NI.

Not only that, from April 2019 any payment made exceeding the £30,000.00 tax exemption will be subject to a new (employer’s) Class1 A NIC charge. Conveniently, though, the calculation is set out in the legislation

Clark says...
Oury says...

What about other payments made such as redundancy payments?

Redundancy payments and any awards by an employment tribunal for unfair dismissal will be included within the scope of the £30,000 termination payments exemption.

Clark says...
Oury says...

Very generous of HMRC! Removing any risk that an employer may manipulate the rules… no doubt disguised as the greater goal of bringing fairness and clarity to the rules…

Indeed, Oury, indeed.

Clark says...

What must be taxed as earnings?

The slice of the termination award that must be treated as earnings under section 402B is:

  • The entire termination award if "post-employment notice pay" (PENP) is equal to or more than the termination award.
  • PENP, if it is less than the termination award but is not nil.

If PENP is a negative amount, it is treated as nil.

How to calculate PENP

The calculation of PENP differs depending on a number of factors.

The basic formula for an employee who is paid monthly, whose contractual notice period is expressed in months and whose employment is terminated with immediate effect or whose unworked periods of notice is a whole number of months is: BP x D – T, where:

  • BP is basic pay for the last pay period to end before the day notice is given (assuming notice is given).
  • D is the number of months in the post-employment notice period. (Broadly the unworked period of notice.)

Note that D is calculated by reference to the notice that the employer must give (by contract or law). This may be different from the period of notice that the employee must give.

  • T is amounts (other than holiday pay and termination bonuses) that are paid on termination but are taxable as earnings.

(Section 402D(6), ITEPA 2003.)

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We are but two fictitious characters throwing out ideas and comment to stimulate debate and collect information. As professional service firms, we are open minded people and think independent thought and debate is essential to help understand, as well as navigate, complex problems. By joves – doing business across Europe (and the world) is set to become a whole lot more complex in light of recent seismic political events. As businesses - we provide information and hopefully some wisdom - and we see this blog and its caricatures merely as a much more fun, perhaps slightly controversial way, of stimulating debate and collecting ideas. We’re searching for some true pearls of wisdom, and as we find them, we’ll share them with you.

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