SolvedEIM68208 | Tax treatment of particular occupations: contents L to R: tax treatment of Post Office employees: sub-postmasters: 6 April 2019 onwards
From HM Revenue & Customs · Employment Income Manual
This guidance only applies to sub-postmasters who:
haven’t moved to a Post Office Limited Network Transformation contract (Local or Mains) and
carry on a retail trade from the same premises as the sub-post office and use the above concession that allows their Post Office remuneration to be included in the turnover of their retail business
In November 2015, HM Revenue and Customs (HMRC) announced that the extra-statutory concession on the remuneration of sub-postmasters would be withdrawn from 6 April 2017. An extra-statutory concession is a relaxation which gives taxpayers a reduction in tax liability to which they would not be entitled under the strict letter of the law.
This concession is set out in EIM68205. However, if you’re a sub-postmaster and already using the concession, you can continue to do so, until 5 April 2019.
Q1. What will happen from 6 April 2019?
From 6 April 2019, if you receive remuneration from your Post Office and run a retail business from the same premises, you must pay Income Tax on your Post Office remuneration through Pay As You Earn (PAYE).
As an office holder, you will continue to pay Class 1 National Insurance contributions on your Post Office remuneration as usual.
Between January and March 2019, you will receive a new tax code number that will apply to your Post Office remuneration from 6 April 2019. If you have chosen to go paperless, you will be able to view your new tax code online, in your Personal Tax Account.
Q2. Will I pay more tax?
From 6 April 2019, the Post Office will deduct tax from your remuneration, through PAYE. You will need to send HMRC your 2019 to 2020 Self Assessment tax return to report your income and expenses from both your sub-postmaster and retail business. The overall tax you pay should be the same, but this may depend on your personal circumstances.
The standard Personal Allowance is currently £11,850. This is the total amount of income you can receive before paying Income Tax. Your Personal Allowance may be more than this amount if you claim Marriage Allowance or Blind Person’s Allowance. It may be less, if your income is over £100,000.
If you have other sources of PAYE income (for example, a pension) against which you’re currently using your allowances, you may find it beneficial to use your Personal Allowances, during the year, against your sub-postmaster remuneration. Individual circumstances will be different.
Example 1
Sub-postmaster John, has a pension of £5,000 and sub-postmaster remuneration of £20,000. He’s currently using his Personal Allowance against his pension in the first instance with the balance currently unallocated. His sub-postmaster remuneration is taxed at the basic rate so the full benefit of his tax allowances are not being used during the year. John will have to pay more tax during the year, but when he sends in his Self Assessment tax return, he’ll get a refund.
| Item | Amount |
|---|---|
| Pension/other earnings | £5,000.00 |
| Personal allowance (2018 to 2019) | £11,850.00 |
| Tax deducted under PAYE during the year | £0.00 |
| Sub-postmaster remuneration | £20,000.00 |
| Tax code operated Basic Rate (BR) | - |
| Tax deducted under PAYE at 20% (£20,000 × 20 ÷ 100) | £4,000.00 |
| Total tax deducted during the year on PAYE income | £4,000.00 |
| Monthly tax deductions | £333.33 |
John will also pay Class 1 National Insurance contributions on his monthly sub-postmaster remuneration.
Example 2
Sub-postmaster Jane, has a pension of £5,000 and sub-postmaster remuneration of £20,000. She currently uses her Personal Allowance against her sub-postmaster remuneration. Jane’s pension is taxed at the basic rate.
| Item | Amount |
|---|---|
| Pension/other earnings | £5,000.00 |
| Tax code operated Basic Rate (BR) | - |
| Tax deducted under PAYE at 20% (£5,000 × 20 ÷ 100) | £1,000.00 |
| Sub-postmaster remuneration | £20,000.00 |
| Tax code operated 1185L | - |
| Tax deducted under PAYE at 20% (£20,000 − 11850 × 20 ÷ 100) | £1,630.00 |
| Total tax deducted during the year on PAYE income | £2,630.00 |
| Monthly tax deductions | £219.16 |
Jane will also pay Class 1 National Insurance contributions on her monthly sub-postmaster remuneration.
Example 3
Sub-postmaster David, has a pension of £5,000 and sub-postmaster remuneration of £20,000. He’s currently using part of his Personal Allowance against his pension, but also has a balance of his Personal Allowance of £6,850, which he can use against his sub-postmaster remuneration during the year.
| Item | Amount |
|---|---|
| Pension/other earnings | £5,000.00 |
| Tax code operated 500L | - |
| Tax deducted under PAYE | £0.00 |
| Sub-postmaster remuneration | £20,000.00 |
| Tax code operated 685L | - |
| Tax deducted under PAYE at 20% (£20,000 − 6850 × 20 ÷ 100) | £2,630.00 |
| Total tax deducted during the year on PAYE income | £2,630.00 |
| Monthly tax deductions | £219.16 |
David will also pay Class 1 National Insurance contributions on his monthly sub-postmaster remuneration.
Q3. Will I still be able to claim tax relief for the expenses I incur in connection with running my Post Office business?
The Post Office has applied to HMRC for a notice which will allow them to deduct an agreed amount representing a reasonable estimate of the expenses you incur in respect of the staff and non-staff costs incurred in running your sub- post office from your gross remuneration. The effect of this is to give you tax relief at the time of payment on those expenses at the rate at which you pay Income Tax. The amounts deducted will be shown on your Post Office remuneration advice in the same way as the expenses disregarded from your remuneration assessable for National Insurance.
If the estimated expenses shown for staff and non-staff costs on your remuneration advice are less than the expenses you’ve actually incurred, you can claim the difference on the employment page of your Self Assessment tax return in Box 20.
If the estimated expenses shown for staff and non-staff costs on your remuneration advice are more than the expenses you’ve actually incurred, you will need report the additional amounts on the employment page of your Self-Assessment tax return Box 16.
Q4. Will I still be able to claim tax relief for expenses I incur in connection with running my retail business?
Yes – you will still be able to claim tax relief for the expenses you incur via your Self Assessment tax return as usual, for example, staff costs within the retail business, premises costs or other costs based on a reasonable apportionment in relation to your total premises costs. This might be by reference to the area the retail business occupies or the direct costs, if separate.
Example 4
Current position (2018 to 2019)
| Item | Sub-item | Sub-item amount | Amount |
|---|---|---|---|
| Gross income from retail business | - | - | £30,000 |
| Gross remuneration from Post Office | - | - | £20,000 |
| Minus Cost of sales (total) | Cost of sales (total) | £8,000 | - |
| Minus | Staff costs (total) | £7,000 | - |
| Minus | Premises costs (total) | £3,000 | - |
| Net profit | - | - | £32,000 |
| Minus | Personal Allowance (for 2018 to 2019) | £11,850 | - |
| Taxable profit | - | - | £20,150 |
| Tax due | £20,150 × 20% | £4,030 | - |
| Total tax liability | - | - | £4,030 |
| Payments on account | 31 July 2018 and 31 January 2019 | - | £2,015 |
Position from 6 April 2019
| Item | Item note | Post Office | Retail |
|---|---|---|---|
| Gross remuneration from Post Office (tax deducted at source) | - | £20,000 | - |
| Gross income from retail business | - | - | £30,000 |
| Minus: cost of sales (retail) | - | - | £8,000 |
| Minus: staff costs (apportioned) | - | £4,500 | £2,500 |
| Minus: premises costs (apportioned) | - | £2,000 | £1,000 |
| Net profit | - | £13,500 | £18,500 |
| Minus: Personal Allowance (for 2019 to 2020) | - | £12,500 | - |
| Taxable profit | - | £1,000 | £18,500 |
| Tax due on Post Office income | £1,000 × 20% | £200 | - |
| Tax due on retail income | £18,500 × 20% | - | £3,700 |
| Minus: tax deducted at source | - | £200 | - |
| Payments on account | 31 July 2019 and 31 January 2020 | - | £1,850 |
Based on this example, you might want to consider reducing your payments on account because you will get tax deducted at source through PAYE.
Q5. How does the removal of the concession affect partnerships?
If you run your retail business as a partnership, from the same premises as your sub-post office, your partnership will no longer be able to include the sub-post office remuneration as income of the retail business. You will both be taxed on your own share of the retail business’s profits but the partner who is the sub-postmaster will also pay tax on the sub-post office remuneration under PAYE.
If your sub-post office operates as a stand-alone business with no retail outlet, then, under the old contract, you will no longer be able to run the sub-post office as a partnership. The partner who is the appointed sub-postmaster will pay tax under PAYE. However, you can request to move to a Post Office contract where those contracts don’t appoint an individual as a sub-postmaster (such as local/main) which will allow you to be able to continue as a partnership.
If you introduce your sub-postmaster remuneration into the partnership then this is capital introduced into the partnership. Your capital account with the partnership should be adjusted to reflect this.
Q6. Can the other partner be a self-employed contractor for the sub-post office?
If a sub-postmaster on an old contract chooses to engage staff to operate their sub-post office, then whether the members of staff are employed or self-employed by the sub-postmaster will depend on the working terms and conditions of the appointment.
Q7. Will the running costs of the premises be an allowable expense for PAYE?
Yes, but you will need to separate and apportion the costs for running the Post Office from the costs of running the retail business. You will be getting a deduction for the reasonable estimates of your staff and non-staff costs through PAYE. (See question 3.)
Q8. Why are the Post Office allowed to pay postmasters on new contracts without making any deduction for tax and National Insurance, yet I am taxed under PAYE?
The Post Office is going through a transformation programme which has introduced two new types of contract – one for Local Post Offices and the other for Main Post Offices. Post Office Ltd may contract with a partnership or company that operate in a VAT environment; and individuals, also operating within a VAT environment, are contracted as a self-employed entity who are responsible for their own tax and National Insurance contributions. All parties receive fees only for the Post Office products that they complete so are not classed as office holder, as is the case with a sub-postmaster.
Q9. I’m an individual operator on a new contract where I don’t receive a fixed payment. I just get commission for my sales of Post Office products. How will this affect my tax position?
There will be no change to your tax position.
Q10. How does the removal of the concession affect my limited company retail business?
If your retail business is run as a limited company from the same premises as your sub-post office, your limited company will no longer be able to treat your sub-post office remuneration as a company receipt.
Instead, you, the sub-postmaster, will pay tax on your sub-post office remuneration under PAYE.
The profits of your limited company will be less than the previous year (unless turnover increases) so there may be less money to pay a salary/dividends to your limited company’s directors as well as less profit chargeable to Corporation Tax.
You will have to complete two Employment pages of the Self Assessment tax return – one as a director of the limited company and one as a sub-postmaster and, depending on income levels, may fall into the higher tax brackets.
If you introduce your sub-postmaster remuneration into the company then this is treated as capital introduced into your company, which could be credited to a director’s loan account if appropriate.
Example 5
Current position (2018 to 2019)
Bill’s limited company makes its accounts to 31 March each year, and in the year to 31 March 2019 had a turnover of £50,000 (including the sub-postmaster remuneration of £20,000). Bill is one of 2 directors, each drawing a salary of £8,064 per annum. Allowable company expenses are £8,872.
The company’s accounts show:
| Item | Amount |
|---|---|
| Turnover | £50,000 |
| Minus allowable expenses | £8,872 |
| Minus director’s remuneration | £16,128 |
| Net profit before Corporation Tax | £25,000 |
Corporation Tax for the financial year starting 1 April 2018 is 19%, so £4,750.00 of Corporation Tax is due.
Bill’s limited company pays Bill £10,000 of dividends in the year to 31 March 2019.
Bill’s Self Assessment tax calculation for the tax year 2018 to 2019 would include:
| Item | Amount | Tax due |
|---|---|---|
| Pay from all employments | £8,064.00 | - |
| Dividends from UK companies | £10,000.00 | - |
| Total income received | £18,064.00 | - |
| Minus: Personal Allowance (for 2018 to 2019) | £11,850.00 | - |
| Total income on which tax is due | £6,214.00 | - |
| Dividends from companies etc. | - | - |
| Nil rate | £2,000 × 0% | £0.00 |
| Basic rate | £4,214 × 7.5% | £316.05 |
| Total income on which tax has been charged | £6,214.00 | - |
| Income Tax due | - | £316.05 |
Position from 6 April 2019
The extra statutory concession will be removed with effect of 6 April 2019 and the next example shows how Bill and his limited company may be liable to income and corporation taxes.
For the year to 31 March 2020, Bill’s limited company has a turnover of £30,000 (excluding the sub-postmaster remuneration of £20,000). Bill is one of 2 directors each drawing a salary of £8,064 per annum. Allowable expenses total £8,872 of which £3,872 relate to the sub post office – so £5,000 of allowable expenses relate to the retail business.
Bill is the director who is also the sub-postmaster. He receives his personal allowances and an estimate of his sub post office expenses in his PAYE code, which is operated against the sub post office remuneration.
The company’s accounts show:
| Item | Amount |
|---|---|
| Turnover | £30,000 |
| Minus allowable expenses | £5,000 |
| Minus director’s remuneration | £16,128 |
| Net profit before Corporation Tax | £8,872 |
Assuming that Corporation Tax for the financial year starting 1 April 2019 is charged at 19%, £1,685.68 of Corporation Tax will be due.
The company has less profits to issue as dividends because the sub-postmaster remuneration isn’t treated as a trade receipt anymore. So for this accounting year the company pays Bill £3,548 as dividends.
Bill’s total employment income is made up of £8,064 from his company, and £20,000 from being a sub-postmaster – £28,064 in total.
Bill’s Self Assessment tax calculation for the tax year 2019 to 2020 would include:
| Item | Amount | Tax due |
|---|---|---|
| Pay from all employments | £28,064.00 | - |
| Dividends from UK companies | £3,548.00 | - |
| Total income received | £31,612.00 | - |
| Minus: Personal Allowance (for 2019 to 2020) | £12,500.00 | - |
| Total income on which tax is due | £19,112.00 | - |
| Pay, pensions, profit, etc. | - | - |
| Basic rate | £15,564 × 20% | £3,112.80 |
| Dividends from companies, etc. | - | - |
| Nil rate | £2,000 × 0.00 | £0.00 |
| Basic rate | £1,548 × 7.5% | £116.10 |
| Total income on which tax has been charged | £19,112.00 | - |
| Total Income Tax due | £3,112.80 + £116.10 | £3,228.90 |
| Minus: tax deducted from all employments, UK pensions and state benefits | £1,024.80 | - |
| Total tax deducted | £1,024.80 | - |
| Total Income Tax due | £3,228.90 - £1,024.80 | £2,204.10 |
If Bill introduced his sub-postmaster remuneration into the company, that would be capital introduced. If he has one, his director’s loan account could be adjusted to reflect this. If the net amount of company salary is introduced to the company via the director’s loan account, it wouldn’t be assessable as part of the company’s trading income.
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If you have any queries, speak to your professional tax adviser, or contact HMRC - if you phone, you’ll need your National Insurance number.