On 17 June 2013, the Disclosure and Barring Service (DBS) launches a new service, called the Update Service.

Individuals can choose to subscribe to the Update Service for an annual fee of £13 which will keep their DBS certificate up-to-date so that they can take it with them from role to role within the same organisation (if an employee changes employer they may need to apply for a new DBS Certificate).

If an individual has subscribed to the Update Service their employer will be able to go online, with the individual’s consent, and carry out a free, instant check to find out if the information released on the DBS certificate is current and up to date.

To coincide with the launch of the Update Service the DBS will no longer automatically issue a copy of an individual’s DBS Certificate to the Registered Body (e.g. the employer) who countersigned their DBS application form. Employers will need to ask the individual for sight of their DBS Certificate. This change is to give the job applicant greater control over their information.

The Disclosure and Barring Service (DBS) helps employers make safer recruitment decisions and prevent unsuitable people from working with vulnerable groups, including children. It replaces the Criminal Records Bureau (CRB) and Independent Safeguarding Authority (ISA).

Referrals are made to the DBS when an employer or organisation need to ask an individual who will be engaged by them in *regulated activities to apply to the DBS for an enhanced CRB check.

*’Regulated activities’ include the unsupervised teaching, training, instruction, care for or supervision of children. These ‘regulated activities’ also include providing, for example, health and personal care for an adult.

It is reported that HMRC are issuing employers, payroll bureaus, and agents with new PAYE tax codes that are incorrect. There is a solution, but not one you’ll want to hear.

On 22 May, Kate Upcraft, an independent payroll consultant, reported that over the last week she has been hearing about a flood of PAYE tax code notices being issued by HMRC that do not appear to be correct when compared to the last code in operation:

• Codes where employees with benefits-in-kind have now been put back on to a full 944L code.
• BR and D0 codes being issued to employees who previously had standard codes.

Linda Pullan, Head of Payroll Alliance, reports that one Payroll Alliance member told them they had received 150 new codes out of a payroll of 800. Other members reported receiving multiple tax codes for the same employee, and in some cases the code changes were dated the same day!

As a result of reports by Payroll Alliance members about the number of new tax codes they had received from HMRC, Linda raised this issue with HMRC on 17 May through the Employer’s Consultation Forum. Kate also reports that the issue was raised with HMRC last week through the Computer User Group, a special representative body set up to work with HMRC on RTI issues.

On 21 May, HMRC published a statement about what was causing the issuing of so many tax codes. And they blamed employers!

HMRC claim that the issuing of new tax codes is due to employers failing to include all their employees on the Employer Alignment Submission and/or first Full Payment Summary they sent HMRC. In some cases, HMRC said that employers sending an EAS submission in parts had failed to let them know what they were doing with the result that HMRC only accepted the first part of the EAS, and ignored all other parts.

In other words, if HMRC did not receive data about a particular employee they treated that individual as a ‘leaver’ as at 5 April 2013. Then when the employer sent in an FPS with that employee’s data on it, HMRC treated them as a ‘starter’ and set them up with a new employment record from 6 April 2013. This took no account, for example, that the employee may have had a previous tax code accounting for benefits in kind (such as a company car) with the result that HMRC issued a basic tax code for the employee. Operating this code will lead to an underpayment of income tax, through no fault of the employee!

HMRC’s answer to the problem of ‘suspect’ tax codes?

“Employers should not operate the incorrect codes. They should continue to use the previous code. If an employer or an employee receives a tax code where the benefits have been removed, they should get in touch with HMRC’s Taxes Helpline on 0845 300 0627 to get the benefits added back in and the code corrected.”

Kate Upcraft, commenting on this HMRC suggestion, says: “Even if that course of action were to be adopted how does an employer know which codes are right or wrong? And unless they are warned by their software that a code has been applied with a significant change they potentially have no visibility of codes that have been applied as these are actioned automatically for many large employers.”

“Ringing the Taxes Helpline as suggested by HMRC will be time consuming” Kate says, “Also, as HMRC will not discuss the make-up of an employee code with an employer, only confirm it; it seems the only real course of action that will produce the right outcome for the taxpayer is for them to be inconvenienced by having to ring up HMRC themselves.”

However, as Kate points out, the above may explain why an employee with benefits-in-kind has been put back on to a full 944L tax code; it does not seem to explain the unexpected BR and D0 tax codes that HMRC have been issuing the last few weeks.

Linda Pullan makes a similar point when she says: “Although HMRC have identified an alignment error, which may apply to some employers, I believe there is a far wider problem here that needs investigation. I have asked HMRC to look at this again and it has now been referred to their Issues Resolution Forum.”

This whole deplorable state of affairs is likely to have serious consequences for many employees and their employers. Where an employer operates a new PAYE tax code that it is subsequently found to be incorrect, is it really the employer’s fault?. They are usually told by HMRC, if querying a tax code, ‘don’t concern yourself with the detail; just get on and operate the code!’

But who will employees blame if they get notification of an underpayment of income tax because a tax code was issued incorrectly? It won’t be HMRC; it’ll be the employer! Even if an employee ends up with a tax refund, they aren’t going to be that pleased they’ve had to wait to receive the full benefit of their wages.

Sorry to be so blunt – but the whole thing stinks!

It has been confirmed that information given on a P46 type Starter Checklist takes precedence over a ‘late’ form P45 when it comes to whether an employer does or does not start deducting student loan repayments from a starter’s wages.

Where a new employee gives their new employer a form P45 and there is a ‘Y’ (or any other kind of mark) in box 5 ‘Student Loan deductions to continue’ this means that form SL1 Start Notice was issued to a previous employer and the new employer should start immediately to make student loan deductions if the employee’s wages are high enough.

If a starter does not produce a P45, the new employer must rely on information provided by the new employee on a P46 type Starter Checklist when opening a new payroll record. One of the questions the starter should answer is whether they are liable to repay a student loan through the payroll? If the starter answers ‘Yes’, the new employer should start immediately to make student loan deductions if the employee’s wages are high enough.

But what is the situation where a new employee later provides a form P45, and that form shows in box 5 that student loan deductions are due BUT no indication of this was given on the employee’s Starter Checklist. Should the employer now start to make student loan deductions?

Currently, at the time of writing HMRC Helpbook E17, on page 5, states: “If you receive the form P45 some time after an employee has started to work for you, and there is a gap since their last employment or the employee did not indicate in their P46 information that they were repaying an SL, you should start making deductions from the next payday. Do not make any deductions in arrears.”

HMRC have now confirmed (through one of their senior RTI people) that “If an RTI employer has disregarded the P45 (because it was for a previous year) or they cannot use it for tax purposes, then they should proceed on the basis of information provided in the starter checklist when recording the information required for the first FPS.”

Therefore, if the Starter Checklist does not signify a new employer is liable to repay a student loan through the payroll, even if a later P45 states otherwise, the employer should not start making student loan deductions.

When the employer’s first FPS covering the starter’s first payment of wages is received by HMRC they will pick up on the fact that the employee is not liable to repay a student loan. This will be cross-referred against their records and if necessary the new employer will be sent a SL1 Start Notice instructing them to start making student loan deductions with immediate effect if the employee’s earnings are high enough.

HMRC have promised to update Helpbook E17 in due course.

On 15 May, HMRC issued a consultation ‘National Insurance and Self-Employed Entertainers’ seeking views on simplifying the future National Insurance Contributions for self-employed entertainers. Comments are invited by 6 August. Any changes will not take place before April 2014.

Since 1998, many self-employed (of whom there are currently around 80,000 in the UK) have had dual status – paying income tax through Self-Assessment but having those same earnings, under certain circumstances, categorised as liable to Class 1 NICs.

The purpose of this liability to Class 1 was to afford earnings-related contributory benefits (such as contributory Jobseekers Allowance) protection to entertainers who generally have sporadic and disparate work patterns with extended periods of unemployment.

The consultation document lists four possible options. HMRC’s preferred option is to return self-employed entertainers to the standard Class 2 and 4 NICs regimes as self-employed earners. This option would alleviate almost all of the financial and administrative burdens of the entertainment industry of operating Class 1 NICs as well as aligning the tax and NICs position for entertainers going forwards.

Under the preferred option, entertainers who are out of work and do not have sufficient Class 1 NICs credited in the previous two tax years will be able to claim Universal Credit. This benefit will be a payment which includes support for both an individual (such as the Jobseekers Allowance) and their household, providing support for dependents and housing costs.

For self-employed entertainers, the preferred option will mean that they are self-employed for both tax and NICs. In common with any claimant to Universal Credit who receives self-employed earnings, they will be required to report these earnings to the Department for Work and Pensions on a monthly basis in order for the DWP to calculate the level of their Universal Credit award.

The entertainers most likely to suffer a financial loss as a consequence of losing their contributions-based Jobseekers Allowance entitlement would be those in more secure financial situations, such as those with high savings or working partners/spouses. This is because Universal Credit is a means-tested benefit. But such entertainers are likely to be better provided to weather the gaps in their engagements.

Note: The consultation does not apply to individuals employed as actors, singers, musicians or similar performers under a contract of service (i.e. they are employed) by an employer; for which they receive a regular set salary, and for which tax and NICs are deducted at source under the regular Pay As You Earn (PAYE) system.

It is an established fact in case-law that an employer does not have carte blanch to impose whatever restrictive covenants it likes. This was illustrated in the High Court judgement in Romero Insurance Brokers Ltd v Templeton & Anor [2013] EWHC 1198.

An employer will often use a restrictive covenant to stop, for example, an employee leaving and going to work for a competitor and being allowed to approach their ex-employer’s client to persuade them to bring their business to the new employer.

In the Romero case, Mr Templeton worked for the company as an insurance broker. The employment relationship came to an end and, when Templeton joined his new employer, he sought to contact his old clients at Romero. His ex-employer sought a injunction against him to try and enforce a restrictive covenant.

Part of Templeton’s contract of employment was a clause which imposed a 12 month restriction on Mr Templeton doing business with clients of Romero who had been one of their clients in the last six months and with whom Mr Templeton had had dealings

As far as the High Court was concerned, “the only point in issue is whether the period of 12 months was more than was reasonably necessary to protect Romero’s business connection with its clients with whom Mr Templeton was dealing.”

It was necessary for Romero to prove that the covenant was ‘reasonable’. If the restraint was greater than was reasonably necessary to protect that trade connection, it could not be enforced. For example, a blanket ban on Mr Templeton going to work for any other insurance broker for a period of 12 months would not be enforceable.

However, a 12 month restriction is common in the insurance broking business in contracts with broker employees.

Mr Templeton did try and argue that the period of restriction was too long. He submitted there was an imbalance between the period of six months chosen as the period within which the client must have ‘done business with or been a customer or client’ of Romero, and the period of 12 months chosen as the length of the restriction. If six months for the one, why not six months for the other?

The Court reasoned that, as many insurance contracts are renewed annually and the renewal date is when a client is most likely to change brokers, the use of a 12 month restriction period was ‘reasonable’ under the circumstances.

Summing up, the High Court found that looking at the whole situation it was reasonable for Romero to seek to protect their client connection with a 12 month restriction against solicitation by Mr Templeton. The restrictive covenant clause was enforceable, although the High Court said they would not have upheld a longer clause.

Therefore, Romero were entitled to damages for breaches by Mr Templeton of the covenant occurring between his leaving Romero and the date of judgment.

The Romero case does emphasise that an employer needs to take care drafting restrictive covenant clauses to ensure they can be reasonably enforceable. Such clauses must do no more than protect an employer’s genuine business interests.

The Romero case did raise another interesting issue.

One of Templeton’s arguments was that he’d resigned and claimed constructive dismissal. This meant the employer had repudiated the contract of employment and thus the restrictive covenant clause, which was part of that contract, was unenforceable due to the breach.

The legal test, as to whether Romero were in breach, was “whether, looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of an innocent party, the contract breaker had clearly shown an intention to abandon and altogether refuse to perform the contract.” (Eminence Property Developments Ltd v Heaney [2010] EWCA Civ 1168)

The High Court found that there was no repudiation of Mr Templeton’s contract by Romero, and that there was no constructive dismissal. But it does beg the question, that if the Court had found Romero in breach whether they would have accepted that the restrictive covenant clause was unenforceable?

The Supreme Court in Societe Generale v Geys [2012] UKSC 63 dealt with the implications for enforcing contractual obligations where such arose after the termination of the employment relationship.

Specifically, the Supreme Court recognised that restrictive covenants do not depend on the existence of the employment relationship, and can be enforceable following an employee’s termination.

However, the Supreme Court also recognised that: “The enforceability of, for example, a restrictive covenant by the repudiator against the innocent party is now the subject of some debate.”

Therefore, if an employer wrongly and/or unfairly dismisses an employee without notice and refuses to pay them in lieu of notice to which they are entitled, the employer has clearly repudiated the contact of employment [i.e. the employer has “shown an intention to abandon and altogether refuse to perform the contract”], it is very unlikely that a restrictive covenant clause could be enforceable by the ex-employer.

This is not the case where the employment relationship has ended because the employee resigned (through no fault of the employer). It might be the case where the employee claims constructive dismissal, but this will all depend on the particular facts.

As a result of sending HMRC Employer Alignment or Full Payment Submissions, or NINO Verification Requests, some employers have received National Insurance number (NINO) notices back from HMRC without the last suffix letter.

As a result, we were told that HMRC have suspended issuing any further NINO notices until the problem is resolved. HMRC confirmed this on 16 May and gave information about what employers should do.

HMRC have identified three scenarios and what actions employers should take.

Scenario 1 – the incorrect National Insurance number was included on an FPS and the correct number goes back with no suffix

You should use the National Insurance number that was sent back and use the suffix that was on the original submission – A, B, C or D. If  you do not know what this was, you should enter the space bar (when submitting FPS returns, etc.). Please do not guess which letter (A, B, C or D) should be used.

Scenario 2 – no National Insurance number was provided on the FPS and the correct number goes back with no suffix

You should use the National Insurance number that was sent back, but enter the space bar instead of the suffix. It is important to enter the space bar, rather than trying to truncate the number to eight characters. Please do not guess which letter (A, B, C or D) should be used.

Scenario 3 – employer sends NVR and the National Insurance number supplied by HMRC is without a suffix

You should use the National Insurance number that was sent back but enter the space bar instead of the suffix. Use the space bar rather than trying to truncate the number to eight characters. Please do not guess which letter (A, B, C or D) should be used.

Please note that using a National Insurance number without a suffix (A, B, C or D) should be the exception, in these scenarios only.

HMRC apologise for any inconvenience whilst they investigate this issue. They will publish an update in due course.

If you have recently received a National Insurance number change notice from HMRC beware about actioning the notice!

There are two reasons that HMRC might send an employer a NINO notice. The first is as a result of the employer submitting an Employer Alignment Submission and/or a Full Payment Summary (Real Time Information returns). The other is as a result of an employer submitting a NINO Verification Request after the successful submission of an EAS/FPS return.

It is reported that HMRC have been sending out NINO notices since 6 April 2013, with no suffixes. It’s also being reported that longstanding NINOs are being changed and ‘old’ incorrect NINO are still being quoted on other official notices.

In fact, the issuing of incorrect NINO notices has got so bad that HMRC have suspended the issuing of any further notices until the problem is resolved.

It seems HMRC have been ‘aware’ of this problem for some time! Which begs the question why they have gone on issuing incorrect NINO notices for as long as they have done?

For now, industry experts are urging employers to be cautious in amending any
NINOs from notices received since 6^th April.

Some employers may not have an official HMRC payslip to accompany their PAYE remittance for Tax Month 1 of the tax year 2013/14.

At the end of March 2013, HMRC told employers that the last payslip booklets for the tax year 2013/14 were to be issued on 12 April 2013. Employers were advised to wait until 27 April before contacting HMRC if they had not received a new booklet.

On 2 May, HMRC apologised to employers that the last payslip booklets had actually not been sent out until Tuesday 30 April 2013 and may take up to three weeks to reach employers.

In the meantime, HMRC asks that employers please not call them asking for a replacement booklet as one wouldn’t reach them before the payslip booklet which is now on its way to them.

But what should an employer do if they’ve not received their payslip booklet before they are required to pay HMRC for Tax Month 1? HMRC should receive cheque payments by Friday 17 May (the 19^th May is a Sunday), and electronic payments should clear the HMRC bank account by Wednesday 22 May.

HMRC advise that if you are affected by this delay, even though you have not received your payment booklet, you should still pay on time. You can do this electronically, including through the Billpay service, Bacs Direct Credit or by making a Faster Payment through your own bank. You need to include your Accounts Office reference with your payment. You can find this on your 2012/13 payment booklet or in other places listed in HMRC’s guidance.

You can also still pay by sending a cheque by post. You can print off a payment slip to accompany your payment. If you can’t print a payment slip HMRC will accept a cheque without one if you make the cheque payable to ‘HM Revenue & Customs only’ followed by your Accounts Office reference.

Remember too that if you pay HMRC electronically then your remittance from Tax Month 1 for 2013/14 onwards must only be paid to one specific HMRC bank account.

If an individual is involved in activities with or for an employer before the date of commencement of employment under their terms and conditions, have they started ‘working’ for their employer?

This question was relevant in the EAT case of Koenig v The Mind Gym Ltd [2013] UKEAT 0201/12. Ms Koenig was contracted to start working for the employer from 1 October. She was dismissed one day short of a year’s service and thus on paper was not entitled to bring a claim of unfair dismissal because she hadn’t worked for long enough for her employer.

However, Ms Koenig argued that she’d actually started working for her employer on 29 September. Her employer had invited her to attend a meeting that another employee was having with an important client who was to become one of her clients. Therefore, she had just enough service, if counted from 29 September, to claim unfair dismissal.

The legal question posed by this case relates to how a Tribunal should approach activities undertaken by an employee prior to the date on which it has been agreed between them work under a contract of employment will be begin.  In what circumstances will a period of continuous employment run from the date on which the activities are undertaken as opposed to the date which has been contractually agreed?

Section 211 of the Employment Rights Act 1996 states that “(1) An employee’s period of continuous employment for the purposes of any provision of this Act – (a)…begins with the day on which the employee starts work…”

The question for the original Tribunal and the EAT to decide was whether Ms Koenig started working for her employer on 29 September or 1 October?

In this case, it was decided that she had not started working under her contract of employment on 29 September, for the following reasons:

1. Ms Koenig had not been required to attend the meeting with the client on 29 September; she was only invited to attend if she wished.
2. She was not paid for her attendance at the meeting; Ms Koenig did not request any such payment at any time.

For most employees there will be no problem about the date they started work and therefore the start of their continuous employment – it will be from their start date as stated in their terms and conditions, or job letter offer.

But there will be situations where an employee, before their contractual start date, is invited to attend training sessions, meetings, etc. like Ms Koenig. The employer should give careful thought to all such activities carried out before the contractual start date.

It is preferable if the nature of, and the carrying out of any activities before the start date is expressly dealt with. This should cover:

• Whether there is a requirement to attend;
• Whether any payment will be made for attendance;
• How any attendance will affect the date the employee’s continuous employment began.

Clearly if there is a requirement to attend, whether or not the employee is paid for their attendance, then there will be a good case to argue that the employee has started working under their contract of employment from the earlier date rather than the contractual start date.

A Court of Appeal judgement in the case of Dresdner Kleinwort Ltd & Anor v Attrill & Ors [2013] EWCA Civ 394 illustrates the need to have implied terms and conditions down in writing and that any variation in terms and conditions is applied fairly.

In this case, the employer was faced with a financial takeover. As there was uncertainty about the future of the business the employer decided to allocate a minimum bonus pool of €400 million to pay discretionary bonuses to employees. The purpose of the bonus pool was to prevent the damaging departure of disaffected employees, particularly senior employees.

In the Staff Handbook, which formed part of the employee’s written terms and conditions, it was stated that an employee may be eligible to be considered for the payment of an annual discretionary award. However, it was also started that “whether an award is made and the amount of such award, if any, is at the absolute discretion of the Company.”

The Staff Handbook also included another term in which “the Company reserves the right to vary the terms and conditions described in this handbook and the terms and conditions of [the employee’s] employment generally. Such changes can only be made by a member of the Human Resource Department and must be communicated to [the employee] in writing. When the change affects a group of employees, notification may be by display on notice boards or Company Intranet.”

The setting up of the minimum €400 million bonus pool was announced by the Chief Executive at what was termed a Town Hall meeting. The announcement was simultaneously broadcast on the Company’s Intranet and could be seen on desk top computers or large screens in other locations around the world. The announcement made clear that it did not give rise to individual guarantees of a bonus but that the pool would be allocated on a discretionary basis by reference to performance. However, it was made clear that the bonus pool would be distributed “no matter what” irrespective of the Company’s performance.

All of the above took place against the background of the international 2008 financial problems. This resulted in the employer having to be bailed out with [German] government money whilst also suffering a financial setback.

Therefore, the Company decided to introduce a “material adverse change” (“MAC”) clause into employees’ bonus letters to the effect that bonus payments would be reduced if there were material negative deviations in the Company’s revenue and earnings as against the existing forecast. In fact, the decision was finally made to reduce the discretionary bonuses by 90%.

The points at issue were  whether the ‘Town Hall’ announcement created a binding obligation to pay the claimants the sums claimed, i.e. based on the ‘guaranteed’ €400 million bonus pool; and whether the introduction of the MAC clause was a breach of the implied duty of mutual trust and confidence.

The Court of Appeal found that the ‘Town Hall’ announcement was an effective variation of employees’ contracts as allowed for in the Staff Handbook, even if the Company tried to argue that it wasn’t.

Even if the ‘Town Hall’ announcement was not legally binding, it was a promise to pay the bonus from a guaranteed pool, “no matter what”, made in good faith by the Company and intended to be honoured.

Whether the introduction of the MAC clause amounted to a breach of the duty of trust and confidence depended on the following principles:

1. Was the introduction of the clause calculated or likely to destroy or seriously damage the relationship of mutual trust and confidence between the employees and the employer; and if so,
2. Whether it was introduced without a reasonable and proper cause.

According to the leading judge in this case, he felt there was “a powerful case for saying that the impact on trust and confidence can only properly be assessed by looking at the context in which the clause was introduced.”

The judge was persuaded that the payment of the whole of the guaranteed bonus pool would not have had an adverse financial effect on the Company; it was only the Company’s perception of how paying the bonuses would be viewed by the [German] government who had bailed them out that really governed the reduction in actual bonuses paid. In fact, the Chief Executive had made the statement that “A retraction of the commitments [to pay out the minimum the €400 million bonus pool]  will destroy the trust of the employees and the executive management fundamentally, finally and irrevocably … I consider it neither comprehensible nor responsible at this time to step back from the commitments made.”

Therefore, in the view of the Court of Appeal, the introduction of the MAC clause did amount to a breach of the duty of trust and confidence, and the Company were in breach of a contractual duty to pay the bonuses as originally promised.

All of the above could have been avoided if the Company has stuck to its expressly stated term in the Staff Handbook and ensured that the ‘Town Hall’ announcement was followed up by a proper variation of terms and conditions. And that no additional promises were made other than stressing the discretionary nature of any final bonus payment.

One last point: Even where an employer is unilaterally allowed to vary terms and conditions, such a clause should only ever be applied reasonably and not on a perverse whim.