Letting HMRC know about change of name & address

HMRC are encouraging all taxpayers to use HMRC’s online facility if they need to let HMRC know they’ve changed their name or address, etc.

This online facility should be used rather than other forms of notification, which HMRC have sometimes misinterpreted as a change in the employer’s address.  There is online guidance on how to use the online change of name and address, etc. notification, and what information HMRC will need.

It really is in employees’ interests for them to keep HMRC up-to-date with their name and address changes. Each year some repayments are returned to HMRC undelivered because they don’t hold an up-to-date address for the individual and they don’t receive the payment that is owed them.

Up to date personal details about employees are also very important under Real Time Information. Employers are encouraged to ensure they hold up to date personal data on all their employees, new and existing, and that this information is kept updated on the employer’s records.

Once a new employee has been set up on payroll and their personal details submitted to HMRC in the first RTI return covering their first payment of wages, any changes to their personal details will need to be notified both to the employer and HMRC.

If, for example, an employee changes their address and advises their employer accordingly, the new address details the employer uses on RTI returns will not currently automatically update HMRC’s records. It’s up to the employee themselves to do that, using the online facility, above, for preference.

Asking HMRC to confirm a lost National Insurance number

On 14 November, HMRC updated their information on what an individual can do if they’ve lost or can’t remember their National Insurance number (NINO) or lost their National Insurance number card.

It may be they can find their NINO on official paperwork like:

  • their P60 (end of year tax statement, given to you by your employer)
  • a payslip
  • a copy of your annual Self Assessment tax return
  • other official correspondence.

If you still can’t find your number, you can ask HMRC to confirm it by:

  • completing and returning  form CA5403 - Your National Insurance number
  • contacting the National Insurance Registrations Helpline on Tel 0845 915 7006(lines open 8.30 am to 5.00 pm Monday to Friday).

Note: On 14 November 2012, HMRC stated that although online submission of form CA5403 was possible, this facility has been temporarily withdrawn. HMRC hopes to reinstate the facility soon. Individuals can still print and post this form to the address shown at the end of the form.

HMRC cannot confirm your National Insurance number by telephone. They will write to you instead.

As announced by the Chancellor on 10 September 2010, HMRC no longer issues replacement National Insurance number cards. An individual doesn’t need a card – it’s the number that’s important.

Plans to allow fexible parental leave gets the Government go-ahead

On 13 November, the Department for Business, Innovation & Skills issued a press release outlining the Government’s plans, from 2015, to allow fathers to play a greater role in raising their child and help mothers to return to work at a time that’s right for them.

Under the new system of flexible parental leave, parents will be able to choose how they share care of their child in the first year after birth. Employed mothers will still be entitled to 52 weeks of maternity leave. However, working parents will be able to opt to share the leave.

Mothers will have to take at least the initial two weeks of leave after birth  (or four weeks if they are manual workers) as a recovery period, but following that they can choose to end the maternity leave and the parents can opt to share the remaining leave as flexible parental leave. It will be up to both parents to decide how they share the remaining weeks of the leave. The same qualifying requirements that currently apply to statutory maternity and paternity pay will apply to the right to take the new flexible parental leave.

Parents will be required to provide a self-certified notice of their leave entitlement to their employers, with the Government intending to consult fully next year on the detail of how the new system will be administered. Parents will be expected to give their employers eight weeks notice of intention to take flexible parental leave.

From 2014, the Government is also proposing to extend the right to request flexible working to all employees, to give greater choice and freedom to workers and businesses. This will remove the cultural expectation that flexible working only has benefits for parents and carers, allowing individuals to manage their work alongside other commitments and improving the UK labour market by providing more diverse working patterns. For example, grandparents could apply for flexible working to help care for their grandchildren.

The Government’s thinking on flexible parental leave and the extension of making flexible working requests were published at the same time as the above press release.

Dismissing a long-term sick employee still entitled to PHI benefits

What is the situation when an employee is dismissed where they are still entitled to the  receipt of PHI income benefits? Is the employer in breach by dismissing the employee and causing them to miss out on those benefits? This was the question in the EAT judgement in Lloyd v BCQ Ltd [2012] UKEAT 0148/12.

In this case, Mr Lloyd commenced employment with his employer in 1978, eventually becoming Works Director. In 2007, Lloyd suffered a back injury that kept him mostly away from work from 2007 until his dismissal in May 2011.

Lloyd received the benefits of private health insurance (“PHI”) provided by Company during his being unable to work. However, as Lloyd was unable to provide any assurance of his eventual return to work he was dismissed. The Employment Tribunal found that Lloyd’s physical incapability to do his job was a fair and reasonable reason for his dismissal.

Lloyd had been entitled to PHI benefits up until his 60th birthday in December 2011, and his remaining benefits were paid out as a lump sum at the time of his dismissal. He was not subject to any financial loss under this arrangement.

The Employment Tribunal rejected Lloyd’s claim of breach of contract because he had received or would be receiving the benefits under the PHI policy as he was expected to do. Interestingly, Lloyd’s contract of employment made no mention as to his entitlement to PHI benefits.

Despite that Lloyd seems to have suffered no financial loss as a result of his dismissal and withdrawal of on-going PHI benefits yet he appealed against the decision of the Employment Tribunal. He claimed there was a fundamental implied term in his contract of employment that his employer would not terminate his contract of employment as a means to remove his entitlement to PHI benefit in the absence of misconduct or some other breach by him.

What was the basis for his claim? Because this is the key element when sick employees are in receipt of PHI benefits – is the employer in breach of contract (even if implied) where, although having the right to dismiss an employee, they do so whilst the employee is still due PHI benefits?

Lloyd’s claim was based on the judgement in Aspden v Webbs Poultry and Meat (Holdings) Limited [1996] IRLR 521. This provided that “there should be a term implied into an employee’s contract of employment as part of the duty of trust and confidence owed by the employer to the employee to reflect the obvious intention of the parties, which was that the employer would not (save on the grounds of the employee’s gross misconduct) terminate their contract of employment, where they are in receipt of PHI benefits, while the employee was incapacitated from work, where the effect of such termination would be to disqualify the employee from their sickness benefits under the PHI policy.”

However, the EAT pointed out that the judgement in the Aspden case was based on special circumstances and did not mean that a general term was implied in to every employee’s contract whereby the employer would not dismiss the employee whilst they were in receipt of PHI benefits.

This was also the view taken in Hill v General Accident Fire and Life Assurance Incorporation plc [1998]. Here the judge, when commenting on the Aspden judgement, stated that he “disagreed” with the conclusion in Aspden “laying down as a general proposition that gross misconduct is the only circumstance in which the employer could lawfully dismiss an employee in receipt of sick pay and with the prospect of permanent sickness provision”.

The judgement in Briscoe v Lubrizol [2002] also made a good comment: “Where a provision is, as here, made in the contract for payment of salary or other benefit during illness the employer cannot, solely with a view to relieving himself of the obligation to make such payment, by dismissal bring that sick employee’s contract to an end.  To do so would be, without reasonable and proper cause,to subvert the employee’s entitlement to payment while sick.”

In other words, an employer is entitled to terminate an employee’s contract by reason of ill-health despite the employee might be in receipt of PHI benefits, as long as they do not end the employee’s contract solely to get out of being responsible for meeting any more PHI benefits in relation to a long-term sick employee.

Therefore, if the employer can show clear evidence of communicating with the employee over their physical condition; taking into account independent medical advice; trying to help the employee to return to work if at all possible; and only dismissing the employee because there is no possibility of their returning; and, for example, the employer must replace them; then the employer is not in breach if they dismiss the employee whilst they are in receipt of, or entitled to, PHI benefits.

In conclusion, an employer who intends to pay PHI benefits to an employee, due to the possible long-term nature of the payments and the associated costs in making such a provisions, should include express clauses in the employee’s terms and conditions relating to such benefits.

These terms should cover the circumstances under which PHI benefits will be paid. Where the employer does not want to indefinitely go one providing and/or financing such benefits to an incapacitated employee, express clauses should be included in terms and conditions as to the reasons under which the employer reserves the right to dismiss the employee whilst still entitled to PHI benefits. This should include clauses concerning the employee’s possible long-term incapacity where there is no possibility of the employee returning to work.

Change in taxing “trivial commutations” and one-off lump sum pension payments

During the week of 9 November, HMRC issued revised information to software developers about the way “trivial commutation” and similar one-off lump sum pension payments from registered pension schemes will be taxed from April 2013.

Under pension tax rules, for registered pension schemes, pension payers are able to convert certain small pensions into a one-off cash payment. Subject to certain conditions, a maximum of 25% of the value of most of these small pensions can be converted to a tax free lump sum. The remaining portion of the lump sum is then taxed.

Pre 6 April 2013, pension payers are required to operate the emergency tax code (e.g. code 810L for the tax year 2012/13) on a non-cumulative (week 1 / month 1) basis on the lump sum pension payment. Applying the emergency code in this way results in many lump sum payments of this type attracting the higher, and possibly additional, rates of tax. And in many cases this leaves the payment recipient in a position where they temporarily overpay tax.

From 6 April 2013, it is proposed that the basic rate (BR) tax code (operated on a non-cumulative basis) will apply. HMRC believe this change will result in more individuals, in particular those on low to moderate incomes, paying the right amount of tax at the time the lump sum pension payment is made.

Trivial commutation and similar one-off lump sum pension payments include:

  • trivial commutation lump sums,
  • trivial commutation lump sum death benefits
  • winding up lump sums
  • winding up lump sum death benefits
  • commuted equivalent pension benefits
  • certain small lump sum payments
  • ‘small pot’ commutations.

Draft legislation and a technical note relating to PAYE and Real Time Information changes, including this proposed change, will be made available for comment on the HMRC website for a period of eight weeks from 15 November 2012.  You will be able to access the documents on the “What’s New” pages of the HMRC website.

Note: The P53 form and process, used to claim any overpaid tax will continue to exist in its present form. However, HMRC are currently working with representative bodies to improve both the form and process for individuals, pension payers and HMRC.

HMRC moves to answer the vexed “on or before” RTI question

On 12 November, HMRC published proposals explaining the circumstances where employers will be allowed extra time to send real time PAYE information to HMRC. The following information has also been updated as per draft regulations published 19 November.

Under RTI legislation, an employer must submit a Full Payment Submission (FPS) return covering the payment of employment income to employees “on or before” the date of payment.

For the majority of employers this doesn’t pose a problem as they will be processing their payroll ahead of paying employees and part of that processing will include the submission of the relevant FPS return online to HMRC.

But there are situations where it is just not practicable to submit an FPS “on or before” the date of payment. For example, casual employees are paid in cash at the end of a late shift, or it is agreed that a harvest worker will be paid at the end of their working day based on the amount they have harvested.

Therefore, HMRC is introducing an number of amendments to the RTI legislation that would allow employers, in the above situations, to submit the relevant FPS return within the earlier of seven calendar days, or the next time they submit a regular FPS return.

This relaxation will be allowed where:

  • The employer could not reasonably have calculated the payment in advance; and
  • The time or location at which payment is made means the employer could not reasonably be expected to meet their FPS obligation on or before the date of payment.

HMRC do allow in their 12 November announcement that the seven-day rule will also be available to cover an FPS return made in relation to an employee for whom the employer has no legal requirement to keep a payroll record (on a P11 Deductions Working Sheet, or equivalent). This would apply to an employee who is always paid below the lower earnings limit for Class 1 NICs, e.g. for the tax year 2012/13, always paid less than £107 a week, but one pay period has an increase in pay that takes them over the LEL.

HMRC is also proposing to allow employers a relaxation in the time limit for reporting the payment of benefits and expenses subject to Class 1 NICs but not taxed under PAYE. For example, if an employee wasn’t paid any cash earnings but only provided with just non-cash vouchers (e.g. retail gift vouchers), the provision would be liable to Class 1 NICs although not taxed directly through PAYE (the provision would be returned on a P11D after the end of the tax year in which the provision was made).

Amendments to the RTI legislation will allow the reporting of the relevant RTI information to be made at the earliest of the time at which the employer makes a deduction of Class 1 NICs, or 14 days after the end of the tax month in which the payment is made.

In addition, HMRC intends to issue further guidance on the reporting of what they call “ad hoc advances of pay”. HMRC has already published guidance on some of these situations and it is based on the application of tax law as to when a PAYE liability arises, which will govern whether an FPS should be submitted.

For example, a new employee starts too late in the payroll run to be included; so they are given an ‘advance’ on their wages which will be taken into account the next time the payroll is run.

Where a situation like this arises, HMRC state: “A loan from the employer to the employee is not subject to PAYE and not does need to be reported to HMRC. A loan is an amount of money given by an employer to an employee with the expectation that this amount is repaid to the employer.” Therefore, an FPS would not be required to report the payment of a “loan” by way of an advance, such as that given a new employee to tie them over to the next pay day.

Another example will explain the principle. Monthly paid employees are paid overtime in arrears. One particular month, by mistake, the employee’s overtime is missed off their pay. As the amount is considerable, the employer agrees to make an “ad hoc” payment which will be accounted for when the next monthly payroll is run. It seems HMRC are prepared to accept that such a payment does not need to be reported on an additional FPS.

However, what about the situation where employees are routinely paid overtime payments on pay days other than their normal pay day?

HMRC state: “Payments are not considered to be ad hoc where it is established practice for some earnings to be paid outside the normal payroll cycle – e.g. where overtime is always paid more frequently than the basic salary or wage payments.  Such payments must be reported on or before the time they are made, via a separate FPS if necessary.”

For all employees other than company directors, the PAYE liability always arises on the earlier of entitlement or payment. Therefore, where a PAYE liability arises, an FPS return will be required to include the payment, even if this is returned on an additional FPS return. If there is no PAYE liability, there is no need for an FPS return.

HMRC are stating that the payment of a loan is not a payment of employment income on which a PAYE liability arises. However, this does not give an employer carte blanch to class every payment made to employees outside of the normal payroll run as a “loan”, if in fact it must be treated as a “payment on account of earnings” for which a PAYE liability does arise and for which an FPS return is required.

How “ad hoc” payments are dealt with, and whether the employer has dealt with them correctly, is bound to be a subject to be examined on PAYE compliance visits.

As a final point, HMRC state that later on in November 2012, they will also be delivering a statement of operational practice on reporting of payments made by expat employers and those operating share schemes.


First ever Living Wage Week 4th to 10th November 2012

The week of the 4th to 10th November sees the first Living Wage Week in the UK. What is the Living Wage and why might you want to become a Living Wage Employer?

The Living Wage is a calculated according to the basic cost of living in the UK. In other words, it’s what you need to earn just to “make ends meet”; indicating that being paid less than the Living Wage creates real financial hardship.

The Living Wage is currently calculated as being £8.55 an hour in London and £7.45 an hour in the rest of the UK. Compare this to the adult rate (those aged 21 and above) of the National Minimum Wage at £6.19 an hour since 1 October 2012.

Why would you want to be recognised as a Living Wage Employer? According to the Living Wage Foundation, paying the Living Wage creates a good work ethic among employees and encourages loyalty and a reduction in absenteeism. Also, seventy per cent of employers feel that their being known as paying the Living Wage has increased consumer awareness of their organisation’s commitment as an ethical employer.

Would your organisation want to join the growing numbers of Living Wage Employers? Could you show the Living Wage Foundation that all your employees are paid at least the Living Wage? This includes individuals who work on a regular basis at your premises for a subcontractor, such as cleaners or security staff. Or can you show that you’re committed to an agreed timetable of implementation? If so, you can apply to the Foundation to be accredited and licenced to use the Living Wage employer mark: “We are a Living Wage employer”.

In addition, accredited Living Wage Employers are recognised during Living Wage Week and at the annual Living Wage Awards, hosted by KPMG and the Mayor of London. Over 100 top employers have made a public commitment to the Living Wage.

Aggregation of contracts of employment and auto-enrolment

It seems there are likely to be conflicting opinions over the necessity to aggregate employment contracts to comply with pensions reform (auto-enrolment) legislation.

For example, an employee has two jobs. Taken separately, the earnings of job number one are above the ‘earnings trigger’ for auto-enrolment and the employee must be auto-enrolled under job number one. The earnings of job number two are below the ‘earnings trigger’ and the employer is not obliged to auto-enrol the employee under job number two. However, if the earnings of both jobs were aggregated for auto-enrolment purposes then the level of pension contributions would increase with both lots of earnings being taken into account as if they were paid under one employment contract.

A very well-respected software developer has made me aware of what The Pensions Regulator has published for software developers on the subject of aggregation:

“Where an employer has multiple contracts of employment with an individual worker, the employer must consider and, where appropriate, seek advice on whether the employment relationship is of a single employment with services being performed across each of the contracts. In such circumstances, the employer should aggregate the qualifying earnings for the totality of those employment contracts and all the duties apply only once to the worker (e.g. automatic enrolment, and opt out, etc.).

If an employer is of the view that each of the employment contracts with an individual are wholly separate, they must apply the duties separately in relation to each contract.

For the purposes of assessing the earnings of workers with multiple employments for the same employer, the payroll system will need to be instructed by the employer whether to aggregate the earnings or to treat them separately. This requirement is not affected by the requirement to aggregate for the purposes of National Insurance contributions. It does not necessarily follow that where an employer must aggregate earnings for the purposes of National Insurance they will also be obliged to do so under their pensions duties.”

Therefore, whether or not the employer has to aggregate an employee’s earnings from more than one job for Class 1 NICs purposes, the employer must still make a separate assessment of the employment contracts for auto-enrolment purposes.

Noted author and lecturer Kate Upcraft reports that she knows of two local authorities who have received conflicting legal advice on the matter of aggregation. One said that their legal advice was that their multi-posts were separate contracts; the other had been advised that the employees in question had one overarching contract for auto-enrolment purposes.

Unfortunately this question of aggregation for auto-enrolment purposes may very well have to be decided under case-law. Until then, an employer can only accept the legal advice they are given and run with it!

The Higher Income Child Benefit charge

The High Income Child Benefit charge is being introduced from 7 January 2013. A taxpayer may be liable to this new tax charge if they, or their partner, have an individual taxable income of more than £50,000 and one of them gets Child Benefit or contributions towards the upkeep of a child.

The £50,000 income limit is generally a taxpayer’s income before income tax and deduction of ‘Personal Allowance’.

There is online information concerning the High Income Child Benefit charge.

The amount of the tax charge will differ according to whether a taxpayer’s taxable income is:

  • between £50,000 and £60,000
  • £60,000 or more.

Charge on taxable income of £50,000 to £60,000

The tax charge will be 1 per cent of the Child Benefit paid for every £100 of taxable income between £50,000 and £60,000. The tax charge will be less than the total amount of Child Benefit.


An individual’s adjusted net income is £54,000 (i.e. after allowing for their Personal Allowance). They are entitled to Child Benefit for two children of £438 for the period from 7 January 2013 to 5 April 2013.

Their tax charge will be worked out as follows:

  1. Step one: income over £50,000 = £4,000
  2. Step two: determine the percentage rate to be applied to the result from step one, so £4,000 ÷ 100 = 40 (%)
  3. Step three: £438 x 40% = £175

The individual’s tax charge will be £175.

Charge on taxable income of £60,000 or more

If an individual’s taxable income is £60,000 or more, the tax charge will be equal to the full amount of Child Benefit they, or their partner, are entitled to receive.


An individual’s adjusted net income is £62,000. They, or their partner, were entitled to receive Child Benefit of £438 for two children for the period from 7 January 2013 to 5 April 2013.

The individual’s tax charge will be £438.

What actions should a taxpayer take?

It is a taxpayer’s personal responsibility to ensure they pay the correct amount of income tax for a particular tax year, and to notify HMRC of any income tax liability of which HMRC is not aware.

Therefore, where a taxpayer realises that they will fall into an income category where the High Income Child Benefit charge applies they should do the following:

  • Step one – they should calculate their likely tax charge. They can use an online calculator to do this.
  • Step two – Once they have an idea of their tax charge, they should talk to their partner if they have one and discuss whether it would be better to keep getting the Child Benefit payments or arrange to stop them.

Where the decision is to keep the child benefit and pay the High Income Child Benefit charge the taxpayer will need to complete a Self-Assessment tax return each year to return the amount of their taxable income and the child benefit they have been paid.

Where a taxpayer is liable to the High Income Child Benefit charge they can choose to pay the liability as a lump sum payment through Self-Assessment.

Alternatively, they can agree with HMRC to pay the charge by an adjustment to their PAYE tax code. If the amount a taxpayer owes is less than £3,000, HMRC normally includes the underpayment in the individual’s tax code for the next tax year. Even if the High Income Child Benefit charge is paid by an adjustment in a taxpayer’s PAYE tax code, they will still be required to submit a tax return each year.

If a taxpayer is liable for the High Income Child Benefit charge against child benefit they have received for the period 7 January 2013 to 5 April 2013, this cannot be paid through their PAYE tax code for the tax year 2012/13. Therefore, any liability for 2012/13 will have to be returned on the taxpayer’s tax return for 2012/13, and will then result in a change in their tax code later on during 2013/14.

In the above case, it will be beneficial for the taxpayer to ensure that a tax return for 2012/13 is sent promptly to HMRC in April 2013 so a new tax code can be issued sooner rather than later. Or, a taxpayer could write to their tax office before the end of the 2012/13 tax year, or before they are able to submit their tax return for 2012/13, and inform them of (a) their taxable income for 2012/13, and (b) the amount of child benefit they have or will be receiving for the period 7 January 2013 to 5 April 2013.

What part can payroll play?

Payroll may be prepared to provide a service for their employees that tells them:

  • They have a taxable income for 2012/13 that has already exceeded £50,000 or £60,000.
  • They are likely to have a taxable income for 2012/13 that will exceed £50,000 or £60,000.

HMRC wins its case to levy penalties to the full limit

HMRC have won an appeal in the Upper Tribunal Tax and Chancery Chamber that will mean that First Tier Tax Tribunals will not have the power to reduce the penalties that HMRC is legally entitled to levy where employers are late in submitting their end of tax year returns.

The case, HM Revenue & Customs v Hok Limited [2012] FTC/81/2011, had previously been won in the employer’s favour. The company was late submitting their P35 end of tax year return. They had no reasonable excuse for submitting it late and accepted they were liable to a penalty.

But what upset Hok Limited was the first they knew about their failure was when HMRC sent them a reminder notice in September, some four months after the filing deadline. They argued that had HMRC notified them of their default much earlier they could have rectified it and avoided on-going penalties. As they saw it, HMRC’s delay in notifying them was an unfair means of extracting unwarranted sums out of the employer by way ongoing monthly penalties. The First Tier Tax Tribunal agreed with the employer even going so far as stating that HMRC’s policy of seemingly delaying notifying an employer they were in default amount to an unfair “cash generating scheme”.

HMRC’s argument was that they were under no legal obligation to notify employers early that they were in default and that the penalties charged were payable in full, regardless that they might have run up in the meantime to a greater level than might have been the case had an earlier reminder notice been sent out.

The Upper Tribunal agreed with HMRC stating that the First Tier Tribunal did not have any jurisdiction to reduce the level of penalties that were rightfully and legally chargeable by HMRC.

Therefore, if an HMRC officer “has imposed a penalty in circumstances where one is due, and the penalty imposed is of the correct amount, there is nothing the Tribunal is permitted to do. It does not have a general power, in particular a power to substitute an amount other than the correct amount, whether on the basis of fairness or otherwise. No such power is granted by the statute and, since the Tribunal is a creature of statute, none can arise under the general or common law.”

The Hok case was not the first time that an employer had complained about the “unfair” delay in HMRC sending out reminder notices about late end of tax year payroll returns. But the Hok case is the one that HMRC used to establish the legitimacy of their practice.

However, perhaps in light of the criticisms it had received, HMRC did decide to bring forward their reminder notices so that employers had more chance to quickly rectify a default and thus only pay the minimum penalty. This has certainly been their practice concerning returns due for the tax year 2011/12 and that were due by 19 May 2012.

The whole subject of penalties for a failure to submit an end of tax year payroll return on time will soon disappear. Under RTI, employers will be required to submit real time pay data each time employees are paid. Employers who start sending RTI returns online to HMRC will no longer be required to submit a separate P14/P35 return at tax year end. Of course that’s not to say that employers will not be liable to a whole new penalty regime related to their ongoing RTI returns instead!