Further consultation on shared parental leave and pay

In February, the Department for Business, Innovation and Skills published an updated consultation on changes to shared parental leave and pay. Comments on the consultation are invited by 17 May 2013.

The consultation outlines a number of proposals that could see major changes to the way parents use the benefit of a woman’s maternity leave pay, and an improved right to adoption leave and pay. The results of the consultation will affect what legislative changes go through in the Children and Families Bill 2013.

Adoption leave & pay to get equal billing with maternity leave & pay

Statutory adoption leave will become a “day-one” right for employed adopters (or who are matched with a child under the “fostering for adoption” scheme). Statutory adoption pay will be enhanced to 90 per cent of average weekly earnings for the first six weeks for the “primary adopter”, in line with statutory maternity pay.

Additional paternity leave & pay is dead, long live shared parental leave!

Additional paternity leave & pay is currently a way of sharing maternity/adoption leave; shared parental leave will be much more flexible. For example, once the mother has served any two or four-week compulsory maternity leave period, she will be free to return to work and leave all the baby care up to the father; or she and the father can share out the leave and pay in whatever way they agree with their respective employers.

For example, the untaken weeks of a mother’s overall leave and pay entitlement could become available for her partner to take as shared parental leave and/or pay to allow the mother and her partner to take leave at the same time and for the family to be at home together, if they so choose.

To qualify for shared parental leave and pay each parent (birth, or adoptive, or intended parents in surrogacy agreements) will be required to be both “economically active” (i.e. in work and earning a minimum amount). Each parent will need to qualify in their own right for shared parental leave and pay.

It is planned to introduce shared parental leave & pay from April 2015.

The Government is planning on retaining the current up to two weeks’ ordinary paternity leave & pay for the exclusive use of the father or the mother’s/primary adopter’s partner (including intended parents in surrogacy arrangements) on a “use it or lose it” basis in a single block of one week or two weeks. This leave must continue to be used around the birth of the baby, or placement of the child for adoption.

Antenatal classes

Currently, only birth mothers are allowed paid time off during working hours to attend antenatal classes. There is no such provision for fathers, or for those adopting a child, or adopting by way of surrogacy.

The proposal is to introduce a statutory “day-one” right for fathers and partners of pregnant women to unpaid time off work to attend up to two ante-natal appointments. This right will be extended to including certain intended parents of children born through surrogacy.

The Government is also introducing an entitlement to time off to attend adoption meetings. The “primary adopter” will be entitled to paid time off to attend up to five pre-adoption appointments and the “secondary adopter” will be entitled to unpaid time off to attend up to two pre-adoption appointments. The total amount of time off per appointment will be capped at 6.5 hours (including travelling).

Unpaid parental leave continues

The new right to shared parental leave is not to be confused with the existing right to take unpaid parental leave.

However, the Government is proposing to increase the upper age limit to enable parents to take unpaid leave in connection with a child up to the age of 18. Currently, parental leave has only been available up to a child’s sixth birthday or 18th where the child is being paid a disabled living allowance.

Have you tried submitting an in-year P45/P46 in the last few days?

If you’ve ‘joined’ RTI from the start of the tax year 2013/14, any in-year form P45 or P46 you try and send HMRC on or after 6 April 2013 will be rejected.

You might feel that you still needed to send HMRC Part 1 of a P45, for example. Why? Because the employee’s date of termination was on or before 5 April 2013 but you couldn’t submit Part 1 of the P45 because the HMRC’s online systems were shutdown for updating. If you tried to send Part 1 of the P45 once the online systems came back on-stream, you’d have received an error message.

So how do you let HMRC know about your leaver? The advice from HMRC, issued on 10 April, is to do the following:

  • Instead of trying to submit a P45, you should enter the leaving date on the employee’s P14 for 2012/13.
  • If you have already submitted your P14’s and P35 for 2012/134 without showing a leaving date, then you need take no further action. You should not try and submit a revised P14.
  • You should not include the employee who has left on your first Full Payment Submission (FPS) or Employer Alignment Submission (EAS) that you send online to HMRC.
  • When HMRC picks up the fact that the leaver is not on your EAS/FPS, they will automatically treat the employment as having ceased at 5 April 2013.

Alternatively, you had a joiner who started right at the end of the tax year 2012/13 and you should have sent HMRC Part 3 of their P45 but could not because the HMRC system was shut down.

In this case, the HMRC advice is that you should include details of the new employee in your EAS and/or first FPS and either show a date of starting of 6 April 2013, or leave this field blank and HMRC will automatically create an employment record from 6 April 2013.

This problem caused widespread confusion with the HMRC Employers Helpline seeming to be at a loss to know how to answer employers. My thanks goes to Steven Tucker, Managing Director, The Payroll Site Limited, for alerting me to this problem.

However, it seems the problem is worse than originally envisaged.

Large employers with 5,000 or more employees in a PAYE scheme are not being required to start submitting RTI returns until between June and September. All these employers will be trying to submit in-year forms P45/P46, as they should be doing pre-RTI mandation. BUT the HMRC system appears to be rejecting some of these forms sent by larger employers.

This is obviously an error that HMRC has had to sort out. Their advice now makes it clear: “If you are not yet mandated to submit PAYE in real time you should continue to submit forms P45/P46 to HMRC up to the date of your mandation.”

There is also a problem for small employers who’ve not yet caught up with the fact that they ought to have started sending HMRC RTI returns from the beginning of April 2013.

As far as HMRC is concerned they are a Real Time Information employer; as far as many of these small employers are concerned many of them have no idea what RTI is all about. They may be aware that something ‘new’ is happening, but not realise how it affects them.

If HMRC considers you are a Real Time Information employer, their systems will be set so that online form P45/P46 submissions are rejected.

This “applies to all employers who are required to start reporting PAYE [in real time] from 6 April [2013], even if they have not yet sent [HMRC] their first RTI submission.” – RTI briefing notes provided by HMRC.

It may be that a small employer having their forms P45/P46 rejected by HMRC will be a ‘wake up call’ that RTI applies to them.


Checking you’re using the correct bank account to pay HMRC from 2013/14 onwards

For liabilities due to be paid to HMRC for PAYE income tax, Class 1 National Insurance contributions, Student Loan Deductions, and Construction Industry Scheme (CIS) deductions, for the start of the tax year 2013/14 onwards, there are changes in payment instructions.

This will apply to the payment due HMRC for Tax Month 1 of the tax year 2013/14; for example, the remittance due by 22 May 2013, when paying electronically, for the tax month ending 5 May 2013.

In-year remittances due HMRC

From remittances due for the tax year 2013/14 onwards, employers will make their payments into a single HMRC bank account. This change only affects employers who currently make payments into HMRC’s Shipley bank account by Bacs Direct Credit,   Faster Payments, by online/telephone banking, and CHAPS. Employers using the Government Banking Service (GBS) are not affected by this change.

From month 1 of the tax year 2013/14 all affected employers should pay their remittance to HMRC’s Cumbernauld bank account.

PAYE payments for the tax year 2012/13 and earlier are not affected by this change. Therefore, if you have normally paid your remittance to HMRC’s Shipley account and you still have a remittance to pay for the tax year 2012/13, then you must still make that payment to the Shipley bank account.

However, if you have previously paid into HMRC’s Shipley account you will need to make sure you update any templates or instructions you have with your bank so that payments are made to the Cumbernauld account from Tax Month 1 for 2013/14 onwards.

There is an online tool [http://www.hmrc.gov.uk/tools/bankaccounts/p/paye.htm] that will help an employer identify the correct Cumbernauld bank account details to use.

End of year payments

Previously, employers used month 13 to make any balancing end of tax year         payments for PAYE income tax, Class 1 National Insurance contributions, Student Loan, or CIS deductions, to HMRC. Any balancing end of year payments for the tax year 2012/13 onwards should now be paid to HMRC using month 12.

You should now only use month 13 to pay any Class 1A National Insurance owed on the form P11D(b). This will apply for the Class 1A NICs due for the tax year 2012/13 onwards and due payable by 22 July 2013 when paying electronically.

There is an online tool [http://www.hmrc.gov.uk/tools/payinghmrc/paye-index.htm] that an employer can use to make sure they use the correct payment reference when paying HMRC for either Class 1A NICs, or balancing payments due for a tax year that has ended.


When an HMRC relaxation is not all that ‘relaxing’!

With the last few days left before RTI goes’ bang’, there’s still plenty of changes coming out of the woodwork. Are you up to date?

Temporary relaxation of the ‘on or before’ rule

On 20 March I blogged an HMRC announcement about a temporary relaxation to the ‘on or before’ rule. If you remember, the RTI legislation requires an employer to send HMRC a Full Payment Summary “on or before” the date of payment. However, for many small businesses there are all sorts of problems adhering to this new rule.

Therefore, my blog of 20 March gave details of the following HMRC relaxation.

“HM Revenue & Customs (HMRC) recognise that some small employers who pay employees weekly, or more frequently, but only process their payroll monthly may need longer to adapt to reporting PAYE information in real time. HMRC have therefore agreed a relaxation of reporting arrangements for small businesses.

Until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th).”

At the time, I commented that this relaxation should not be taken as ‘carte blanche’ not to bother if RTI returns are not sent to HMRC as quickly as possible. The announcement makes clear that it applies to those small employers who “find it difficult [emphasis added] to report every payment to employees at the time of payment”. In other words, if an employer just ‘can’t be bothered’ to send returns in at the time of payment, they could still find themselves in trouble.

It seems my remarks have proved true, as HMRC have recently notified software developers of the following.

“[The above] transitional arrangements only apply to small employers who pay their staff manually, for example, weekly or fortnightly and then take their records to their payroll provider monthly to process the payroll for the month, or who process their own payroll monthly. Small employers who run their payroll software weekly or fortnightly, when they make payments to employees, and who can therefore report payroll information at the time of payment will still however need to submit a weekly or fortnightly FPS on, or before, the date each payment is made to employees. This will be the easiest and quickest way of operating their payroll and reporting their RTI.”

Earlier legal amendments to the ‘on or before’ rule

Back in November 2012, HMRC put forward some sensible amendments to the RTI legislation to help deal, for example, with the case where an employer has to pay workers cash at the end of a shift and has no reasonable expectation of knowing beforehand how much they’ll be paid. The amendment allowed the FPS to be sent HMRC by the earlier of seven days or by the employer’s next payday.

In HMRC briefing notes presented to software developers on 27 March 2013, it was announced that the RTI legislation has been further amended from 15 March.

“The previously announced easement required PAYE information to be
reported by the earliest of seven days or the next scheduled payday. We have
now removed the reference to ‘next scheduled pay day’, as a result of this
amendment, so PAYE information now has to be reported within the next seven
days, as a result of responses to the consultation on our regulations.
When payments are made non-electronically (for example cash or cheque) to
employees for work done on the day of payment, employers will have to report
the PAYE information within the next seven days.”

May be we can relax after all?

There is a saving grace among all these last-minute changes to RTI reporting – there’s no need to start panicking if you’re not really ready for RTI, or that your starter processes aren’t as robust as they ought to be. And why’s that? Because HMRC is quite happy at the moment to go for a ‘softly softly’ RTI landing. That might have something to do with the rumours circulating about problems with the Government’s new IT scheme for making Universal Credit work? There’s a novelty!

Further guidance from HMRC on starter procedures

On 2 April, HMRC published amended guidance on the starter process to reflect customer feedback on starter declarations, to help increase accuracy for individuals with a P45 and more than one job.

On 12 March, I set out the starter procedure guidance published by HMRC at that time. That guidance is reproduced below, with the HMRC changes announced on 2 April shown in italics for emphasis.

‘In date’ P45 received before first FPS must be sent

  • Date of leaving shown on P45 is 6 April 2013 to 5 April 2014
    • AND employee’s Start Date is on or after 6 April 2013
    • AND tax code shown on P45 is not BR, 0T, or D
    • Employee not required to provide a Starter Declaration
    • Instead employer just inserts Starter Declaration B on first FPS
    • Use the tax code shown on the P45 to open new payroll record
  • Date of leaving shown on P45 is 6 April 2012 to 5 April 2013
    • AND employee’s Start Date is 6 April 2013 to 24 May 2014
    • AND tax code shown on P45 is not BR, 0T, or D
    • Employee not required to provide a Starter Declaration
    • Instead employer just inserts Starter Declaration B on first FPS
    • Use the tax code shown on the P45 to open new payroll record
    • BUT increase any code ending in an ‘L’ by 134 points (so that 810 becomes 944)
    • AND do not carry forward any W1/M1 markings
  • Date of leaving shown on P45 is 6 April 2012 to 5 April 2013
    • AND employee’s Start Date is on or after 25 May 2014
    • AND tax code shown on P45 is not BR, 0T, or D
    • Employee not required to provide a Starter Declaration
    • Instead employer just inserts Starter Declaration B on first FPS
    • Use the emergency tax code (944L) on a W1/M1 basis to open a new payroll record
  • Date of leaving shown on P45 is any of the above
    • AND employee’s Start Date is any of the above
    • AND tax code shown on P45 is BR, 0T, D
    • Employee not required to provide a Starter Declaration
    • Instead employer just inserts Starter Declaration C on first FPS
    • Use the tax code shown on the P45 to open a new payroll record

It could occur that a new employee presents an ‘in date’ P45 showing a tax code that is not BR, 0T, or D-prefix AND the starter indicates on a Starter Declaration that they have more than one job.

HMRC revised guidance is that instead of the employer entering ‘C’ on the Starter Declaration and assigning tax code BR to the starter, the new employer should instead enter ‘B’ on the Starter Declaration and use the tax code shown on the P45 (taking into account the above Start Date information).

If the P45 shows a code BR, 0T, or D-prefix, the new employer will continue to enter ‘C’ on the Starter Declaration.

HMRC acknowledge that the starter process guidance had gone through several iterations and, for the tax year 2013/14, they will accept if an employer’s payroll software reflects an earlier iteration that does not follow this new process.

‘Old’ P45 received before first FPS must be sent

  • Date of leaving shown on P45 is before 6 April 2012
    • Employee’s Start Date is on or after 6 April 2013
    • Ignore tax code shown on P45
    • Obtain Starter Declaration from employee and show this on first FPS
      •  Starter Declaration A – use tax code 944L on a cumulative basis
      • Starter Declaration B – use tax code 944L on a W1/M1 basis
      • Starter Declaration C – use tax code BR
      • No Starter Declaration given – employer must enter C on first FPS and tax employee using tax code 0T on a W1/M1 basis
  • Obtain Starter Declaration from employee and show this on first FPS
    • Starter Declaration A – use tax code 944L on a cumulative basis
    • Starter Declaration B – use tax code 944L on a W1/M1 basis
    • Starter Declaration C – use tax code BR
    • No Starter Declaration given – employer must enter C on first FPS and tax employee using tax code 0T on a W1/M1 basis

No P45 received before first FPS must be sent

Employee provides P45 after first FPS has been sent HMRC

HMRC guidance is:

  • Either give the P45 back to the employee or ignore the P45 and destroy it (in either event, I’d be inclined to keep a copy marking on it the date the form was received from the employee)
  • Continue to operate the PAYE tax code shown on the first FPS
  • Advise the employee to contact HMRC if they think the employer is operating the wrong tax code (assuming the employee is knowledgeable enough to know if their tax code is wrong!)

Starter Declaration received after first FPS

HMRC guidance is:

  • Add any personal details to the next FPS the employer sends HMRC
  • Store the information
  • Continue to operate the PAYE tax code shown on the first FPS
  • Advise the employee to contact HMRC if they think the employer is operating the wrong tax code (assuming the employee is knowledgeable enough to know if their tax code is wrong!)


As I recommended before, every employer should use a P46-type information gathering process from each new employee. This process should be started as early on in the employment relationship as possible. The employer should certainly not wait to see if the starter produces a P45 before starting to obtain new starter information.

DWP looking to improve the auto-enrolment process

On 25 March, the Department for Work and Pensions announced a consultation on improvements to the auto-enrolment process. Comments on the proposals are invited by 7 May 2013.

Since October 2012, there has been a duty that will eventually apply to all employers to offer their eligible employees a workplace pension. The roll-out of automatic enrolment started with the largest organisations with over 120,000 employees, and will be extended to all employers over the next five years.

The consultation proposes a number of changes to be implemented from April 2014. The following are the particular proposals of interest to payroll.

Pay reference periods

Assessment as to whether a worker is eligible to be auto-enrolled into workplace pension saving depends on the worker’s pay reference period.

The current definition of a payroll reference period can be difficult for payroll systems which have been developed to work for PAYE income tax and NICs. This can make it hard to match a payment of salary or wages to the relevant pay reference period adopted for the purpose of assessing jobholder status. This is because tax weeks and months do not fall neatly into calendar weeks or months.

It can also cause significant challenges for payroll systems when the earnings trigger and qualifying earnings band change. These figures will normally change from the start of a tax year (6th April) which under the current definition will most likely be part way through a pay reference period. Again, this is not something payroll systems are currently set up to deal with.

DWP propose to give employers the option to adopt a different approach to determining pay reference periods, driven by the date on which the wage or salary falls to be paid, i.e.

  • Defining the length of a pay reference period as the period equal in length to the period by reference to which the person is paid their regular wage or salary. So if the worker is paid on a weekly basis the pay reference period will last for that same one payment week.
  • Defining the first day of the pay reference period as the first day of the tax week or month in which the payable earnings fall to be paid. So if the person is paid once during a month, the pay reference period will start on the first day of the tax month that covers that payday.
  • If the worker is paid by reference to something other than a period of a week or a month, the pay reference period will be a multiple of weeks or months as appropriate.

DWP propose running the existing and new pay reference period provisions alongside each other, with the employer having the discretion to determine which to apply.

The consultation document gives a number of examples of how the changes would work in practice.

Time limit for remitting pension contributions

Currently, auto-enrolment pension contributions must be remitted monthly to the pension provide by the 19th (cheque payments) or 22nd (electronic payments) of the first month following.

In the case of the first month’s contributions only, these can be held back and only have to be remitted by the last day of the second month following. This is to allow sufficient time for a worker to be enrolled, decide to opt-out, and receive back their pension contributions before the contributions must be remitted.

However, this extended deadline currently only applies to jobholders and to contributions taken as part of the automatic enrolment, re-enrolment, or opt in process. It does not apply to contributions deducted from pay for entitled workers (those with earnings under the lower limit of the qualifying earnings band.) Nor does it apply to contributions taken as a result of workers joining a pension scheme under the terms of a contract of employment (“contract joiners”).

DWP propose to increase the scope of the extended deadline to all new joiners. As there is no opt out period in respect of entitled workers or contract joiners DWP propose to change the definition so that the extended deadline applies to all pension contributions deducted during the first two months of membership, irrespective of the enrolment circumstances.

The extended deadline is permissive. Employers can choose to pay contributions over earlier.

When contractual pension scheme members opt-out

Contractually joining a pension scheme does not take away the duty to automatically enrol in every circumstance. Any individuals who are contractually enrolled who then cancel their membership still have to be automatically enrolled when they become eligible jobholders for the first time, even if they have only recently cancelled active membership. This adds to the employer’s administrative burdens and may cause frustration or confusion for people who have decided, for whatever reason, that pension saving is not right for them at this time.

Currently, an employer is not required to automatically re-enrol anyone who has opted out of pension saving within the previous 12 months.

DWP are proposing a similar easement to turn off the employer duty at automatic enrolment where a member has recently opted out of pension saving.  It is proposed to introduce an exclusion from automatic enrolment duties in respect of any jobholder (contractual or otherwise) that voluntarily ceases active membership of a pension scheme in the 12 months before the duty would otherwise have arisen.

For example, a worker opts-out of their contractual pension scheme in January and they turn age 22 in March. Currently the employer would have to assess the worker for auto-enrolment on their 22nd birthday. The proposal is to delay having to make this assessment until March the following year, when they reach age 23.

The joining window

Currently, an employer has one month from the automatic enrolment date to achieve active membership of an eligible jobholder in a qualifying workplace pension scheme and issue enrolment information to the jobholder – “the joining window”. The jobholder then has one month to opt out.

In some situations an employer may find it difficult to meet the one month deadline. This is most likely to happen where workers with widely fluctuating earnings or zero hours contracts are automatically enrolled.

For example, a worker is monthly paid on the last bank working day of the month. Their pay reference period starts the beginning of the month, but the payroll might not be run until around the 23/24 of the month. If the employer has to wait until the payroll is run to know what are the worker’s earnings, it gives them very little time thereafter to have enrolled the worker by the end of the calendar month. Consequently such a scheme may not have enough time to complete their part of the joining process by the current deadline. This may put the employer in breach of the duty.

DWP propose to protect the employer from unwitting non-compliance and allow schemes sufficient time to achieve active membership by the deadline. Therefore, the proposal is to extend the “joining window” from one month to six weeks.

Office holders brought into the IR35 legislation from 6 April 2013

On 26 March, HMRC announced that what is known colloquially as the ‘IR35 legislation’ is being extended to include office-holders for the tax year 2013/14 onwards. The IR35 rules for National Insurance contributions already apply to these types of individual.

The IR35 rules were introduced (named after the number of the 1999 Budget Press Release that proposed the original legislation) from 6 April 2000 to deal with the PAYE income tax and NICs where an individual supplies their services via an intermediary. If it were not for the intermediary (e.g. a limited company) the individual carrying out the work would be a direct employee of the employer that uses their services.

How will the changes from 6 April 2013 affect ‘office holders’? HMRC define an office holder as someone who has a ‘permanent, substantive position which had an existence independent from the person who filled it, which went on and was filled in succession by successive holders’. An office holder, such as a company director, does not necessarily hold office under a contract of service.

Where, for example, a company director works for a company under an employment or service contract and pays PAYE income tax and Class 1 NICs in the normal way, there is no problem with IR35. However, what if that same company director were to provide his or her services as a director to a company, through their own company, perhaps paying themselves a salary plus dividends through that company?

If, say HMRC, that director works through his or her company to provide their services to a client on terms which would have made him an employee of the client if engaged directly, then the director will now be affected by the IR35 legislation in the same way as anyone else working in this way.

This is where it gets difficult, as an office holder does not necessarily work under a contract of employment, and yet the IR35 legislation is applied to those who would ordinarily be treated as working under a contact of service but for the intermediary. And now office holders are to be treated as working under a contract of service? See the problem?

Maybe it depends on what kind of ‘office holder’ an individual is? For example, a non-executive* director is definitely an office holder and unlikely to be an employee of the company in any way. Therefore, if the individual’s only relationship with the third party is as a non-executive director then the IR35 tax rules will not apply where they supply their services through an intermediary such as their own limited company.

However, if the director is personally required to work in the day to day management of the company, and they could be doing that, for example, under a service contract with that company but for the intermediary of the director’s own company, then this is the type of individual will now be caught by the amended IR35 legislation.

In other words, if the circumstances are such that the individual might have been both an office-holder and an employee, if the relationship with the client had been direct, then IR35 will apply. Whether or not the legislation would apply will of course depend on the facts.

Therefore, when a client (e.g. company) engages a worker as an office-holder (e.g. as a company director) they should in the first instance determine whether the company has a liability to account for PAYE income tax and NICs on any remuneration for the worker’s (e.g. director’s) services to perform the duties of the office. Simply paying a third party (e.g. the company director’s own company) for those services does not necessarily alter the nature of a payment and, when appropriate, the client (the company) should operate PAYE and subject the worker’s earnings/benefits to NICs in the normal way.

It is only necessary to consider the IR35 rules on any amounts that have not already been subject to tax/NICs as employment income. Where the IR35 rules apply, it is the e.g. company director’s company that must meet the additional PAYE and NICs liability.

This whole area of company director relationships is bound to be a complex one and professional advice maybe needed concerning any contracts between the parties. HMRC have provided some FAQ on office and office-holders which may be of help.

*A non-executive director will still be caught by the National Insurance regulations, even if not by IR35. This is because the NI regulations apply where an individual would have been an “employed earner” of the third party if there had been a direct contract. The term “employed earner” includes an office holder.

Is obesity an impairment under disability discrimination law?

If an individual suffers day to day impairment as a result of their being overweight does this mean that they are ‘disabled’ under the Equality Act 2010 meaning their employer must make reasonable adjustments by reason of their impairment? Is obesity an ‘impairment’ within the sense of the Act?

This was the question in the EAT case of Walker v Sita Information Networking Computing Ltd [2013] UKEAT 0097/12.

In this case, Mr Walker suffered, genuinely, from asthma, dyslexia, knee problems, diabetes, high blood pressure, chronic fatigue syndrome, bowel and stomach problems, chemical sensitivity, hearing loss, anxiety and depression, persistent cough, recurrent fungal infections, carpal tunnel syndrome, eye problems, and sacro-iliac joint pains. That was only an abbreviated list, but were all caused by or exacerbated by his being obese (21.5 stone).

In arriving at his judgement, the EAT judge stated that the first thing a Tribunal must do when considering if an individual is disabled is whether they have a physical or mental impairment. Plainly in this case Mr Walker did; he had a physical impairment. In the judge’s view, the Act does not require a focus upon the cause of that impairment.

Whilst it is open for a Tribunal to conclude that an individual is not disabled where there is no physical or organic cause for their symptoms, the judge opined that “the significance of the absence or physical or organic cause must be confined to the evidential sphere and not raised into a legal bar.” It’s important not to become hung up on the physical or organic reason for the obesity. Although, as the judge stated, he did “not accept that obesity renders a person disabled of itself”, it “may make it more likely that someone is disabled.”

Finally he used the example of someone who suffers from liver disease as a result of alcohol dependency. This could still amount to an impairment although alcoholism [the reason for the impairment] itself is expressly excluded from the scope of the definition of disability in the Act.

This judgement is important, as obesity is a growing problem in the UK. Although an employer may deplore an employee being unable to keep their eating habits under control, they cannot ignore the physical impairment that may arise as a result of their overeating, but must make allowances for the employee’s physical impairment accordingly. If they don’t they run the risk of a disability discrimination claim.

New employee shareholder status in doubt

The Government’s plans to introduce a new employment status for employee shareholders, have received a set-back in the House of Lords.

The plan was that in exchange for up to £2,000 in tax and NICs free shares in their employer’s company, the affected employees would give up certain employment rights. The proposals have been slammed as “ill thought through, confused and muddled”.

Nevertheless, in his Budget on Wednesday 20 March, George Osborne announced that the new employee shareholder regime would go ahead from 1 September 2013.

The legal basis for introducing this scheme was included in the Growth and Infrastructure Bill. Clause 27 “creates a new employment status of employee shareholder in order to increase the range of employment options companies may use as they grow and adapt their workforce.”

However, on 19 March, the House of Lords voted an amendment to drop Clause 27 by a majority of 232 votes to 178.

Daniel Barnett’s blog makes this comment: “The Bill will now return to the House of Commons, where the government will decide whether to accept the defeat (in which employee shareholder contracts will not happen), or try to re-introduce the clause. It is rumoured that the Liberal Democrats are against employee shareholder contracts, and the result of a vote in the Commons is uncertain.”

Therefore, watch this space!

Budget 2013 – real help for employees and employers

On 20 March, Chancellor George Osborne presented his 2013 Budget. There are some measures in the Budget that will find real benefit in the pockets of employers and employees.

Personal allowances

For the tax year 2014/15, the personal allowance for those born after 5 April 1948 will be increased to £10,000 (being introduced one year ahead of schedule), and the basic rate limit will be reduced to £31,865. As set out at Budget 2011, once the personal allowance has reached £10,000, it will then increase by the Consumer Prices Index (CPI) in future years, starting from the tax year 2015/16.

There was no change announced in the basis personal allowance for the tax year 2013/14 which increased from £8,105 to £9,440. Neither did Budget 2013 announce any change to the 45 per cent rate of the additional rate of income tax.

The Government’s above inflation increases in the basic personal allowance from April 2014 will mean that by then, 2.7 million low income individuals aged less than 65 will have been lifted out of income tax altogether and from April 2014 the typical basic rate taxpayer will pay £705 less income tax a year in cash terms as a result of the Government’s actions.

National Insurance employment allowance

From April 2014, the Government is introducing an Employment Allowance of £2,000 per year for all businesses and charities (regardless of size) to be offset against their employer Class 1 secondary NICs liability. The allowance will be claimed as part of the normal payroll process through Real Time Information (RTI).

The Government will engage with stakeholders on the implementation of the measure after the Budget and is seeking to introduce legislation later in the year.

This new allowance is expected to mean that the majority of very small employers will not be required to pay any secondary Class 1 NICs, and this should therefore encourage more very small employers to take on employees.

Abolishing contracting-out for salary-related pension schemes

The Government was intending to introduce a new flat-rate State pension from April 2017 of £144 a week (at today’s values). Contracting-out of the State Second Pension through a salary related (defined benefit) occupational pension scheme was due to be abolished from April 2017. Contracting-out through a money purchase (defined contribution) scheme ended from April 2012.

The single-tier pension and the end of all contracting-out will be brought forward by a year to April 2016. Therefore, from this time all employees and employers will be liable to pay standard rate Class 1 NICs. The increase in NICs will be partially used to finance the Employment Allowance, as above.

Reduction in pension tax relief

As announced in the Autumn Statement 2012, legislation will be introduced in Finance Bill 2013 to reduce the pensions tax relief annual allowance (the amount of pension contributions against which full tax relief is available) from £50,000 to £40,000 and to reduce the standard lifetime allowance from £1.5 to £1.25 million for the tax year 2014/15 onwards.

Employment-related loans

From 6 April 2014, the Government is doubling from £5,000 to £10,000 the de minimis amount that can be loaned to an employee at any one time during the tax year in question. As long as the total outstanding balances on all such loans do not exceed the threshold at any time in a tax year, there will be no tax charge.

This will greatly help employers in funding the rising cost of season tickets, for example, into London each year.

Company car tax

Each year, the Government takes action to ‘squeeze down’ the levels at which employees are charged income tax on the benefit of being provided with car made available for their private use.

From the beginning of the tax year 2015/16, there will be two new appropriate percentage bands for company cars emitting 0-50g of carbon dioxide (CO2) per kilometre (5 per cent) and 51-75g CO2 per km (9 per cent). In addition, as announced at Budget 2012, the remaining appropriate percentages will be increased by two percentage points for cars emitting more than 75g CO2 per km, to a new maximum of 37 per cent.

Budget 2013 also sets out rates for company cars emitting 75g CO2 per km or less for the tax year 2016/17. In 2016/17, the appropriate percentages of the list price subject to tax for the 0-50g CO2 per km band will be 7 per cent; and 11 per cent for the 51-75g CO2 per km band. All other appropriate percentages will be increased by two percentage points to a maximum of 37 per cent. The 3 percentage point diesel supplement will be removed.

In addition, Budget 2013 provides a commitment that in 2017/18 there will be a 3 percentage point differential between the 0-50 and 51-75 g/km CO2 bands and between the 51-75 and 76-94 g/km CO2 bands. In tax years 2018/19 and 2019/20 there will be a 2 percentage point differential between the 0-50 and 51-75 g/km CO2 bands and between the 51-75 and 76-94 g/km CO2 bands.

Budget 2013 announced that from 6 April 2014, the Fuel Benefit Charge multiplier will increase by Retail Prices Index (RPI) for both cars and vans. The Government also announced it will freeze the Van Benefit Charge at £3,000 for the tax year 2013/14 and will increase it by the RPI only from 6 April 2014. The Government is committed to pre-announcing the Van Benefit Charge one year ahead.

Childcare support from autumn 2015

From autumn 2015, the Government intends the current system of Employer Supported Childcare to be phased out. This allows the first £243 a qualifying week of employer-supported childcare (e.g. childcare vouchers and employer paid for childcare) to be free of income tax for basic rate taxpayers (pro rata for higher and additional rate taxpayers).

In the place of Employer Supported Childcare, the Government is introducing a new childcare scheme from autumn 2015 to support working families with their childcare costs.

For childcare costs of up to £6,000 per year per child, support of 20 per cent will be available worth up to £1,200. From the first year of operation, all children under five will be eligible and the scheme will build up over time to include children under 12.

The scheme will provide support for families where all parents are in work and not receiving support through the Childcare Element of Working Tax Credits/Universal Credit, or where one has an income over £150,000. Support will be provided through a childcare account redeemable at any registered childcare provider.

The phasing out of the tax relief applicable to Employer Supported Childcare is likely to affect the many childcare salary sacrifice schemes that have been set up. However, the Government have stated that at the point the new childcare scheme is introduced, existing members of their Employer Supported Childcare scheme will be able to choose whether to remain in their current scheme or move to the new scheme (if they are eligible). The tax exemption available for workplace nurseries will remain.

Budget 2013 announced the Government will consult shortly on the detailed design and operation of the Tax-Free Childcare Scheme, including on how employers can continue to play a role in supporting their employees with childcare costs.

Overseas Workday Relief

Budget 2013 confirms, from April 2013, the introduction of Overseas Workday Relief (OWR) applicable to those employees who carry out duties both in the UK and overseas under a single contract of employment.

OWR will be placed on a statutory footing alongside the introduction of the statutory residence test and the abolition of the concept of Ordinary Residence. OWR will be available to all those coming to the UK who are not domiciled in the UK regardless of their intention to be based in the UK and will be available for the tax year in which they become UK resident and the following two tax years.

The measure will broadly replicate the treatment which currently exists under Statement of Practice 1/09 (SP1/09) for certain employees who are resident but not ordinarily resident in the UK. The legislation will also include some additional easements over and above the current treatment.

Employee shareholder employment status

Despite its lukewarm reception, the Government is to go ahead with its plans for individuals who have taken up the ‘employee shareholder’ employment status. Two tax breaks are to be offered and will apply to shares received through the adoption of the new ‘employee shareholder’ status on or after 1 September 2013.

Firstly, there will be an exemption from capital gain tax (CGT) on any capital gains made by individuals on the disposal of shares acquired through the adoption of the ‘employee shareholder’ employment status.

Secondly, there will be a reduction or elimination of the income tax and National Insurance contributions (NICs) due when employee shareholders acquire shares, by deeming that they have paid £2,000 for the shares. This will ensure that the first £2,000 of share value received by employee shareholders is not subject to income tax or NICs.

Penalties for late and incorrect RTI returns

Budget 2013 provides further information on the proposed RTI penalties that will apply where RTI returns are ‘late’ being submitted; the amount paid HMRC in-year is ‘late’ being paid (this could be because the amount that is actually paid is less than what should have been paid); or the RTI return is inaccurate.

The new late filing penalties and the changes to the late payment penalties will apply on and after 6 April 2014. The changes to the inaccuracy penalties will have effect from the date that Finance Bill 2013 receives Royal Assent. The inaccuracy penalties are already in force and without this change the process for assessing and notifying these penalties to employers would be unduly complicated.

Late filing penalties will apply to each PAYE scheme, with the size of the penalty based on the number of employees in the scheme, so that different-sized penalties will apply to micro, small, medium and large employers.

Each scheme will be subject to only one late filing penalty each month, regardless of the number of returns due in the month. There will be one non-penalised default each year, with all subsequent defaults attracting a penalty. Penalties will be charged quarterly, and subject to the usual reasonable excuse and appeal provisions.

The upcoming changes to the penalty regime will also ensure penalties are based on the number of late payments relating to each tax year; ring-fence each penalty so that if further defaults arise earlier penalties do not have to be recalculated; and permit a penalty to be amended once it has been issued, rather than having to be withdrawn and reissued.

The Government may use regulations to apply a relief from late payment penalties if the sums paid by the employer do not exactly match the figures shown as deducted on the RTI returns for the relevant period. This is designed to prevent penalties being issued where there is only a small discrepancy between the return figures and sums paid over each period. However, the late payment penalty will apply where it is obvious the employer has chosen to underpay.