Using the right PAYE tax code for the tax year 2014/15

The PAYE tax code an employer must use will depend on a number of factors such as whether the new code notification comes on a form P9, and in the case of new employees their date of leaving as shown on their P45 coupled with the date they start their new job.

To help employers use the correct PAYE tax code, online form P9X is published each year.

For example, the P9X for 2014/15 makes clear that for existing employees (i.e. those in employment on 5th April 2014) the employer should either:

  • Use the latest PAYE coding notice P9 issued by HMRC for the tax year 2014/15, or
  • Carry forward the employee’s last PAYE tax code from 2013/14, or the last form P2 coding notice received for 2013/14. Where the code has an ‘L’ suffix, the employer should add 56 points to the code, so that 944L becomes 1000L. Do not carry forward any W1/M1 markings. Do not alter any other carried forward codes that are not ‘L’ suffix codes (such as a ‘D’ or ‘NT’ tax code).

Leaving employees

If you have an employee whose contract ended on or before 5th April 2014 but will be paid their last routine wages on or after 6th April (after which they’ll be given their P45), you should use the existing tax code last used in 2013/14. This is not the same where a payment is made after termination of employment and issue of the P45 when tax code 0T on a W1/M1 basis should be used.

New employees

If you have a new employee who starts their new job between 6th April 2014 and 24th May 2014, there are special instructions as to which PAYE tax code the employer must use.

Recovering CIS deductions by a limited company subcontractor

Are you a limited company subcontractor who is engaged in construction operations and receiving payments from which CIS deductions have been taken? This information is for you.

HMRC have published a very useful Helpcard – Repayment claims for limited company subcontractors. Firstly, the Helpcard reminds the company how to go about obtaining gross payment status so they don’t suffer CIS deductions.

The rest of the Helpcard then outlines how a limited company subcontractor that has suffered CIS deductions can get the deductions offset against other tax liabilities (CT & VAT), or repaid directly to the company by HMRC.

A claim for offsetting or repayment can only be made in writing after the end of the tax year in question.

Whenever a limited company subcontractor suffers CIS deductions they should report the total of all the deductions for a particular tax month on an Employer Payment Summary.  Therefore, after the company’s last EPS for the tax year has been made then the application for offsetting or recovery can be made.

Overnight subsistence rates in the road haulage industry

On 14th April, HMRC updated the scale rate overnight subsistence rates they will allow employers in the road haulage industry to pay drivers for the year ended 31st December 2014.

The HMRC news items for 14th April states that the lorry drivers’ overnight subsistence allowance rate remains unchanged – £26.20 for drivers with sleeper cabs and £34.90 for drivers with non-sleeper cabs.

The relevant page of the HMRC’s Employment Income Manual will be updated accordingly.

Correcting errors on RTI returns for tax year 2013/14

HMRC have published information, together with links, to help employers understand how to go about informing HMRC of errors on RTI returns for the tax year 2013/14.

In their information, HMRC essentially outline three situations:

  1. The employer wants to correct the figures already sent on a Full Payment Submission – as long as midnight of 19th April 2014 has not passed, the employer can submit amending FPS;
  2. If the above deadline has passed, an employer can only correct FPS figures by submitting an Earlier Year Update;
  3. Where the employer wants to correct figures already submitted on an Employer Payment Summary (e.g. for the recovery of statutory payments); they have up to six years from when they sent in their original EPS to do this.

Latest April 2014 Employers Bulletin available to download

HMRC have published their latest Employer Bulletin – April 2014, Issue 47. It contains must read information for employers.

The April 2014 issue contains articles on (among other matters):

  • Employment Allowance – get up to £2,000 off your employer’s Class 1 NICs each year;
  • Tax Free Childcare – being introduced from autumn 2015 and will see the current tax/NICs exemptions for employer provided childcare and qualifying childcare vouchers being phased out and replaced by a government-sponsored childcare support fund;
  • Requirement to include Scheme Contracted-out Numbers (SCON) on RTI returns from April 2014;
  • End of recovering SSP under the Percentage Threshold Scheme for payments due on or after 6th April 2014;
  • Reporting expenses and benefits for the tax year 2013/14;
  • Automatic enrolment pitfalls to avoid as we come into a very busy periods for employers having to enrol their workers into pension saving for the first time;
  • Crackdown on the use of agencies and employment intermediaries (to avoid paying tax/NICs), as a result of new legislation applicable from 6th April 2014;
  • Handling the new type of Deduction form Earnings Orders being issued by the Child Maintenance Service;
  • Planning now for new rights to Shared Parental Leave & Pay which from April 2015 replaces the current Additional Paternity Leave & Pay arrangements.

Ensuring a discretionary payment of wages does not end up a contractual right

Just because a discretionary payment has been made over many years does this automatically mean it ends up being incorporated into an employee’s contract, and an unlawful deduction made if not paid in full? This was the question in the EAT judgement in Glasson v London Borough of Bexley [2014] UKEAT 0224/13.

In this case, Ms Glasson had been paid an extra amount of pay for performing additional duties and these sums had been paid over a four-year period. A restructuring took place resulting in Ms Glasson being assimilated into a new role, which role included the previously additional duties as part of the job description for her new role. However, for some months after Ms Glasson started her new job the additional wages continued to be paid to her until her employer stopped the payment. Ms Glasson claimed that the extra payments she had been receiving were hers by contractual right and the employer was guilty of an unlawful deduction by stopping paying her the additional payments.

The employer maintained that the additional payments were purely an honorarium (generally regarded as an ex-gratia temporary payment with no recognised legal liability or obligation to make it) and was always recorded on the employee’s payslip as such; the honorarium was never intended to become a permanent payment.

The employer’s general terms and conditions stated the following concerning the payment of honorarium:

“Under paragraph 35B of the conditions of service an honorarium may be paid when an officer undertakes part of the duties of a higher graded post for a continuous period of at least four weeks. Exceptionally an honorarium may be paid where there is no entitlement to a higher salary but where an officer performs duties outside the scope of his/her post over an extended period (i.e. at least four weeks) or where the duties and responsibilities involved are “exceptionally onerous.'”

The above makes clear that an honorarium “may be paid”, i.e. is a discretionary payment and only applies as long as the employee undertakes additional duties that are not normally part of their job description.

The Employment Tribunal accepted that any honorarium paid by the employer was temporary in nature and could be withdrawn at the discretion of the employer; such payments were never meant to be incorporated as a permanent feature of a contract of employment for any of the employer’s employees. Rather, as posts changed or evolved over time and could be subject to a re-evaluation, if the evaluation resulted in a higher grade then new contractual terms would apply.

Ms Glasson’s post had been re-evaluated resulting in her being re-graded as undertaking a job where the honorarium no longer applied and therefore it had been lawfully withdrawn. The EAT agreed with this.

This case stresses the need to ensure that terms and conditions are always expressly stated when it comes to paying sums of money to an employee that they see as their right to receive. Where nothing is expressly stated, then such a payment can become ‘contractual’ where there is a well-known expectation of receiving the payment and if the employer suddenly stops making the payment they may be in breach.

Do you want to avail yourself of the pension flexibility announced in Budget 2014?

Budget 2014 announced that from April 2015, there would be greater pensions flexibility for those with money purchase (defined contribution) occupational pension schemes. But what if you would rather use the new flexibility now, instead of buying a lifetime annuity? This is for you.

On 9th April, HMRC provided more information to help people who want to use the new flexibility. This information is for people who have:

  • Received a tax-free lump sum on or before 27 March 2014*; or
  • Either cancelled an annuity contract within the cooling-off period on or after Budget day (19 March 2014) that was linked to that lump sum, or not yet decided how to access the rest of their pension savings.

The information provided by HMRC explains the circumstances under which an individual can already take advantage of pension flexibility without waiting for changes to the Finance Bill 2014.

Information is also given concerning the circumstances that will allow individuals to take advantage of pension flexibility after changes are made in Finance Bill 2014 in cases where they have recently received a pension scheme lump sum, so that it remains tax-free.

*Note: These changes will not apply to an individual who has already received a tax-free lump sum, and started to receive a pension income, and the cooling-off period has ended. As set out in paragraph 3.22 of the ‘Freedom and choice in pensions’ consultation document. Such individuals will remain bound by the contract made with their annuity provider.

Latest links and information to authorisation form 64-8

Are you an agent wanting to act on behalf of a client; for example, you want to be able to communicate with HMRC concerning your client’s PAYE affairs? This is for you.

A form 64-8 must be completed and sent to HMRC whenever an agent starts to act for an aspect of a client’s affairs that isn’t covered by an original 64-8. A fresh form 64-8 authorisation for the new service will be needed, with a current date.

HMRC have published a Helpcard How to submit form 64-8. The Helpcard also provides a link to the latest PDF download for form 64-8.

An agent applying for a new 64-8 authorisation will need to complete the 64-8 online, print it off, and send it to the right HMRC office (relevant addresses given in the Helpcard).

Note: the authorisation FBI2 process only covers online communications with HMRC; a form 64-8 authorisation  is required to enable the agent to undertake written and telephone contact with HMRC concerning their client’s PAYE affairs.

New Statutory Instrument abolishes any further SSP recovery

From 6 April 2014, it is no longer possible for an employer to recover any Statutory Sick Pay that is due on or after 6 April.

The Statutory Instrument revoking the Percentage Threshold Scheme* is the Statutory Sick Pay Percentage Threshold (Revocations, Transitional and Saving Provisions) (Great Britain and Northern Ireland) Order 2014.

Although no SSP recovery is possible against payments due on or after 6th April 2014, the SI does make clear that the Percentage Threshold Scheme (PTS) continues to have effect for the period of two years beginning with 6th April 2014 for the purposes of entitling an employer to recover an amount of SSP (whether paid before, on or after 6th April 2014) in respect of any day of incapacity for work falling before 6th April 2014.

SSP recoverable under the PTS and due on or before 5th April 2014 cannot be recovered by being returned on a tax year 2014/15 specification Employer Employment Summary. This is because the latest version of an EPS carries no data fields for the recovery of SSP.

Therefore, if an employer is entitled to recover any SSP and it was not included in a tax year 2013/14 specification EPS return (returnable for the tax year 2013/14 up to midnight on 19th April 2014), the employer will need to make a manual claim. They’ll do this by downloading a form SP32, completing the form and sending it by post to HMRC.

*The Percentage Threshold Scheme entitled an employer to recover SSP when the amount of SSP due payable for a tax month exceeded 13% of their gross Class 1 NICs (employers’ and employees’) liability for the same tax month. In reality, only employers with a very high incidence of sickness were in a position to recover any SSP under PTS.

The money saved by abolishing the PTS scheme (estimated at £50m a year) is being put towards the developing the new Health and Work Service, due to start in 2015, which will help employees and employers put together plans to facilitate getting incapacitated employees back to work as quickly as possible.

Generic Notification Service when you’re ‘late’ submitting a Full Payment Submission

HMRC is updating its Generic Notification Service (GNS) messages for the tax year 2014/15 to start notifying employers when they are late submitting a Full Payment Submission (FPS).

Employers will be able to access their GNS messages by logging into PAYE Online Services and selecting the generic notification notices from within the Notice summary section. It may also be possible to view their notifications in their commercial payroll package, as long as their software is compatible with viewing generic notifications.

Electronic Data Interchange (EDI) users may now choose to receive GNS messages through either EDI or the internet if they have EDI outbound communication in place.

A FPS return should be submitted online to HMRC on or before the date of payment. Therefore, if HMRC receives a FPS after the date of payment shown on the return, this may trigger a late filing message.

However, HMRC will only send an employer one GNS late filing message a tax month. Therefore, if an employer pays its employees weekly but is late in submitting each one of its FPS returns for a particular tax month, they’ll still only receive one late filing message.

Where an employer is ‘late’ submitting an FPS, from the start of the tax year 2014/15, they are supposed to inform HMRC of the reason they are late, by entering an alpha character in a specified field on the FPS return. For example, the letter ‘H’ means the employer’s current FPS is correcting a previously submitted FPS. HMRC will take ‘late’ reason into account when it comes to issuing a GNS late filing message.

The late filing message will inform the employer:  “Our records show that you didn’t send HM Revenue & Customs your Full Payment Submission (FPS) on time. You must send an FPS each time you pay your employees.

“From October 2014, if you don’t send your FPS on time you may incur in-year filing penalties. Please make sure that you send your FPS on time in future.

“If a late reporting reason applies because you are unable to submit your FPS on or before the date an employee is paid, you should tell HMRC on your FPS.”

There is information on late reporting reason alpha characters by following this link – see the bottom of the web page.

There is information on the automatic late filing penalties that will start to apply from October 2014 by following this link.