Hike in season ticket prices from January 2013

January 2013 saw another above inflation increase in season ticket prices for the 10th year running. The average increase is 4.3%. How will this affect employees?

The above inflation increase in season ticket prices will be a blow for employees struggling to make ends meet out of non-existent, or very small wage increases. The Office of Rail Regulation reports that the cost of an annual season ticket has increased by around 50% between January 2004 and January 2013. The Hay Group PayNet UK Salary Tracker found that among lower paid office workers, an annual season ticket now swallows up nearly a quarter of their gross salary. For many commuting to London from the South-East it is even more.

Some employers offer employees season ticket loans to help them spread the cost of commuting throughout the year. Under section 180 of the Income Tax (Earnings and Pensions) Act 2003 there is no taxable benefit if an employer loans an employee no more than £5,000 at any one time during the tax year in question (whether that’s in one or more loans) at a rate of interest that is less than the official rate, currently 4% for the tax year 2012/13.

Up to now a maximum amount of £5,000 by way of an interest free (or very low interest) employment-related loan was sufficient to cover most annual season tickets. That is not necessarily the case from January 2013.

An annual season ticket from places such as Bournemouth, Peterborough, and Kettering in Northamptonshire, into London, already well exceeds £5,000. Other annual season tickets into London from places such as East Kent, the South Coast, Colchester, Huntingdon, Oxford, and Cambridge are approaching £5,000. The £5,000 de minimis limit will certainly soon be exceeded with continuing above-inflation increases expected  over the next few years.

Therefore, where an employer loans an employee more than £5,000 at any one time during the tax year, there will be a taxable benefit. The cash equivalent value of this benefit is the average amount of interest calculated on the loan at the official rate less any interest required to be paid, and actually paid, on the loan by the employee.

For example, where an employee borrows £5,100 by way of an interest-free season ticket loan over the tax year 2013/14, and repays the loan each month in equal instalments, the cash equivalent value of the loan will be £102, assuming an official rate of interest at 4% for the whole of the tax year.

As can be seen, although the additional income tax payable on the above benefit (£20 a year (40p a week) for a basic rate taxpayer; £41 a year (80p a week) for a higher rate taxpayer) is not that great, nevertheless the value of the benefit will grow as season ticket prices go on increasing, and more and more employee find themselves caught in the employment-related loan trap.

Both the above inflation increase in commuting costs and the potential for an additional taxable benefit in kind will all apply pressure on wage demands.

Large redundancy consultation period to be cut to 45 days

The Government intends, with effect from 6 April 2013, to reduce the current 90-day minimum consultation period, before very large scale redundancies can take place, to a 45-day minimum period for redundancies of 100 or more.

On 18 December, the Department for Business, Innovation and Skills published the Government’s response to a consultation held in June 2012 concerning the rules on collective redundancy consultation as part of a wide review of employment law.

The Department press release states: “The replacement of the current 90 day period to 45 days will still allow full employee engagement and offer employee representatives a statutory right to contribute to the process. The new 45 day period will be a minimum period, and businesses may consult for longer where appropriate.” It was thought that the 90 day consultation period could “cause unnecessary delays for restructuring, and make it difficult for those affected to get new jobs quickly.”

Making sure oral job offers match actual written terms and conditions

An interesting case shows the importance of checking exactly that what is offered in a verbal job offer matches what is actually included in writing by way of terms and conditions.

In The Partners of Haxby Practice v Collen [2012] UKEAT 0120/12, Ms Collen applied for a job as a Practice Nurse. At interview general pay scales were discussed with her but nothing specific was stated. Ms Collen was then offered the job over the telephone with a starting date of 1 September. She was also told that the Pratice intended to offer her a starting salary of £22,427 pa. The amount didn’t really impact on Ms Collen at the time as she was so exited about being offered the job. Ms Collen was told she would receive a letter confirming all the actual details concerning her new job.

Ms Collen duly received an official job offer in writing. Two things – the start date was given as 13 September, and the starting salary was £30,762 pa. Ms Collen queried the start date, but not the salary because she hadn’t remembered what was the amount mentioned on the phone when she’d been told the job was hers. The Practice sent out a revised written job offer, correcting the start date but leaving the starting salary at £30,762 pa.

When Ms Collen turned up for work on 1 September she was immediately told that the salary offered of £30,762 pa was wrong and in fact it should be £22,427 pa. Ms Collen objected but neither side could agree and her employment was terminated on 3 October. It was found that she’d been unfairly dismissed. She was not given any payment in lieu of notice.  Ms Collen’s claim for damages was based on annual pay of £30,762 rather than £22,427, for the period of one month. She also claimed an unlawful deduction of wages because the pay she had received for the days she worked was only paid at the rate of £22,427 pa.

The Employment Tribunal found, and the EAT agreed, there was no binding contract as a result of the telephone job offer; it couldn’t be found that Ms Collen had accepted the telephone offer. Even if there had been a verbal acceptance, the written offer would have superseded it. And it was to the written offer that Ms Collen had sent her acceptance. It was only when Ms Collen sent her letter of acceptance was a binding contract formed. Therefore, she was entitled to be paid and compensated based on the agreed annual rate of £30,762.

The present problem could have been avoided if:

  • The verbal offer had been based on a written document, with notes kept of what transpired.
  • The document forming the basis of the verbal offered was carried forward into and checked against the written job offer. The Practice had a ‘second bite at the cherry’ when they had to revise the job letter due to the incorrect starting date.
  • The same terms included in the written job offer are also included in the written terms and conditions of employment if given separately to the written job offer.

New UK statutory residence test from 6 April 2013

Legislation will be introduced in Finance Bill 2013 to put the rules which determine an individual’s tax residence on a statutory basis. The new statutory residence test will come into force from the start of the tax year 2013/14.

The legislation will also provide for a tax year to be split into a UK part and an overseas part in certain circumstances and contain new rules for the taxation of certain income and gains arising during a period of temporary non-residence.

HMRC have published draft guidance to assist individuals on the application of the statutory residence test and on eligibility for overseas workday relief.

Under the new statutory residency test, an individual will be treated as resident in the UK for a tax year if:

  • They meet the ‘automatic residence test'; or
  • The ‘sufficient ties test’.

The ‘automatic residence test’ is based on the amount of time an individual physically spends in the UK during a tax year, and/or the amount of time they spend working in the UK. If this first test doesn’t apply then the second ‘sufficient ties test’ must be examined. This second test has more to do with factors such as, for example, where an individual’s normal home and family are.

If an individual doesn’t meet either of the above tests they are not resident for UK tax purposes for that tax year.

‘Overseas workday relief’ applies to someone who is resident in the UK and has foreign earnings paid to them in relation to duties performed outside the UK. Under certain circumstances no UK income tax will arise on those earnings unless they are remitted to the UK.

RTI guidance for employers straight from the ‘horse’s mouth’

HMRC have made available three around half-hour webinars to help employers understand what Real Time Reporting is all about and how it affects them from this coming April 2013.

The webinars are free – all you need do is to enter your name and email address to watch. The webinars are entitled:

  • Get ready to operate PAYE in real time
  • Accurate Employee Information Matters
  • Real Time Information

If you’re an employer and haven’t yet found out how RTI is going to affect you, then DO NOT delay – go online and at least watch the webinar ‘Get ready to operate PAYE in real time’!

 

Auto-enrolment thresholds for tax year 2013/14 announced

The Department for Work and Pensions have announced they are putting forward an increase in the auto-enrolment thresholds for the tax year 2013/14. The thresholds will be the same as those for the basic Personal Allowance (used to set the annual PAYE threshold) and Class 1 NICs announced in the Chancellor’s Autumn Statement of 5 December.

On 6 September, the Department for Work and Pensions (DWP) published a consultationAutomatic enrolment earnings thresholds review and revision 2013/14‘. On 14 December, DWP published the Government’s response to the consultation.

In the response document, DWP state: “We propose to lay an Order before Parliament as follows:

  • £9,440 for the automatic enrolment earnings trigger [it is £8,105 for 2012/13];
  • £5,668 for the lower limit of the qualifying earnings band [it is £5,564 for 2012/13];
  • £41,450 for the upper limit of the qualifying earnings band [it is £42,475 for 2012/13].”

SMP change date for 2013/14 really is 7 April 2013!

Despite an amount of confusion and difference of opinion, it has been confirmed by the Department for Work and Pensions that the new flat rate of SMP/SPP/SAP for the tax year 2013/14 of £136.78 a week applies to all payment weeks starting on or after Sunday 7 April 2013. There is a legislative basis for choosing this date, and not the Sunday before (i.e. 31 March).

Section 150 of the Social Security Administration Act 1992, entitled Annual up-rating of benefits, paragraph (1)(j) refers to section 166 [SMP] of the Social Security Contributions and Benefits Act 1992. Section 10 of the Administration Act states that an order [for uprating, among other benefits, SMP] shall be framed so as to bring the alterations to which it relates into force:

  1. in the week beginning with the first Monday in the tax year; or
  2. on such earlier date in April as may be specified in the order.

The first Monday in April is Monday 1 April. Therefore, as SMP weeks always commence on a Sunday, and as there is not a Sunday in April that predates Monday, 1 April, the first SMP payment week to which the new flat rate will apply has to be from Sunday 7 April 2013.

Incidentally, it has been common practice by DWP to uprate SMP (and along with it SPP and SAP) from the first Sunday in April.

 

RTI and expatriate employees

Are you a UK employer who is required to operate PAYE and NICs in relation to employees sent to the UK on assignment, where those employees remain employed by, and are fully or partially remunerated by, the overseas employer, including one which is a branch or parent of the UK Company?

Or, are you a UK employer that is required to operate PAYE and NICs in relation to their employees sent overseas on assignment, where those employees remain employed by you, but are fully or partially remunerated by an overseas employer, including one which is a branch or parent of the UK Company? If so, have you considered the Real Time Information implications?

If you are affected by one of the above situations, you need to go online to the HMRC website and download their ‘FAQs from employers operating PAYE in real time with expatriate employees working either in the UK or overseas.

HMRC accept there are situations where it is not reasonably practicable for an UK employer to report all ‘payments’ made to an expatriate employee in ‘real time’. Therefore, they are prepared to take a “common sense operational approach” to deciding whether they agree that employers of expatriates have a reasonable excuse for not telling HMRC on time about any income tax and Class 1 NICs due on payments and notional payments (e.g. in relation to share-related gains) made in-year to expatriates by third parties and overseas employers; or for not paying this tax/NICs by its due date.

Under normal circumstances a Full Payment Submission should be made “on or before” the date of payment of employment income, and any tax/NICs liabilities arising paid by the latest the 22nd of the tax month following.

The field of expatriate payments is a difficult one, so employers likely to be affected by what is mentioned above are recommended to go online, as above, straightaway!

 

 

 

Increase in statutory employment rights limits

The Government has published its Employment Rights (Increase of Limits) Order 2012 which applies from 1 February 2013, and will see the maximum weekly amount of statutory redundancy pay rise from £430 to £450.

The Order announces the following increases with application to all effective dates of termination occurring on or after 1 February 2013:

  • Statutory redundancy pay: from £430 to £450 a week (maximum statutory payment – based on 20 years’ service over the age of 21 x 1.5 weeks – from £12,900 to £13,500).
  • Minimum amount of compensation in cases of unfair dismissal: from £5,300 to £5,500.
  • Maximum amount of compensation in cases of unfair dismissal: from £72,300 to £74,200.

The amount of a day’s guarantee payment increases from £23.50 to £24.20.

All the above increases are index-linked based on a 2.6% rise in the retail prices index between September 2011 and 2012 and rounded up to the nearest whole £10.