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.

HMRC eases initial RTI burdens for small employers

On 19 March, HMRC announced an easing of the RTI reporting rules that will apply to small employers during the first six months RTI is in general operation.

One of the requirements of RTI is that “on or before” the date of payment an employer must send HMRC an RTI return covering employee’s wages.

In the announcement, 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 in a PAYE scheme, 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).

HMRC will continue to work with employer representatives during the summer to assess and understand the impact of RTI on the smallest businesses and consider whether they can make improvements to real time reporting which will address their concerns without compromising the benefits of RTI or the success of the Department for Work & Pension’s Universal Credit.

The above announcement is in addition to guidance issued by HMRC back in November 2012. This guidance dealt with payment problems caused by paying, for example, bar staff or harvest workers cash in hand at the end of the shift. There are a number of other situations where HMRC will accept a slightly ‘delayed’ RTI reporting.

Therefore, the above relaxation of the RTI reporting rules will benefit other employers who may need extra time to ‘get their house in order’ about changing procedures to ensure they can send RTI returns online to HMRC more in line with actual payment dates. One of the major reasons for the introduction of RTI is to help inform the amount of the Universal Credit that a claimant is entitled to from October 2013 onwards. Obviously the closer the RTI records are to actual payments, the more informed will be the award and adjustment of Universal Credit.

The above 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.

HMRC information on running your payroll for 2013/14

What help, guidance, and information is available for employers about their payroll responsibilities for the new tax year 2013/14? Not as much as you might want!

Most everything you need has gone online, which means you must either save the PDF documents to your hard drive, only go online to read them, and/or print out some or all of what you need. The helpbooks, guides, tables, and forms are not even available anymore on a CD-ROM.

If you want to see what’s available for the tax year 2013/14 you’ll need to go online and follow the links. What will you find?

Calculation tables

These include tax tables, NI tables, and Student Loan Deduction tables.

“These publications”, say HMRC, “are designed for use by employers who are exempt from filing online or have not yet started to report PAYE in real time. If you are using payroll software you do not need to use these tables for manual calculations.”

I always think it’s very shortsighted to just rely on payroll software. It’s essential that someone in the payroll department has a clear understanding of how payroll is manually calculated. So regardless of whether you’re operating under Real Time Information, you’ll need access to these tables.

Running your payroll

This section is for all employers, and includes general helpbooks and guides as well as specialist helpbooks dealing with the various statutory payments and the collection of Student Loan Deductions.

Say HMRC, “Some of these publications are designed for use by employers who are exempt from filing PAYE online or have not yet started to report PAYE in real time. Employers operating PAYE in real time may find some aspects of these booklets helpful as they are accurate for the purpose of operating payroll, but they have not been updated for reporting payroll information in real time.  Some updates will be available from 6 April 2013.”

This approach is typified with Helpbook E13 Day to day payroll. On the front cover, it’s stated: “This guide is intended for the very small number of employers who are exempt from the requirement to file their starter and leaver information and similar pension information online.”

So what’s available if you want to know about the day to day practicalities of running a payroll under Real Time Information; for example, dealing with starters and leavers? You won’t find it in Helpbook E13. You’ll need to go back online and follow the subject links.

Expenses and benefits

The booklets under this section are unaffected by the operation of PAYE in real time. However, there are no links from this section to any forms P11D, P9D, and P11D(b), or to the P11D Working Sheets.

There is, however, another online source of information about expenses and benefits, and if you scroll right down to the bottom of this page you’ll find links to downloadable PDF versions of forms P11D, P9D, and P11D(b).

There is also a link here to supposedly help you order forms, etc. from the Employer Orderline. But if you follow this link you are then directed back to the same web page where you originally started! And there are no links on that page to downloadable forms P11D, P9D, or to form P11D(b), or the P11D Working Sheets.

If you click on the link, following the heading ‘Paper copies of forms and publications’, you’re taken to a page that informs you that, “With the exception of forms P45 and P60, employers are expected to access PAYE guidance and forms online. The Employer Orderline holds limited stocks of paper products and can only supply these to the small number of employers who are exempt from online obligations and those unable to access the internet.”

How frustrating! It seems for the majority of employers there are only two forms they can order – P45 and P60.

For most employers it seems we’re left with whatever information we can obtain online, and download, and/or print out for ourselves. And we’ll have to keep checking back online, because HMRC admit that there will be changes to the guidance during the coming tax year, as a result of moving to Real Time Information.

HMRC email alert service

If you want to be alerted to new information, you can register for the HMRC email alert service. HMRC will expect to send out three email alerts a year – February, May, and September.

Each email alert registration will last for up to one year after which HMRC will send you an annual confirmation email. This shows the registration details HMRC holds and tells you if you need to take further action. This is simply to ensure that the contact details held for this purpose are kept up to date.

Employer Bulletin

HMRC normally publish the Employer Bulletin three times a year – in February, April and September. The Bulletin is designed to give employers and agents the latest information about payroll topics and other issues that may affect them. It is published in a handy, accessible format that can be read online, saved to your own computer, or printed off to read.

As part of a registered email alert service you will be informed when the latest Employer Bulletin is issued.

GOV.uk website

And finally, where might all your online help and guidance be going in the near future? The Direct Gov (for employees) and BusinessLink (for employers) websites have gone. Instead Government is transferring all its guidance for both employees and employers, for example, onto the new GOV.uk website. HMRC is in the processing of transferring its guidance to this website.

Good idea? At least all the necessary information will be in one place? Well I’ll let you go and have a look at the GOV.uk website, under for example the heading ‘Payroll’, and see what you think. What’s there at the moment is very basic and simplistic and only covers the bare necessities. It doesn’t really fill me with optimism…

 

Update on Government’s progress on its Employment Law reforms

In March 2013, the Department for Business, Innovation and Skills published its Employment Law 2013 – Progress on Reform report concerning upcoming changes to employment law.

The report outlines the changes that have been introduced since the Employment Law Review was launched in 2010 and what changes are expected in the next one to two years. This is all part of the Government’s aim of achieving a labour market that is:

  • Flexible – encouraging job creation and making it easy for people to stay in work and find work;
  • Effective – enabling employers to manage staff productively; and
  • Fair – employers competing on a level playing field and workers benefiting from core employment protections.

What changes can we expect that might have an impact on payroll?

Taking people on

  • The Government considers there are too many National Minimum Wage (NMW) regulations. Therefore, they intend to consolidate the NMW Regulations and publish a set of improved regulations by the end of April 2013. This will help to retain fairness for individuals, increase effectiveness, and support employer compliance.
  • The Government is currently consulting on proposed reforms to remove gold-plating in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Reforms are aimed at ensuring protection is retained and businesses have more flexibility. The consultation closes on 11 April 2013, and the Government aims to bring any necessary changes into force from October 2013.
  • The Government wants to make changes to the Agricultural Minimum Wages regime. They are taking forward legislation in the Enterprise and Regulatory Reform Bill to abolish the Agricultural Wages Board for England and Wales, the 15 related Agricultural Wages Committees, and the 16 Agricultural Dwelling House Advisory committees in England, and to make amendments to bring agricultural workers within scope of the National Minimum Wage regulations. The Government will also separately make amendments to secondary legislation to ensure that agricultural workers are protected by the Working Time Regulations.
  • The Government is concerned about the operation of the Agency Workers Regulations 2010, and intend to start work shortly on a review of the Regulations to ensure the practical arrangements necessary for employers and agencies are as simple as possible.
  • Many employers have reported their concerns about the complex and time-consuming process of checking a potential employee’s right to work in the UK, involving as it does the many different types of document that might need to be checked. Therefore, the Government is looking to make this process easier for employers by issuing more biometric residence permits to foreign nationals. These stand-alone documents issued by the UK Border Agency are increasingly familiar and checking them alone establishes the right to work in the UK.
  • There are also the concerns about the necessity to carry out criminal record checks when certain types of employee are recruited. The Home Office aims to introduce a new service by summer 2013 that will allow employers to check online whether an individual’s criminal records check is up-to-date. If it is they will not need to apply for a new one.

In work

  • To help individuals balance childcare with working, the Government is going ahead with proposals to introduce a new right of Shared Parental Leave. This will enable families to decide by whom and how children are looked after in the first year, providing them with greater choice in how they manage childcare while giving both parents a fair opportunity to participate in the labour market. The Children and Families Bill, introduced into Parliament in February 2013, will establish the legislative framework necessary. Shared Parental Leave will be introduced in 2015.
  • The Government is also extending the right to request flexible working to all employees. The legislative changes are part of the Children and Families Bill and are expect to be introduced in 2014.
  • The Government also see it as a priority to retain the individual’s right to opt-out of the 48-hour maximum working week, while also seeking additional flexibility in the areas of on-call time and compensatory rest.
  • When it comes to Statutory Sick Pay, probably during 2014, the Government wants to simplify the burdens on employers in keeping SSP records. The Government also wants to abolish the Percentage Threshold Scheme (for the recovery of SSP). And they want to introduce a new health and work assessment and advisory service in 2014 which will offer free occupational health expertise to employees, employers, and GPs, including an independent assessment of employees who have been off sick for four weeks.

Letting people go

  • Already from April 2012, the Government introduced an extension in the service test, from one to two years, before an employee can bring a claim of unfair dismissal against their employer.
  • The Government now wants to see the increased use of settlement agreements as a consensual and mutually beneficial way of ending the employment relationship that avoids the cost and distress of a tribunal. This will give the parties greater flexibility to come to an agreed outcome that they consider fairer than if the case went to an Employment Tribunal. Legislative changes, a new Statutory Code of Practice, and accompanying guidance will be introduced by summer 2013.
  • From early in 2014, the Government is also proposing the provision of an Early Conciliation service before a claim can be lodged at an Employment Tribunal, offering the parties the opportunity to resolve their dispute through the Advisory, Conciliation and Arbitration Service (Acas) and avoid the need to go to a tribunal.
  • From summer 2013, the Government will be introducing a new 12 months’ pay cap on the compensatory award for unfair dismissal to run alongside the overall cap. This will give employers more certainty about their potential liabilities and employees more realistic expectations about unfair dismissal award levels.
  • The Government also wants to give Employment Tribunals the power to levy financial penalties against employers found to have breached employment rights.  Judges will have the discretion on whether to levy a penalty of up to 50% of the value of the award where an employer has breached employment rights. Genuine mistakes will not be penalised. This should ultimately lead to fewer workplace disputes and Employment Tribunal claims.
  • Employers have said that it is too difficult for employers to make workers redundant and that the regulatory burdens faced by them can be disproportionate. Generally, the Government accepts that both employers and employees find the redundancy process difficult. Therefore, they are reforming the collective redundancy rules from April 2013. To support these reforms, Acas will publish new collective redundancy guidance.
  • Further to this, the Government also intends to improve the information and guidance available to help employers manage the redundancy process. They will work with Acas to produce a simple online guidance tool on the entire disciplinary process in 2013. This interactive tool will be targeted at small businesses and also address key issues raised by them.

 

 

HMRC advises on RTI data for starters

HMRC have provided some new guidance on how to ensure the right starting information is provided for a new employee on the first Full Payment Submission an employer sends HMRC covering a starter’s first payment of wages.

Reproduced below is the HMRC guidance, with my comments and recommendations at the end.

‘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

‘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

No P45 received before first FPS must be sent

  • 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

Employee provides P45 after first FPS has been sent HMRC

HMRC guidance is:

  • Give the P45 back to the employee (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!)

Comments and recommendations

When taking on a new starter an employer has three duties:

  1. Obtain up to date and verified personal data from the starter (the detail shown on a P45 cannot always be relied on for this)
  2. Open up a new employee payroll record and start off using the correct PAYE tax code
  3. Send HMRC starter information (including Start Date and Starter Declaration) on first FPS covering the starter’s first payment of wages

There may not be much time between an employee starting work and the date the payroll run that includes the starter’s first payment of wages must be processed, especially if you operate a weekly payroll. According to HMRC, 70% of new employees do not produce a form P45 before their first payday.

Therefore, should you really delay your new employee information gathering until you wait to see if they produce a P45? Would it not be better to initiate a form P46-type process anyway, whereby you start gathering the information you need from as soon as someone is offered a job? Including a Starter Declaration.

In that way you will have all the information you need hopefully well in advance of a starter’s first payday. If the starter does produce a P45 in time, then this can be used to amend any Starter Declaration you declare to HMRC on the first FPS you submit covering the new employee’s first payment of wages.

But at least the new HMRC guidance clarifies what Starter Declaration must be used for new employees.

 

 

 

 

 

Want to know more about RTI? Go Twitter!

HMRC are offering employers interactive support on Real Time Information (RTI) in a week-long Twitter Q&A.

As RTI is the biggest change to PAYE since it was introduced in 1944, I’d suggest you take HMRC up on their offer.

HMRC experts will be on hand to offer help and support between 11 March and 15 March. To take part or ask a question, follow @HMRCgovuk on Twitter and use hashtag #RTIqa.

Ruth Owen, HMRC’s Director General Personal Tax, said:

“Employers need to act now to get ready for RTI. If you need some help and advice, visit our website. This interactive week will offer support and help to any employer looking for help.”

There is also a wealth of online information about RTI.

HMRC publishes its February 2013 RTI Pilot employer update

On 1 March, HMRC published an update about those employers taking part in the RTI pilot up to the end of March 2013. The update contains some important year-end information for those employers as well as information about their starting payroll processing for the start of the tax year 2013/14.

The Update reports that HMRC are currently handling over four million individual PAYE records reported in real time with more employers joining the RTI pilot during February and March 2013.

PAYE end-of-year tasks for real time pilot employers

Employers in the RTI pilot will not be completing an annual year end return for 2012/13 by way of completing forms P14 and P35. Instead, they should indicate on their last Full Payment Submission (FPS) and/or Employer Payment Summary (EPS) for 2012/13 that this is their ‘Final submission for the tax year’. There will also be a number of declarations and questions to be completed on the RTI pilot employer’s last FPS/EPS, much the same as was included on a form P35.

On the last FPS/EPS, the employer must ensure they have entered the Employer’s contracted-out number (ECON) where applicable. The ECON must be given where the employer has recorded NI letters D, E, L, N or O on any RTI submission during 2012/13. For the tax year 2012/13, the ECON can only be recorded if the final submission indicator or final submission scheme ceased indicator is also set.

There is further online guidance for RTI pilot employers on their year-end tasks.

A word of warning for RTI pilot employers – they must have submitted their last FPS/EPS return for the tax year 2012/13 by 19 April 2013. The deadline for the last FPS/EPS return is not 19 May as it was for submitting forms P14/P35. If any errors for 2012/13 are discovered after 19 April 2013, the RTI pilot employer will need to send HMRC an Earlier Year Update return.

Starting payroll processing for 2013/14 for real time pilot employers

The scheduled Enterprise Release for HMRC Systems will take place from 5pm on 3 April to 6am on 6 April.

For RTI pilot employers this means that:

  • Pilot employers can continue to submit their RTI returns for paydays before 6th April as usual, on or before payment throughout the enterprise release.
  • EDI submitters will not receive any acknowledgment until on or after 6th April.
  • Employers who use the Internet via the Government Gateway will receive an initial acknowledgement that the submission has been received, but the “success/failure” response will be issued on or after 6th April.
  • RTI submissions can be made up to 19th April for paydays up to and including 5 April.

If an RTI pilot employer is running their payroll before 6th April for paydays on or after 6th April, HMRC ask that such employers do not submit their RTI returns until on or after 6am on the 6th April. HMRC have relaxed the requirement to submit “on or before” for this period only.

When it comes to submitting RTI returns for paydays on or after 6th April 2014, HMRC state that employers will be able to submit returns in advance of the start of the 2014/15 tax year.