HMRC publish video guide on RTI for employers

On 16 July, HMRC launched a video guide to help introduce employers to new Real Time Information (RTI) procedures. The aim of the video is to help employers see what RTI means to them individually, the main changes that will be introduced, a timetable for the implementation of RTI, together will details of other help and support that is available.

The video is just under nine minutes long, provides a good grounding in what RTI is all about, and is presented simply, clearly, and concisely.

HMRC publish latest bulletin on share schemes

If you operate share schemes or are contemplating doing so, a useful tool is the HMRC ‘Employment-Related Shares & Securities Bulletin’. Issue No. 2, July 2012, is now available. The Bulletin provides information and updates on developments relating to employment-related securities, including the tax-advantaged employee share schemes.

Issue No. 2 includes information on the following:

  • The Office of Tax Simplification (OTS) published a report on tax advantaged employee share schemes, some of whose recommendations the Government is taking forward. The Bulletin provides links to the report as well as the follow-up consultation document.
  • From 16 June 2012, the EMI (Enterprise Management Incentive) individual share option limit is increased to £250,000. The Bulletin provides links to the relevant legislation as well as to a consultation document on extending access to EMI for academic employees.
  • Information is also provided on establishing the ‘market value’ of shares used in approved share schemes. It is now acceptable to define the market value of a listed share as the opening price on the specified market on the relevant day – normally, the dealing day immediately preceding the day in question – instead of using the mid-market price or closing price.
  •  On 25 June 2012, HMRC published revised guidance for employers providing share-based payments to former employees. The Bulletin provides a link to that guidance.


Government report raises serious doubts about RTI

The All-Party Parliamentary Taxation Group have just published their third report, this one entitled ‘PAYE at the Crossroads’. It raises serious doubts concerning HMRC’s implementation of Real Time Information by October 2013.

The APPTG Report acknowledges that the introduction of RTI is undoubtedly the biggest change to PAYE since its introduction back in 1944. However, RTI “should be regarded as a stepping stone, not the final destination.”

In other words, RTI is the “first step in a move to Centralised Deductions” – the calculation by HMRC of an employee’s PAYE income tax and Class 1 NICs at the time of payment. The Report sees a move to Centralised Deductions as “the big cross-governmental prize that this new PAYE system offers for policy delivery across government.”

So how does the APPTG Report reckon HMRC’s move to implementing this “first step”?

The Report outlines the following problems:

  • Implementation timetable: the Report expresses concerns “that it is potentially undeliverable and could reduce the level of RTI’s integration with payroll practice”.
  • HMRC’s business case: the APPTG “is concerned that HMRC has underestimated RTI’s cost and overestimated its benefits”.

The RTI implementation timetable is driven by the requirement for all employers to submit RTI data to HMRC each time employees are paid to facilitate the introduction of Universal Credit from October 2013. The Report says it is “concerned that the current RTI timetable for mass migration is too tight.” A contrast is drawn in the Report between the time allowed for the migration of employers into auto-enrolment – over five and a half years; with the time allowed for the migration of all employers into RTI – an 18 month period.

The Treasury Select Committee has already acknowledged that ‘the history of large IT projects subject to policy-driven timescales [such as that driving RTI] has been littered with failure’.

The Report also sees a major problem for smaller businesses in both understanding how RTI works and their new obligations about submitting the necessary data to HMRC each time they pay employees. This is seen as especially a problem for the “digitally excluded”, i.e. those with poor computer literacy, who may be required to outsource all their RTI reporting obligations as the only way of complying.

The Report also found a “general lack of awareness of RTI”; research indicates there is “still a lack of clarity and understanding in relation to RTI’s initial and long-term requirements.”

There is also concern about the genuine ability of software developers to deliver. RTI requires a significant quantity of software development and HMRC have not taken this into consideration in their costings. The Report states: “We are concerned that the [RTI] timetable does not allow sufficient time for software developers to thoroughly develop their products… Moreover, there has been a lack of certainty in the payroll software market as a result of the move from the Strategic Solution [including the RTI data in with the Bacs payment data] to the Interim Solution* [continuing to use Electronic Data Interchange (EDI) to at least 2016], and general uncertainty over RTI more widely.”

As a result of the above, among other issues, the APPTG Report makes the following recommendations:

  1. Business needs should be prioritised over the policy deadline for Universal Credit in RTI’s migration timetable.
  2. The following criteria should be dealt with prior to RTI migration:
    1. The migration cost and additional administrative cost of RTI are fully understood;
    2. A strategy for micro-business and the digitally excluded are executed;
    3. Representatives from the software industry are content with the functionality of payroll products on the market;
    4. All outstanding payroll issues are resolved and there is absolute clarity about how RTI will work and this has been fully tested by piloting; and
    5. The time line for the Strategic Solution is fully understood, functional and properly tested.

In conclusion the Report states: “RTI is a step in the right direction, but it is also [in its current form] a step in the wrong direction.”

It remains to be seen whether this latest APPTG Report will affect the RTI timetable; but if the migration into RTI continues as planned the Report does indicate that it may all go decidedly pear-shaped!

*The channels for sending RTI data to HMRC, under the Strategic Solution are Bacs and the Internet through the Government Gateway for those not using the Bacs system to pay employees. The Interim Solution continues to use EDI instead of Bacs whilst also using the Internet as envisaged under the Strategic Solution.



Updated RTI data item specifications published

At the end of June, HMRC published updated Real Time Information data specifications that will apply from 6 April 2013 onwards. They are contained in the EDI (Electronic Data Interchange) Message Implementation Guidelines (MIG), version 28 June 2012.

There are separate MIG’s covering each of the different RTI returns:

  • Employer Alignment Submission (EAS) – used to align an employer’s payroll records with those of HMRC before the submission of on-going RTI data.
  • Full Payment Submission (FPS) – the RTI return that covers all payments made to employees each time they are paid.
  • Employer Payment Summary (EPS) – an RTI return required only if an employer’s monthly/quarterly PAYE liability cannot be fully calculated from previous FPS return(s).
  • NINO [National Insurance number] Verification Request (NVR) – the RTI return which can be used by an employer to obtain a new, or verify an existing NINO.
  • Earlier Year Update (ETU) – the RTI return that amends year to date data already supplied by 19 April following the end of the tax year in question.

Not only do the MIGs set out the technical specification for each of the RTI data items, i.e. the acceptable entries, but importantly they also list which data items are ‘Mandatory’, and which are ‘Optional’.

However, you need to read the MIGs carefully, because there are a number of ‘Optional’ data items which are really ‘Conditional’. This means that under specified circumstances an ‘Optional’ item will be come a ‘Mandatory’ one. Also, of course, if there is an item of ‘Optional’ data that needs to be returned then its inclusion in the relevant RTI return becomes ‘Mandatory’.

Continuing to employ long-term incapaciaited employee

How long is an employer expected to keep a long-term incapacitated employee on the books before it would be fair and reasonable to terminate their employment? Some useful pointers were given in the EAT judgement in Conway v Community Options Ltd [2012] (UKEAT 0034/12).

In this case, Mr Conway was disabled; he suffered from depression and anxiety. He was signed off work on 15 December 2009 as a result of his disability and never returned back to work before his dismissal 15 months later on 8 March 2011.

During this 15 month period, Mr Conway’s incapacity was reviewed by a number of Occupational Health professionals.

In March 2010, an OH adviser expressed the opinion that although Mr Conway shouldn’t return to his original duties, he did expect him to recover with time and treatment. However, in June of that year, a later OH doctor reported that although Mr Conway had received all appropriate treatments and support he was still not fit enough to return to work.

Then in January 2011, another OH doctor reported that Mr Conway’s symptoms had deteriorated over the last few months; that the timescale for his recovery and return to work were difficult to predict; a return to work in the next few months was not anticipated even if adjustments such as a phased return to work or adjusted duties were considered.

The results of the OH doctor’s assessment were discussed with Mr Conway during February 2011, at which meeting he fully understood what the OH doctor was saying; he could not see the position changing in the near future. Mr Conway was warned of the possibility of dismissal.

In March 2011, the same OH doctor repeated her assessment. As there had been no change in Mr Conway’s symptoms or situation, and due to the length of his absence, and the need to recruit a replacement employee, his employment was terminated in March 2011.

In Mr Conway’s case, because is was accepted he was “disabled”, his employer had a duty to make reasonable adjustments due to his disability. This is in accord with sections 3A(2), 4A, and 18B of the Disability Discrimination Act 1995, now sections 20-22 of the Equality Act 2010. Mr Conway claimed his employer had failed to make reasonable adjustments to help him return to work.

However, the medical reports were clear and unchallenged by Mr Conway; he’d been incapacitated for 15 months; it was inadvisable for him to return to his former role; he was not fit to return to work in any other role; a phased return to work was inappropriate. Therefore, there was no reasonable adjustment which could be made to enable him to work.

As a final comment, the EAT stated: “The [employer] could not reasonably be expected to wait any longer after 15 months’ [incapacity] in circumstances where no timescales for a return to work was proffered.”

Although the above case principally dealt with the issue of disability discrimination, nevertheless the case sets out the kind of steps an employer should go through anyway when considering the termination of a long-term incapacitated employee’s employment. It is fair to dismiss an employee on grounds of “capability… of the employee for performing work of the kind which [he/she] was employed by the employer to do.” (Employment Rights Act 1996, section 98(2)(a))

In other words, the employer should always adopt a policy of:

  • Obtaining independent medical advice concerning the employee’s incapacity.
  • Discussing any findings with the employee, giving them full opportunity to appeal any decision.
  • Exploring with the employee ways by which their return to work can be facilitated.
  • Perhaps not making any decision during any period of contractual/occupational sick pay.

However, an employer cannot be required to go on indefinitely employing someone who is unlikely to return to work.

Redundancy doesn’t always require a cut in headcount

A recent EAT judgement allows that a case of genuine redundancy doesn’t necessarily mean that there has to be a reduction in the numbers of employees. This despite arguments put forward from the EAT judgement in Aylward & Ors v Glamorgan Holiday Home Ltd [2002].

In the recent case (Packman (t/a Packman Lucas Associates) v Fauchon [2012] (UKEAT/0017)), Ms Fauchon was employed to provide largely book-keeping services by her employer. There was a downturn in business which placed economic pressure upon the employer. Secondly, the employer introduced an accountancy software package, which in itself also reduced the number of hours for which it was necessary that a book‑keeper should work.

Accordingly, the employer had a need for fewer hours to be worked providing book‑keeping services than had been worked previously. The employer sought to persuade Ms Fauchon to reduce her hours significantly per week. She refused to agree. Because her contract entitled her to work the hours she was doing and the employer no longer needed her to work those hours, the employer gave her notice of dismissal.

The question in this case was whether the dismissal for those reasons was wholly or mainly a dismissal by reason of redundancy?

Ms Fauchon relied on the Aylward case when claiming she had been unfairly dismissed, not dismissed by a genuine case of redundancy.

In the Aylward case, the employer needed to reduce costs, and so proposed new terms and conditions of employment. The principal proposal was that the hotel should close every January and February during its slack period and that employees should not be paid during those two months. Most employees accepted the change; some did not. Those who did not were dismissed but replaced. There was therefore no reduction in the number of employees, merely a reduction in the hours worked. The EAT apparently held that because there had been no reduction in the number of employees required, therefore there could be no redundancy situation.

However, a leading case-law authority, Harvey on Industrial Relations and Employment Law, disagrees with the EAT judgement and holds it should not be followed. Instead they state: “Wherever there is a diminution in work and a consequent lessening of the requirement for an employee to work the hours the employee has previously been working, then if the employee is dismissed by reason of that reduction in work, there will be a “redundancy situation”; that means that the dismissal, if it is caused wholly or mainly by the redundancy situation, is one within section 139 of the Employment Right Act 1996.”

Section 139 provides that an employee who is dismissed shall be ‘taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to the fact that the requirements of the business mean that the need for employees to carry out work of a particular kind have ceased or diminished or are expected to cease or diminish.’

Whilst a reduction in the number of employees often leads to dismissal by reason of redundancy, the EAT in the current case, stated: “if the business need for work of a particular kind has diminished – that is, less work of that sort needs to be done – there will be a redundancy situation”.

Therefore, the EAT considered Ms Fauchon had been dismissed wholly or mainly by reason of a case of genuine redundancy.

Legislation to protect workers’ rights to auto-enrolment commences

Under pensions reform legislation, workers are safeguarded from any actions employers might take to block or limit their right to be auto-enrolled into a qualifying pension scheme.

The Pensions Act 2008 (Commencement No. 13) Order 2012 came into force on 30 June and brings into force sections 50 to 59 of the Act. These sections set out safeguards during the recruitment process and during employment to ensure that a worker’s rights to become and remain a member of a qualifying pension scheme are protected.

Workplace pensions reform law comes into effect from 1 July 2012, marking the start of the new duties which will eventually see employers automatically enrol certain workers, and enrol those workers who choose to opt in, into pension schemes.

The new law places requirements on employers not to:

  • Induce workers to opt out or cease their membership of the qualifying pension scheme
  • Indicate during a recruitment process that a worker’s decision to opt out of automatic enrolment will affect the outcome
  • Do, or fail to do, something which results in the worker ceasing to be in active membership whilst still employed by the employer.

Such behaviour could lead to enforcement action resulting in monetary penalties being imposed. Workers who feel their auto-enrolment pension rights are not being protected by their employer can report a concern to The Pensions Regulator here.

Auto-enrolment template letters available to download

Letter templates are now available for employers to communicate with workers about automatic enrolment

Communicating with workers is an essential step in preparing for automatic enrolment. Employers are required by law to provide in writing the right information, to the right individual, at the right time.

The Pensions Regulator, in conjunction with the Department for Work and Pensions, has developed a set of useful letter templates which include all the details employers are required by law to communicate with their workers. They are based on research with employers and workers, and can be adapted to suit the organisation and workers’ circumstances.

The template letters can be accessed via The Pensions Regulator’s employer letter template tool.

More information on the information that must be given workers and the deadlines for writing to them can be found in The Pensions Regulator’s PDF ‘Information to workers’ (PDF).

Worker’s entitlement to replacement leave if they fall ill whilst on holiday

Where a worker on paid annual leave falls ill whilst on leave can they take the remainder of their leave at another time? This was the question before the Court of Justice of the European Union (CJEU) in the case of Asociación Nacional de Grandes Empresas de Distribución (ANGED) v Federación de Asociaciones Sindicales (FASGA) Case C‑78/11.

In this case, FASGA, representing department store workers in Spain, sought a  declaration that workers covered by a collective agreement are entitled to paid annual leave even where such leave coincides with periods when they become incapacitated from working. ANGED, representing the employers, consider that workers affected by a temporary incapacity for work before starting a pre-arranged period of leave, or who are thus affected during that period of leave, are not entitled to take leave at a later date, after the period during which they were unfit for work has ended, except in situations expressly provided for in the collective agreement.

The judgement of the CJEU was that a worker who becomes unfit for work during a period of paid annual leave is entitled subsequently to a period of replacement paid annual leave which coincides with the period of unfitness for work.

The Court stressed that, according to settled case-law, the entitlement of every worker to paid annual leave must be regarded as a particularly important principle of European Union social law from which there can be no derogations and whose implementation by the competent national authorities must be confined within the limits expressly laid down by the Working Time Directive 2003/88/EC.

Accordingly, the Court has already held (see Case C‑277/08 Vicente Pereda [2009]) that a worker who is on sick leave before the start of a period of previously scheduled annual leave has the right, at their request and in order that they may actually use their annual leave, to take that leave during a period which does not coincide with the period of sick leave. After the worker has recovered, their untaken annual leave may be re-scheduled, if necessary, even if it has to be taken in a subsequent leave year.

Therefore, following on from Pereda, the Court considered it would be arbitrary and contrary to the purpose of entitlement to paid annual leave if the worker was only granted a right to a period of replacement leave if they are already unfit for work when the original period of paid annual leave commences.

In the light of all the foregoing, the answer to the question referred to the Court is that Article 7(1) of the Working Time Directive, must be interpreted as precluding national provisions under which a worker who becomes unfit for work during a period of paid annual leave is not entitled subsequently to the paid annual leave which coincided with the period of unfitness for work. And that replacement leave must be allowed to be taken in a subsequent leave year if necessary.

This judgement immediately highlights problems for an employer. How will a worker communicate that they are genuinely incapacitated from working during a period of pre-arranged paid annual leave, especially if they are overseas at the time? What evidence of incapacity will the employer require before granting a period of replacement leave?


Automatic enrolment earnings figures are published

Where an eligible employee’s earnings exceed the PAYE threshold for a particular earnings period, their employer will have a duty to enrol them into pension saving if they are not already an active member of a qualifying pension scheme. Once an eligible employee is enrolled into a qualifying pension scheme, pension contributions are due on a band of earnings with a lower and upper limit.

The amounts of the automatic enrolment earnings trigger and the qualifying earnings bands are set out in the Pensions Act 2008. However, the Secretary of State (for the Department for Work and Pensions) is required to review these amounts each tax year and revise, by Order, if he/she considers that any of the amounts should be increased or decreased.

Automatic enrolment starts to go live from October 2012 with the largest employers able to bring automatic enrolment forward to July 2012. The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012 substitutes the amounts of the automatic enrolment earnings trigger and the qualifying earnings band in the Pensions Act 2008 with revised rates for 2012/13. The Order comes into force from 15 June 2012.

The earnings trigger and pension contribution bands are as follows:

  • Earnings trigger – £8,105 a year, equivalent to –
    • £156 (weekly), £312 (2 weeks), £624 (4 weeks), £676 (monthly), £2,027 (3 months), £2,707 (4 months), £4,053 (6 months)
  • Lower band of qualifying earnings – £5,564 a year, equivalent to –
    • £107 (weekly), £214 (2 weeks), £428 (4 weeks), £464 (monthly), £1,391 (3 months), £1,855 (4 months), £2,782 (6 months)
  • Upper band of qualifying earnings – £42,475 a year, equivalent to –
    • £817 (weekly), £1,634 (2 weeks), £3,268 (4 weeks), £3,540 (monthly), £10,619 (3 months), £14,159 (4 months), £21,238 (6 months)