Proposal to introduce relaxation of automatic enrolment duties

Clause 34 of the new Pensions Bill 2013, introduced to Parliament at the end of June, contains provisions that will allow that an employer does not have to automatically enrol into pension saving certain specific groups of employees.

These proposals are part of the Government’s continuing review of automatic enrolment, as part of a consultation published on 25 March 2013, and against which a final response is awaited.

On 1 July, the Department for Work and Pensions published Pensions Bill 2013-14 Briefing Paper: Clause 34 Automatic enrolment: powers to create general exceptions.

Although the Government remains firmly committed to the policy of automatically enrolling the eleven million people who are not currently saving in a qualifying workplace pension scheme, irrespective of employer size, they have been made aware of some specific circumstances in which the benefits of being automatically enrolled are outweighed by either the practical, financial, or legal consequences. In particular, DWP have been presented with evidence about situations in which being automatically enrolled is likely to cause detriment to some jobholders.

The Briefing Paper outlines three examples of where this can occur.

  1. Individuals with existing pension savings that are protected from tax charges under HMRC enhanced or fixed protection provisions*.
    Automatic enrolment puts this status at risk because of the automatic nature of the employer duty, with no involvement, choice, or decision from the individual worker. At the moment the only option available to those individuals who have this protection and wish to retain it is to opt out after they have been automatically enrolled. If for any reason the jobholder doesn’t do so within the time limit they could face significant tax charges.
  2. Where someone hands in their notice and their period of notice spans their automatic enrolment date.
    It seems inappropriate that an employer should be compelled to auto-enrol such an individual.
  3. Where an active member of a money purchase scheme gives notice of retirement and stops making contributions before the purchase of an annuity.
    It seems perverse to oblige an employer to enrol them again if the employer’s staging date falls within the notice period. There is unlikely to be any real benefit in their making further contributions to a new pension scheme. In some cases, the scheme may decide to do nothing more than hold any contributions in this scenario in a cash account, and the member may have difficulty accessing what may be a relatively small sum of money.

As I stated above, clause 34 is only an enabling provision; the exact nature of any final exceptions from a duty to auto-enrol an eligible jobholder will be down to Regulation.

Therefore, to assess the evidence so far and balance the relevant factors when considering proposed uses for the power in Clause 34, the Government propose to test all the suggested exclusions against the following core policy principles:

  1. Is pension saving likely to put the individuals at financial or legal risk?
  2. Are the individuals unlikely to benefit from pension saving?
  3. Are employers able to identify the individuals with minimal burden?
  4. Is the employer able to arrange membership of a scheme without unreasonable financial or legal risk?

A summary of the findings from the 25 March consultation will be published as part of the Government’s response in due course. It is then proposed to hold a further formal consultation on draft proposals in the autumn 2013, which means it is unlikely that any changes will be introduced before 2014.

*From 6 April 2006 (and again from 6 April 2011), special rules were introduced to limit the amount of tax relief an individual was allowed against pension savings. In the context of protected pension benefits, these new rules, for example, affected high earners with pension benefits that exceeded what was then the 2006/07 lifetime allowance of £1.5 million, or were likely to exceed that allowance in any one tax year.

HMRC’s PAYE Desktop Viewer has been updated

The HMRC’s PAYE Desktop Viewer (PDV) software has been updated to version 2.2. This version will now install and run on Windows 8.

Before you can receive the latest versions of these notices you must download and install the new version of PDV on your desktop PC or laptop. There are appropriate links depending on what operating system your computer uses. Installing this update won’t affect any existing PDV data held on your computer, so there’s no need to backup your data before updating the PDV software.

The PDV is an alternative to HMRC’s Data Provisioning Service (DPS) Portal Viewer. PDV provides a range of improvements over DPS and introduces new functionality that was not previously possible to provide. It is particularly suitable for employers and agents who receive a lot of tax codes and notices during the year.

Once you’ve installed the PDV you can use it to download your notices and PAYE code numbers and view them offline. The notices that the PDV can download and view are:

  • P6 – Notice of an employee’s tax code
  • P6B – Notice of an employee’s tax code following the Budget
  • P9 (Bulk issue) – Notice of an employee’s tax code for the new tax year
  • P9 (Daily issue) – Notice of an employee’s tax code for the year
  • SL1 – Notice to start student loan deductions
  • SL2 – Notice to stop student loan deductions
  • Reminders for Employer Annual Returns and any payments due
  • Notifications and incentive letters

If you are operating PAYE in real time, you will also be able to view additional notices – identified as ‘RTI notices’ (such as those to do with NINO notifications).

HMRC’s default software, the DPS Portal Viewer, can still be used, whether or not you choose to use the PDV.

RTI pilot employers and Class 1A NICs for 2012/13

If you were one of the employers included in the HMRC Real Time Information pilot, you need to read the following about reporting and paying your Class 1A NICs for the tax year 2012/13.

Before the P11D(b) filing date of 6 July, HMRC normally send email notifications to employers who filed their form P11D(b) online in the previous year to remind them to file their current form.

HMRC is unable to send these email notifications to those employers who were part of the RTI pilot in 2012/13 and have not yet filed their 2012/13 form P11D(b).

Instead HMRC have said they will send affected employers a paper P11D(b) as a reminder, together with their P30B(CL1A Inter) payslip.

You can still file your P11D(b) online should you wish to or you can submit on paper. Although the deadline for HMRC to receive forms P11D(b) is by 6 July, they state that “P11D(b) forms received by HMRC on or before 19 July 2013 will not attract a late filing penalty.”

If you haven’t received a paper form P11D(b) and haven’t returned a P11D(b), you can download a PDF version of the form from the HMRC website.

Croatia joins the EU from 1 July 2013

On 1 July, the Republic of Croatia became the 28th Member State of the European Union.

This means, from 1 July, EC Regulations 883/2004 and 987/2009 apply to Croatia. The social security rules contained within these regulations will now affect an individual’s National Insurance position when they are either:

  • going to live and work in Croatia
  • coming from Croatia to live and work in the UK
  • working in the UK for a Croatian employer

You can read about the way that EU Regulations can affect National Insurance Contributions on the HMRC website .

EAT rules that redundancy consultations should be more inclusive

In a case, for example, where a retail business went out of business, redundancy consultations should take place across all stores, not just at those stores with 20 or more employees. This was the EAT judgement in what is known by the shortened title of USDAW v Woolworths (case numbers UKEAT/0547/12 & UKEAT/0548/12).

In this case, it was claimed that the administrators of the Woolworths business had failed to carry out redundancy consultations with all the workers. The Employment Tribunal agreed and awarded 90 and 60 days’ protective awards but excluded those made redundant in establishments where fewer than 20 workers were dismissed. The issue on appeal was whether that exclusion was correct.

In reaching a decision, the EAT had to first consider the EC Directive 98/59 concerning collective redundancies.

Article 2 of the Directive requires that “Where an employer is contemplating collective redundancies, he shall begin consultations with the workers’ representatives in good time with a view to reaching an agreement.”

Article 1 of the Directive lays out the minimum number of employees that must be involved to ‘trigger’ the collective redundancy calculations.

Section 188 of TULR(C)A, implementing the Directive, states “Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer shall consult about the dismissals all the persons who are appropriate representatives of any of the employees who may be affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals.”

There is no argument about the numbers of employees conflicting with the requirements of the Directive, only the expression “at one establishment” in TULR(C)A. In other words, where the store in question had 20 or more employees, there was a duty to consult; where the store had less than 20 employees there was no requirement to consult.

The EAT had to decide whether section 188 should be construed in the light of the Directive to exclude the words “at one establishment” or to add words “at one or more establishments”? In answer, the EAT decided “We hold that the words “at one establishment” should be deleted from section 188 as a matter of construction pursuant to our obligations to apply the Directive’s purpose.”

This was in line with the spirit of the Directive, and its interpretation by the European Court. The purpose of the Directive was to provide global redundancy protection for the majority, not just for those at a particular unit of the undertaking.

As a result of the EAT judgement, 4,400 employees of the whole undertaking were entitled to protective payment awards from the Secretary of State for Business, which the EAT admitted was “a very large sum”.

The Secretary of State did not take part in the proceedings so it is unknown if they will appeal. Certainly, the EAT arguments are compelling and would indicate that EC law requires that redundancy consultations must be much more inclusive than UK law would seem to require.

In other words, if a business has, for example, 10,000 employees working at a number of units around the country who are being made redundant, the legislation on collective redundancy consultations kicks in for all 10,000 employees, as there are 20 or more being made redundant, and not just for those units with 20 or more employees working there.

Important note: In September 2013, the EAT gave leave to the Secretary of State to appeal the EAT judgement to the Court of Appeal. This is due to the importance of this legal issue to industry in general.

Government proposes tax and NICs breaks against costs of helping sick employees return to work

The government has firmed up its proposals to introduce income tax and NICs breaks where employers expend money in helping incapacitated employees return to work. Normally such help would be a taxable benefit.

In January 2013, the Department for Work and Pensions published the Government’s response to an independent review of sickness absence carried out in 2011.

At that time proposals were put forward to introduce a State-funded health and work assessment and advisory service. The purpose of the new service is to make occupational health advice more readily available to employers and employees, so they can better manage sickness absence and help employees return to work earlier. This new service will come into operation, probably in 2014, where an employee is off sick for four weeks or more.

In his 20 March Spring Budget, the Chancellor of the Exchequer announced that employers who help their employees to return to work after periods of sickness will get new support through the tax system.

On 21 June, HM Treasury published a consultation document: Implementation of a tax exemption for employer expenditure on health-related interventions recommended by the new health and work assessment and advisory service. Comments are invited by 16 August.

The consultation confirms the government’s intention that expenditure by employers on medical treatment and vocational rehabilitation targeted at keeping sick employees in work, or speeding their return to work, should attract tax relief. The government felt that a general tax relief for medical expenditure* would be too broad and intends to introduce a new targeted tax exemption to apply where the new service recommends health-related interventions to help an employee return to work. Where an employer funds such interventions, the expenditure, up to a cap of £500, will be exempt from income tax and NICs.

The £500 cap will apply per employee over a complete tax year. It will be valid for more than one health-related intervention recommended by the new service, subject to the overall annual limit.

The exemption will be limited to treatment and therapies recommended by the new service. It will not apply to employer expenditure on specialist equipment, workplace adjustments, travel expenses, or recommended interventions that do not rank as medical treatment or therapy. There are existing tax exemptions, such as for employer-funded welfare counselling, that may apply to other steps taken to support employees in returning to work.

*The current income tax and NICs exemption for the costs of medical check-ups is somewhat limited and would not cover what the government is proposing above without an additional exemption.

Is covert video surveillance acceptable evidence of misconduct?

Taking covert video evidence of an employee’s misconduct does not necessarily breach their statutory rights. This was illustrated in the EAT judgement in City and County of Swansea v Gayle [2013] UKEAT 0501/12.

In this case, the employer suspected Mr Gayle of playing squash during work time, whilst claiming payment for being at work at the time. Covert video surveillance of Mr Gayle outside the sports centre in question confirmed he was seen there on a succession of Thursdays when other material showed him to have claimed to be at work, and when he had no permission from his employer to be at the centre.

Mr Gayle claimed unfair dismissal and that his statutory rights under Article 8 of the European Convention on Human Rights had been infringed. Article 8 gives “Everyone the right to respect for his private and family life, his home and his correspondence.”

The question on appeal was whether an employee has a right to privacy when doing acts which were defrauding their employer.

As far as the EAT was concerned, they did not consider the employer’s acts constituted a breach of Article 8. This was for three reasons.

  1. The photography was in a public place of somebody in a public place; an individual in a public place will not in those places have the reasonable expectation of privacy.
  2. As Mr Miller was supposed to be working at the time, he could have no reasonable expectation of keeping where he was and what he was doing private and secret from his employer at such a time.
  3. In effect Mr Miller was a fraudster; he was busily engaged on his own business whilst receiving his employer’s money for his employer’s business.  He was presenting himself as having been elsewhere and on his employer’s business when he was not.  Therefore, he could have no reasonable expectation that his conduct was entitled to privacy.

How many times there must be where an employer is sure an employee is malingering and claiming to be incapacitated when they are really well enough to carry out the duties of their contractual duties of employment.

It is at such times that that an employer may give serious consideration to obtaining photographic evidence as to what is the employee’s real health situation. But great care must be taken.

For example, suppose an employee is suspected of playing squash whilst claiming to be off ill with a bad back? Would video evidence of them outside the sports centre be evidence of malingering? No, unless there was other compelling evidence that could not be refuted. Would video evidence of them inside the sports centre playing squash infringe his or her rights? Possibly. See why great care must be taken.

Take great care over allegations of criminal misconduct

When an employer is contemplating dismissing an employee for, for example, gross criminal misconduct, great care must be taken over the investigation procedure to ensure it is fair. This was illustrated in the EAT judgement in Miller v William Hill Organisation Ltd [2013] UKEAT 0336/12.

In this case, Ms Miller was employed as the deputy manager of one of William Hill’s betting shops. She was summarily dismissed because it was believed that she had taken money which should have been paid to William Hill’s customers. Ms Miller claimed unfair dismissal.

It was alleged that, for example, she had taken bets from customers after the start of a race, which bets were void and should have been returned to the customer. Ms Miller claimed she had returned the stake money. As every betting transaction is time stamped, William Hill checked the CCTV footage for the time in question but could find no CCTV evidence of the money actually being returned to a customer at the time in question.

It is assumed that if a customer placed a bet on a runner in a race that didn’t win, they would accept that they had just lost their bet and not come back to the betting office looking for any refund. They probably would not have realised that their bet was void because it was placed too late.

When dealing with investigating claims of misconduct, such as dishonest gross misconduct leading to summary dismissal, the EAT drew attention to the principle found in the EAT judgement in A v B [2002] UKEAT 1167/01, which stated: “Serious allegations of criminal behaviour, at least where disputed, must always be the subject of the most careful investigation, always bearing in mind that the investigation is usually being conducted by laymen and not lawyers. Of course, even in the most serious of cases, it is unrealistic and quite inappropriate to require the safeguards of a criminal trial, but a careful and conscientious investigation of the facts is necessary and the investigator charged with carrying out the enquiries should focus no less on any potential evidence that may exculpate or at least point towards the innocence of the employee as he should on the evidence directed towards proving the charges against him.”

On appeal, the EAT found that William Hill’s investigation was flawed for a very simple reason. They had only investigated the CCTV footage for the specific time as per their system’s time stamp showing Ms Miller’s supposed refund of the customer’s stake money.

It was clearly possible for there to have been a discrepancy between the time shown on the CCTV footage and the time showing in the transaction records. William Hill had never investigated if there was any time difference between the two systems. The EAT considered that to have carried out a thorough investigation, William Hill should have examined the entire CCTV footage for the day(s) in question before holding there was no evidence that Ms Miller had not returned the stake money at the time she claimed.

For an employer who is convinced an employee is guilty of the alleged gross misconduct, it will be galling that their lack of a sufficiently robust investigatory procedure allowed the employee to get away with it, and cost them compensation for unfair dismissal as well!

Expatriates and Real Time Information

HMRC have published a number of questions and answers in a Frequently Asked Questions (FAQ) format within its RTI guidance for employers, including issues relating to the operation of PAYE in real time for expatriate employees working either in the UK or overseas.

The particular expatriate issues can be viewed online.

HMRC have in addition provided the following information, after requests from software developers were made concerning a number of scenarios asking for guidance as to how they should report the amounts due under RTI.  The information provided software developers by HMRC is reproduced verbatim below.

Scenario 1 – HMRC directs the employer to operate PAYE on a set percentage of pay

In this scenario the employer, with HMRC’S agreement, operates a PAYE on only part of the employee’s earnings.  The employer uses a shadow or manual process to make the adjustments necessary to the Expat’s earnings to arrive at the gross earnings liable to UK tax and National Insurance Contributions (NICs). The gross earning are then put through the payroll and the gross earnings and net tax figures arising are reported to HMRC.

The direction does not apply to NICs.

For example, monthly pay is £15,000 and the PAYE percentage is 50%. Entries into the payroll would be Taxable Pay £7,500 and ‘NICable’ Pay £15,000.

Question and answer 21 of the FAQs covers this scenario

Scenario 2 – Modified PAYE in tax equalisation cases

Tax equalisation generally describes an arrangement between an employer and a foreign national employee who comes to the United Kingdom (UK) to work. Under the terms of an agreement, the employee is entitled to specified net cash earnings and non-cash benefits. The employer undertakes to meet the UK Income Tax liability arising from the earnings.

Under this arrangement the employer agrees to operate PAYE on a gross-up of cash earnings and non-cash benefits for all eligible employees. During the tax year the employer calculates tax, and NICs if due, using estimated amounts of pay for the year.

Once the estimated pay figures have been calculated they are put into the payroll as gross pay. These special modified payrolls are not used to deliver earnings and as such the FPS will show, tax, NICs if due, but nil net pay.

Question and answer 35 of the FAQs covers this scenario

Scenario 3 – Tax is calculated as normal and credit is given for overseas tax

This arrangement only applies to employers who are required to deduct foreign tax in addition to UK PAYE from payments made to employees who are sent to work abroad. Its aim is to give provisional relief for double taxation to employees who must pay both UK tax and foreign tax from the same payments of earnings.

With HMRC agreement an employer can give foreign tax credit relief via the payroll where there is a foreign tax withholding obligation as well as PAYE due on the same income. This will require an adjustment to the amount of tax due.

For example, the payroll calculates the UK tax on a monthly salary of £2000 as £500, but foreign tax of £300 is also due. The calculation of the foreign tax will be made outside of the payroll, but it can then be offset against the £500 UK tax which will be reduced to £200. This is the amount you should report to HMRC and pay by the due date.

If this example is extended over a three month period, at the end of which the employee leaves, then the final FPS and any P45 would show: Total pay of £6,000, year to date tax deducted of £600 and the code in operation on a Month 1 basis.

If an employer is required to issue a P60 to an employee who has been given relief in this way it should show the taxable pay and the net tax paid after the foreign tax credit.

Question and Answer 45 of the FAQs covers this scenario

Tax year 2012/13 Form P11D update

The deadline for submitting expenses and benefits returns to HMRC for the tax year 2012/13 is by Friday 5 July (the 6th is a Saturday). The forms that must be returned are P11D, P9D, and P11D(b).

New online expenses & benefits reporting service

In the HMRC Employer Bulletin February 2013 Number 43, a new online service for sending form P11D, P9D, P11D(b) information to HMRC was announced. Since the announcement in Bulletin 43, employers have been pointed to a special section on the HMRC website.

The HMRC Agent Update of June – July 2013 – Issue 36 also states: “As a result of feedback from WT [Working Together] agents, the soon to be launched benefits in kind online form will include a link to an employer dispensation form. The aim is to educate employers and get them to apply for a dispensation (if applicable) to reduce the need for employers to report certain expenses and for employees/clients to submit individual S336 claims for a deduction against the same expenses. This will provide an added benefit of helping to mitigate client/employees’ coding issues which occur because the P11D and the S336 claim can be received at different times and processed separately.”

Supposedly the new expenses and benefits online reporting service was scheduled for delivery on 19 June; however, it only came online on 2 July.

On the HMRC web page detailing the new online service, there is a paragraph that states: “Use this new online service to send information to HMRC about expenses and benefits provided to your employees or to amend a P11D, or a P9D, you’ve already submitted for 2012-13.” If you click on the link immediately above this statement, it takes you to another web page to begin completing online forms P11D. You will need to accept changes to your security settings before you can begin.

If you don’t use the online P11D service, what other alternatives are there?

Using suitable P11D software

If you have P11D software, this should have the facility to provide printed forms P11D, P9D, and a form P11D(b) for the employer’s signature. The software may also include the facility to send P11D forms, etc. online to HMRC through the PAYE Online service.

Obtaining manual forms P11D, etc. returns

Where you don’t use suitable P11D software, you’ll need to obtain manual copies of the necessary forms. These forms can only be downloaded online in PDF format; they cannot be obtained by any other means.

Address for submitting paper forms P11D, P11D(b) and S336 claims

HMRC have provided the following information about where to send and paper forms P11D, etc.

Forms P11D and P11D(b)

The processing of paper forms P11D [also form P9D] and P11D(b) has now been centralised and will be dealt with throughout the year by the National Insurance Contributions and Employer Office (NIC&EO) in Longbenton.

NIC&EO will process paper forms P11D and P11D(b) for the 2012-13 and earlier tax years, as well as amendments to forms P11D and P11D(b) for all tax years. Employers and agents should send them to the following address:

HM Revenue & Customs (NIC&EO)
Room BP2101
Lindisfarne House
Benton Park View
Longbenton
Newcastle upon Tyne
NE98 1ZZ

S336 claims

The submission of a S336* claim is normally the responsibility of the individual but where a S336 claim is submitted by an employer (on behalf of an employee) and attached to an original paper P11D, the S336 claim and the P11D form should be submitted to the NIC&EO office (as detailed above). On receipt, HM Revenue & Customs (HMRC) will keep the S336 claim attached to the P11D to make sure the two are processed at the same time.

However, where a S336 claim is submitted separately on a form P87, or in letter format (i.e. not attached to an original P11D), irrespective of when the claim is submitted it should be sent to the following address:

HM Revenue & Customs
Pay As You Earn
PO Box 1970
Liverpool
L75 1WX

Please note: S336 claims sent separately should be clearly headed ‘S336 claim’ so they can be easily identified when received by HMRC to make sure that they’re forwarded as quickly as possible to the correct processing section.

*S336 claim refers to section 336 of the Income Tax (Earnings and Pensions) Act 2003 which allows a deduction to cover expenses payments that an employee is obliged to incur and pay as holder of the employment, and the amount is incurred wholly, exclusively and necessarily in the performance of the duties of employment.