Results of research into BACS costs for upgrading payroll software published

On 7 January last, we announced that the employer representative organisation, Payroll Alliance, in partnership with the CIPP, were conducting some research into the costs incurred by employers regarding the upgrading of BACS and payroll software as a result of joining Real Time Information.

This is to cover the necessity of including a unique “hash” code in RTI submissions that links the RTI data to an actual BACS wage/salary payment.

Although, it is HMRC’s intention in the long term that RTI will save employers time and money, the head of Payroll Alliance, Linda Pullan, describes how “Payroll Alliance has become aware that some employers are incurring huge additional costs as a result of implementing RTI.”

The results of the joint Payroll Alliance and CIPP research just published shows that 42% of those paying via BACS reported that they will be incurring extra charges to include the hash total in field 7 of their BACS file.

Twenty-five per cent of employers paying via BACS reported being charged between £1,000 and £5,000 for amending BACS software to include the hash total.

Importance of being able to objectively justify direct age discrimination

A recent EAT case illustrates the benefits of an employer having formulated a justifiable policy when they take action that can be viewed as discriminatory.

In the case of Lockwood v Department of Work and Pensions & Anor [2013] UKEAT 0094/12, Ms Lockwood had worked for the Department for eight years before she took voluntary redundancy.

Under the Civil Service Compensation Scheme, as a 26 year old leaver with almost eight years’ service, Ms Lockwood was entitled to a payment of £10,849.04. However, had she been over age 35, under the scheme rules she would have been entitled to a further sum of £17,690.58. It was that disparity in severance payments, compared with an older worker with identical length of service which caused her to lodge her complaint of direct age discrimination.

Ms Lockwood lost on appeal because the EAT had no problem accepting that the Department had adopted a proportionate means to achieve their legitimate aim to produce a proportionate financial cushion for workers until they found alternative employment when balanced against the disparate treatment of younger workers. The additional payment to older workers was to reflect the comparative difficulty of loss of employment suffered by the older workers (finding another job; family financial commitments) when compared with those in the younger age group.

Under section 13 of the Equality Act 2010, ‘a person (A) discriminates against another (B) if, because of a protected characteristic, (A) treats (B) less favourably than (A) treats or would treat others.’ Normally there can never be any justification for direct discrimination. However, still under section 13, ‘if the protected characteristic is age, (A) does not discriminate against (B) if (A) can show (A’s) treatment of (B) to be a proportionate means of achieving a legitimate aim.’ This is known as ‘objective justification’.

The Department for Work and Pensions won because there was a very clear and reasonable reason for the difference between the two treatments. There would have been no objective justification if an employer arbitrarily decided to award an employee a greater amount by way of enhanced redundancy pay under the same circumstances that they offered a younger or older employee different settlement terms.

DWP consults on changes to pension rights where TUPE applies

On 25 February, the Department for Work and Pensions published a consultation ‘The Transfer of Employment (Pension Protection) (Amendment) Regulations 2013’ concerning the level of pension contributions paid by the transferred employee and the new employer (the transferee).

Replies to the consultation are invited by 5 April 2013.

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006, if a transferred employee had rights in relation to an occupational pension scheme immediately before the transfer, the new employer (transferee) must ensure that the employee is, or is eligible to become, an active member of a qualifying occupational pension scheme.

One of the requirements of the pension scheme that is offered to transferred employees has to do with the level of contributions a transferred employee can elect to pay into the new scheme and that should be matched by the transferee employer. DWP feel that the legislation surrounding pension contributions is not clear enough.

Therefore, DWP intend to amend the TUPE regulations so that the transferred employee has a right to choose the level of his or her own contributions (subject to any minima in the scheme rules) which must be matched by the employer up to a maximum of 6%.

However, this requirement can cause problems with minimum pension scheme contributions under the auto-enrolment legislation.

Where an employer is required to auto-enrol eligible workers into pension saving, the level of pension contributions that must be met between the employee and employer is not that great; and initially it is quite low. However, it’s only fair that transferred employees who were auto-enrolled into a qualifying pension scheme and who are then transferred to another employer should not be entitled to benefit from a higher level of their employer’s contributions than would be the case if they had not been transferred.

Therefore, DWP want to amend the TUPE regulations to allow that employers meeting their auto-enrolment obligations with respect to transferred employees cannot be accused of a failure to meet a higher level of pension contributions.

Of course, the up to 6% minimum contributions would continue to apply to those employees who before the date of transfer had rights under a contractual pension scheme that was not governed by the lower auto-enrolment minimum contribution levels.

New HMRC Employer Bulletin available to download

HMRC have published its latest Employer Bulletin February 2013 Number 43. It contains some “must know” information and some useful guidance and reminders.

The latest Bulletin is only available to download electronically from the HMRC website. HMRC can let you know when the latest version of the Employer Bulletin is available and other PAYE products are updated online. If you would like HMRC to notify you, all you have to do is sign up to their free email alert facility.

End of tax year return for 2012/13 reminder

The first important reminder in the Bulletin is about submitting an end of tax year payroll return on forms P14 and P35 (and P38A if necessary) for the tax year 2012/13. This applies to all employers other than those who joined the RTI pilot up to March 2013. The return must be received by HMRC by 19 May 2013 (which is a Sunday) at the latest. Employers who are directed to start submitting RTI returns from 2013/14 will no longer be required to submit an end of tax year return from 2013/14 onwards.

Using the HMRC Basic PAYE Tools to make a return

The Bulletin also contains important information for those very small employers (with nine* or fewer employees in a PAYE scheme) who will be using the HMRC’s Basic PAYE Tools to send HMRC a payroll return for 2012/13. The latest version of the Tools being made available in February will enable an employer to make a return for 2012/13 BUT will not allow an employer to start their 2013/14 payroll.

*The Basic PAYE Tools will actually allow an employer to have more than nine employment records entered during the tax year. However, as soon as the employer tries to enter a tenth record during the tax year, they will be reminded that they can only enter a maximum of 15 employment records before they must make other arrangements to send HMRC their RTI returns (e.g. by investing in some proprietary payroll software that includes the facility to send HMRC RTI returns). The above relaxation will give very small employers some scope during the tax year to deal with starters and leavers during the year although only having nine or fewer “active” employment records at any one time during the year.

New version of the Tools for 2013/14

HMRC’s brand new Basic PAYE Tools for Real Time Information will be available in the first week of April. Small employers will be able to use this new version to start their 2013/14 payroll for their first payday on or after 6 April 2013 and use the Tools to send HMRC the necessary RTI returns.

Important reminders concerning preparing for RTI “go live” in April 2013

As you can imagine, with RTI about to “go live” in a very few short weeks, the February issue of the Bulletin contains a lot of information to help employers prepare for RTI. A number of useful online links are given to information, guidance, and publicity material.

 Expenses and benefits returns for 2012/13 and onwards

The February version of the HMRC’s Basic PAYE Tools will not be able to be used by very small employers to calculate their employee’s P11D and P9D expenses and benefits and submit the returns online to HMRC for 2012/13 and future tax years.

From April 2013, HMRC are introducing an additional method for submitting end of year expenses and benefits forms called ‘Online end of year Expenses and Benefits forms’. These new web forms will be available to download from the HMRC website to an employer’s computer and will allow them to calculate and send expenses and benefits information electronically.

Once downloaded the new web forms can be completed in part and saved if required, then submitted electronically when completed in full. These new web based forms will enable small to medium sized employers to submit expenses and benefits information electronically.

The new web forms will not mirror the paper forms, but will include all existing questions and boxes as currently shown on the paper forms, then based on the answers to a set of initial questions, the web forms will provide the employer with only those questions/boxes relating to the information they have indicated that they need to submit.

One HMRC bank account from April 2013

The Bulletin also reminds all employers about the change to one HMRC bank account for all PAYE remittances from the start of the tax year 2013/14 onwards.

Taxing trivial pension commutations from April 2013

The Bulletin also announces a change to the tax code applied to trivial pension commutations that exceed the tax-free limit from 6 April 2013 onwards.

Under pension tax rules, for registered pension schemes, pension payers are able to convert certain small pensions into a one-off cash payment. Subject to certain conditions, a maximum of 25% of the value of most of these small pensions can be converted to a tax free lump sum. The tax code is then applied to the remaining taxable portion of the lump sum.

Up to 5 April 2013, pension payers are required to operate the emergency tax code (code 810L for 2012/13) on the non-cumulative (week 1/month 1) basis on the lump sum pension payment. Applying the emergency code in this way results in many lump sum payments of this type attracting the higher, and possibly additional, rates of tax. And in many cases this leaves the payment recipient in a position where they temporarily overpay tax.

From 6 April 2013, it is proposed that the basic rate (BR) tax code (operated on the non-cumulative basis) will apply. HMRC believe this change will result in more individuals, in particular those on low to moderate incomes, paying the right amount of tax at the time the lump sum pension payment is made.

New employer guidance on religious practice and belief in the workplace

The Equality and Human Rights Commission (EHRC) has published its Religion or Belief – new guidance to help employers deal with the possible fall-out over a number of recent cases to do with the effects of religious practice and belief in the workplace.

In January 2013, the European Court of Human Rights (the Court) published its judgments in four combined cases about religious rights in the workplace. The cases were brought by Christians, but the implications of the judgment apply to employees with any religion or belief, or none.

The judgment affects employer responsibilities for policies and practices protecting religion or belief rights in the workplace, the rights of employees (including job applicants) and the rights of customers.

The judgments may be referred to the Grand Chamber of the European Court of Human Rights and could be upheld, overturned or modified. In the meantime, the EHRC recommend employers should use the new guidance they have just published that includes a selection of examples of requests and how employers might deal with them.

There are online links to the new guidance and to some employer FAQs.

How to get hold of employers guide to dealing with attachment of earnings orders

The HM Court Service keeps changing the location of where it stores its Attachment Orders: A guide for employers. It can now be downloaded in portable document format from this web address.

There is also a 9-page simplified guide to attachment of earnings published by the HM Courts Service that just deals with attachments in England and Wales.

If you need to know about other types of attachments (known as arrestments in Scotland), including deduction from earnings orders, you’ll need to refer to the more comprehensive employers guide.

Ignore HMRC reminder letter about RTI at your peril!

Starting from the week of 11 February, HMRC is writing to employers and pension       providers to formally notify them that they must start reporting PAYE in real time (known as Real Time Information or RTI) to HMRC from their first payday* on or after 6th April 2013, and to help them prepare for this change.

The letters will continue to be sent throughout February 2013 as a serious reminder to any employer who has not yet taken sufficient action with regard to RTI. Notifying employers during February still gives them time to get ready to send their PAYE returns to HMRC in real time.

The letters make it clear that employers should have plans to update or acquire new RTI-ready payroll software by now – and spoken to their software provider, or payroll bureau, or agent if they have one. We are all inclined to leave things to the last minute, but now it is time to act. If you have not done this yet, you need to do it straight away to ensure you  are ready.

All the information you need about preparing for RTI is on the HMRC website. HMRC have also included an online checklist which explains the key steps employers need to take before April 2013 to make sure they are ready for reporting PAYE in real time from 6 April 2013.

Reminder letters are not being sent to employers who started to take part in the RTI pilot during 2012/13 as they are already reporting in real time and will go on doing so from the start of the tax year 2013/14. Neither are letters being sent to those employers with 5,000 or more employees in a PAYE scheme – they will have been advised of an RTI on-boarding date between May to September 2013.

*First pay run under RTI for 2013/14

If you are an employer directed to start sending RTI returns to HMRC from your first payday in the tax year 2013/14, you may have a problem if your first payday for that tax year is early on in April. You will not be able to submit any RTI return for 2013/14 until the earliest at 6am on 6 April 2013.

Therefore, for example, if your first payday is on 6th April, and because the 6th falls on a Saturday, you might want to bring your first payday for 2013/14 forward to Friday 5th April. When you process your payday, maybe around Tuesday 2nd or Wednesday 3rd April, you will not be able to send HMRC the necessary Full Payment Submission before 6am on the 6th. And if you’re not at work on the 6th, it will be Monday 8th April before you can be ready to submit the return. What’s to do?

You have two options.

Option 1 – Send HMRC your first FPS return for 2013/14 on Monday 8th April. Even though you will not have sent HMRC the FPS on or before employees were actually paid, HMRC will not penalise you.

Option 2 – You don’t send HMRC your FPS return on the 6th, 7th or 8th. When you come to process and pay your second payday for the tax year 2013/14 you show the pay for that period in what will now be your first FPS for the tax year, and show the year to date figures in that FPS as including the total for your first and second paydays. HMRC will not penalise you for failing to send a FPS return covering just your first payday in 2013/14.

Of course, if you use a payroll service provider, payroll bureau, or agent, to run your payroll and submit RTI returns online to HMRC on your behalf, then you need to agree with them how you’re going to deal with a first payday for 2013/14 where no RTI return for 2013/14 can be submitted before 6am on 6th April.

End of tax year return for 2012/13

Where you only start sending HMRC RTI returns from the beginning of the tax year 2013/14, you will still be required to send HMRC a payroll year-end return for 2012/13 on forms P14/P35 (and P38A if necessary) before 20th May 2013. However, this will the last such return you’ll need to submit.

A new type of attachment of earnings coming to an employer near you

From April 2013, the Department for Work and Pensions is introducing the Direct Earnings Attachment (DEA). The use of DEAs will allow DWP to recover debts owed the Department direct from an employee’s wages.

According to DWP, DEAs (as authorised under section 105 of the Welfare Reform Act 2012) will be used against those debtors who are already subject to a court-authorised deduction from benefits (e.g. as a result of benefit fraud or an overpayment), but who move off benefits (e.g. into work). As there are no longer any benefits to reduce by the amount owed, DWP need to recover an outstanding debt by some other means.

Where the debtor fails to get in touch with DWP, or they are unwilling to agree a voluntary recovery plan, DWP can raise a Direct Earnings Attachment asking the debtor’s employer to make deductions from the employee’s earnings and pay these deductions to DWP, without the need for any further court action being brought against the debtor.

The new DEAs will be piloted by DWP from April 2013 with the hope of fully implementing the DEA process by April 2014.

The rate of DEA deduction will be based on the level of the debtor’s net earnings and will be subject to statutory limits. The maximum possible deduction to repay overpaid benefits will be 20 per cent; although a debtor will never be left with less than 60 per cent of their net earnings, after considering any other DWP deductions in place (such as an Income Support Deduction order).

When operating a DEA, an employer will be allowed to charge the employee an admin fee of up to £1 for each deduction from earnings.

The right to flexible parental leave starts its legal journey through Parliament

On 4 February, the Government introduced its Children and Families Bill. Among other things the Bill introduces a new system of shared parental leave along with improved rights for adoptive parents. It is expected that these new rights will become effective from April 2015.

The Children and Families Bill is mostly a piece of enabling legislation. Later regulations will put flesh on the bones as to how the proposed changes will work in practice. To get some idea of what those regulations will deal with, it’s necessary to go back to the Government’s response to their Modern Workplaces Consultation and published in November 2012.

Shared parental leave

The existing 52-week maternity (or adoption) leave and 39-week maternity (or adoption) pay period will remain, as will the two weeks’ ordinary paternity leave and pay. If for example, the father (or partner of the mother or adoptive parent) chooses to take his two weeks’ paternity leave around the birth (or placement) of the child, and the mother (or adopting parent) chooses to take her 52 weeks’ leave, nothing changes.

It’s if the mother (or adopting parent) decides to end her sole taking of maternity (or adoption) leave with remaining weeks of leave and pay that the new rights will apply. The mother (or adopting parent) and father (or partner of the mother or adoptive parent) will be entitled to decide how they share out (in blocks of one week, and by arrangement with the respective employer(s)) any remaining weeks of leave and pay between them. This will apply, for example, where the father (or partner of the mother or adoptive parent) meets the entitlement requirements for shared parental leave.

For example, after the mother has taken her period of compulsory maternity leave (or longer if she wishes) following the birth of the baby, it might be agreed that she return to work and allow the father to take-over as the main carer for the baby.

Abolition of additional paternity leave

From when the new rights to shared parental leave take effect, the provisions relating to additional paternity leave (only introduced in April 2011) will be abolished; the right to take up two weeks’ ordinary paternity leave will remain.

Improvement to adoption leave and pay

From 2015, the Government intends that there will be no service test before an employee is entitled to take up to 52 weeks’ statutory adoption leave. There will still be the same service test for the right to receive up to 39 weeks’ statutory adoption pay as currently applies.

The Government is also proposing that, from 2015, the first six weeks’ statutory adoption pay will no longer be paid at the flat rate, but at 90% of average weekly earnings.

The new rights to shared parental leave will apply to adoptions as they will do for live births.

Time off during working hours to attend antenatal appointments

For the first time fathers (or the mother’s partner) will have a right to take up to six and half hours off during a working day to attend up to two different antenatal appointments with the mother. There will be no statutory entitlement to pay during this time off.

Where a child is being adopted, there will be a right for one of the adoptive parents to take up to six and half hours off during a working day to attend up to five different adoption appointments. There will be a statutory right to pay during this time off.

For the partner of the adopter (or the other one of the adopting couple), there will be a right to take up to six and half hours off during a working day to attend up to two different adoption appointments. There will be no statutory entitlement to pay during this time off.

There will be no service test before these new rights apply.

Unpaid parental leave

From March 2013, the Government will increase the total amount of unpaid parental leave from 13 to 18 weeks, to comply with the revised EU Parental Leave Directive. From 2015, the Government intends to increase the age limit from 5 to 18 years, so that each parents, for example, will have the right to take up to 18 weeks’ unpaid leave to look after a child under the age of 18.

 

 

Getting ready for end of tax year share scheme reporting

HMRC have published the latest 2013 editions of the various returns employers may need to make if they are operating different types of share schemes within the company.

If you are operating a tax-approved Share Incentive Plan, you need to complete a form 39.

Employers will be told by HMRC they need to complete the return in a form 39 notice. The employer must ensure the form 39 reaches HMRC by the date specified on the form 39 notice. This date will be within three calendar months of the date of issue.

If you are operating a tax-approved SAYE Share Option Plan, you need to complete a form 34.

Like form 39, an employer will be issued with a form 34 notice requiring them to make the return.

The employer must ensure the form 34 reaches HMRC by the date specified on the form 34 notice. This date will be within three calendar months of the date of issue.

If there have been no reportable events during 2012/13 (e.g. no new plans opened or share options awarded), all that is required is for the employer to sign the necessary declaration to that effect.

If you are operating a tax-approved Company Share Option Plan, you need to complete a form 35.

Like form 39, an employer will be issued with a form 35 notice requiring them to make the return. Where a notice is issued, the employer must ensure the form 35 reaches HMRC by the date specified on the form 35 notice. This date will be within three calendar months of the date of issue.

If there have been no reportable events during 2012/13 (e.g. no changes in share options), all that is required is for the employer to sign the necessary declaration to that effect.

If you are operating a tax-approved Enterprise Management Incentive share scheme, you need to complete a form 40.

The notes to this form do not mention HMRC issuing any notice requiring a form 40 return. All the notes state is that this return must be sent to HMRC before 7 July following the end of the tax year in question.

If there have been no reportable events during 2012/13 (e.g. no changes in share options), all that is required is for the employer to sign the ‘Nil Return’ declaration at section 7 of the form.

If you are operating any kind on non-approved share scheme, you need to complete a ‘Employment-related securities’ form 42. This return is only required where there have been ‘reportable’ events (e.g. grant of securities options) during 2012/13.

Where a form 42 return is required, the employer must ensure the return is sent to HMRC before 7 July following the end of the tax year in question. If HMRC sends an employer this return to complete, and it is sent the company on or after 8 June 2013, the company has 30 days from the date of issue of the form to complete it and send it back to HMRC.

As with all the above forms, HMRC state they may charge a penalty where the relevant form is returned late, or it is incomplete, or inaccurate.