Payroll Newsletter 03.02.10

News items at - 3^rd February 2010

Introduction

This week, for a change, we have a number of relatively short news items on a varied range of subjects.  Two of the items resulted, at least in part, from questions raised on the PayPerShop Forum.  Some employers reported that they were receiving multiple and conflicting coding notices for the same employee and HMRC subsequently issued an apology and explanation, which we have reproduced in the newsletter.  Questions concerning salary sacrifice schemes are very common on the Forum, and our Employer FAQ this week is the response posted on the Forum to one such question.  It tackles a common misconception about salary sacrifice schemes.

Workers Memorial Day

Official recognition in the UK

The Government announced on 29 January that the UK will officially recognise Workers Memorial Day on 28 April each year to commemorate the thousands of people who have died, been seriously injured or made ill through their work.
Workers Memorial Day originated in Canada in 1984.  The day is also recognised in other countries and, in 19 countries, is recognised as a national day.

There have been an increasing number of commemorative events in the UK in recent years as Workers Memorial Day has become a focal point for bereaved families, unions, campaign organisations and local authorities, among others.  As more people have become involved in these events, there has been growing support for formal recognition of the Day.  The DWP published a consultation document that explored various options for official recognition and a summary of the responses has now been issued.

The Government will promote and publicise the Workers Memorial Day commemorations each year on the Directgov website  and, via Directgov, on a range of other Government websites.

Although consideration was given as to whether the day should be a bank holiday, the idea did not have widespread support among the responses received.  In particular, it was felt that a bank holiday would not fit with the ethos of Workers Memorial Day, with its strong emphasis on commemorating the Day in the workplace.

Further information:

Workers Memorial Day – Government response to the consultation

Official recognition for Workers Memorial Day in the UK

PAYE Procedures

Multiple coding notices for the same employee

A coding notice problem was highlighted recently by some correspondents to the PayPerShop Forum and similar issues were raised in the press and elsewhere.  Employers were receiving multiple and conflicting coding notices for individual employees.  In response to the problems, HMRC issued the following explanation:

“HM Revenue & Customs has recently introduced a new National Insurance and PAYE system and is using it to issue notices of tax coding for the first time. The new system creates a single record for customers and this, together with increased automation, is resulting in many more people receiving coding notices this year and having more accurate codes than before.

The transition to the new system has, however brought to light discrepancies in our existing records and this is resulting in a number of incorrect notices being issued. The vast majority of notices will be correct but there will be cases where, because the data carried over from our old systems does not match employers’ data, some people receive an incorrect coding notice or more than one coding notice for the same employment because of these discrepancies. This is a transitional issue caused by data mismatches, rather than an IT issue and will be resolved once we have cleared these from the system.

We are aware of the issue and apologise for any inconvenience caused. There is plenty of time to put the codes right before the start of the tax year and we are doing everything we can to rectify the position and ensure no one pays too much tax when the new tax year starts in April 2010.

However, anyone who is concerned that their code may be wrong should check it using the guidance included with the code and on our website.

If customers cannot resolve their query, they can telephone 0845 3000 627 so we can ensure the right tax code is applied in time for the start of the new tax year on 6 April 2010.”

Further information:

Annual Coding: Multiple or incorrect Coding Notices

Payments, Repayments and Debt

Introduction of Managed Payment Plans

Following consultation during 2008, HMRC announced at the time of the 2009 Budget that one of the proposed approaches to minimising potential debt problems for taxpayers, known as “Managed Payment Plans”, could not be introduced before April 2010 due to the need to make system enhancements.

HMRC has now confirmed that the scheme will be in place for that date.  Managed Payment Plans will not apply to PAYE tax due from employers, but to self-assessed income tax and, in some situations, to corporation tax.

The arrangements will give taxpayers the facility to make regular monthly payments based on their liability and the payments will straddlethe due dates, with the payments in advance of the due date balanced by those made in arrears.  Interest and surcharges will be suspended in such an arrangement.

Initially, HMRC will accept payment by Direct Debit only but may offer a choice of electronic payment methods in the future.

Further information:

Payments, Repayments and Debt: The next stage

Review Of HMRC Powers, Deterrents And Safeguards: Payments, Repayments And Debt

Pension Schemes

Pensions earnings cap and the transitional period

Pension scheme trustees may continue to use the pensions earnings cap, which officially ceased to exist from 6 April 2006, for the purpose of restricting pension payments from a registered pension scheme for a transitional period. The transitional period ends on the earlier of

• the date from which the pension scheme rules are changed so that the existing limits no longer apply, and
  
  
• the end of the 2010/11 tax year.

Although the earnings cap, fixed at £105,600 for 2004/05, has not been increased in legislation since April 2006, HMRC continues to review it annually for these transitional purposes. The notional value of the pensions earnings cap for 2009/10, £123,600, is unchanged for 2010/11.

As this is the last year for which HMRC will publish a notional cap figure, schemes that wish to know what the earnings cap would have been in future will have to use the calculation method provided in section 590C of the Income and Corporation Taxes Act 1988.  This is a problem as that section did not appear in the original Act.  It was added by means of the Finance Act 1989, amended by the Finance Act 1993 and repealed in 2004!

However, we have tracked it down and the notional earnings cap figure for each new tax year is calculated as follows:

1. If the retail price index (RPI) for the month of September prior to the new tax year is higher than it was for the previous September, the earnings cap figure for the previous tax year is
   
   
   • increased by the same percentage as the year-on-year increase in the RPI, and,
     
     
   • if the result is not a multiple of £600, it is rounded up to the nearest multiple of £600.
     
     
2. If the RPI has not increased year-on-year, the earnings cap figure stays the same.

Examples:

• The earnings cap figure for 2008/09 was £117,600.  The increase in the RPI at September 2008 was 5.0%.  Applying that increase to £117,600 takes it to £123,480 and this is then rounded up to £123,600, the next higher multiple of £600.
  
  
• The earnings cap figure for 2009/10 was £123,600.  The RPI for September 2009 decreased year-on-year by -1.4%.  In this situation, the figure does not decrease but remains the same.

Further information:

Pension Schemes: Notional Earnings Cap 2010-11

Employment Rights

Applications to undertake study and training

Our newsletter two weeks ago explained in detail the new right for employees to apply to their employer to undertake study and training that will serve to make them more effective employees.  At that time the detailed arrangements were only available on the Business Link and Directgov websites, but the formal Regulations have now been published.

Further information:

Employee Study and Training (Procedural Requirements) Regulations 2010

Explanatory Memorandum to the Employee Study and Training (Procedural Requirements) Regulations 2010

Employee Study and Training (Eligibility, Complaints and Remedies) Regulations 2010

Explanatory Memorandum to the Employee Study and Training (Eligibility, Complaints and Remedies) Regulations 2010

Paternity and Parental Leave

Further changes under consideration in DCSF Green Paper

In a detailed Green Paper published in January by the Department for Children, Schools and Families (DCSF), the Government announced that further changes to family employment rights are under consideration in the following three areas:

• One of the qualifying conditions for entitlement to two weeks (ordinary) paternity leave for a birth is for fathers to give notice to their employer not later than the qualifying week, i.e. fifteen weeks before the expected week of birth.  Fifteen weeks’ notice is required to take two weeks’ leave.  In contrast, mothers have to give the same fifteen weeks’ notice in order to take up to a year’s leave.  There is an argument that the notice periods are disproportionate to the periods of leave and the Department for Business, Innovation and Skills (BIS) is to review the notice period for paternity leave and consult publicly on changes later in 2010.  There is, of course, a difference that is not mentioned in the Green Paper – that mothers may start their leave four weeks after giving notice, whereas fathers cannot start their leave for about fifteen weeks.
  
  
• Some fathers do not have the necessary length of service or average earnings to qualify for (ordinary) statutory paternity pay.  The Government will explore these barriers to taking paternity leave during 2010 and this will include giving consideration to the introduction of paternity allowance, similar to the maternity allowance available to mothers who do not qualify for statutory maternity pay.
  
  
• Parental leave is available to both mothers and fathers for up to 13 weeks in the period up to a child’s fifth birthday.  A greater entitlement is available in respect of disabled children.  The 13-week period must increase to 4 months in future in line with changes to the new European Parental Leave Directive and the Government intends, at the same time, to consider whether parental leave should be available in respect of children over the age of 5.

Further information:

Support for All: the Families and Relationships Green Paper

Payroll Calendar for the Next Month

February 5 – This is the final day of tax month 10.  Tax and NICs etc. for payments made in the tax month to February 5 are due for payment to the Accounts Office by February 19, or by February 22 if paid electronically.

February 19 – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.

February 22 – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account.  Payments through BACS must be initiated by February 18 at the latest.

March 5 – This is the final day of tax month 11.  Tax and NICs etc. for payments made in the tax month to March 5 are due for payment to the Accounts Office by March 19, or by March 22 if paid electronically.

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GUERNSEY

Payroll Calendar for the Next Month

February 15 - For employers with 80 staff or more, this is the deadline for payment of tax deducted during January to the Income Tax Office.

ISLE OF MAN

Payroll Calendar for the Next Month

February 5 – This is the final day of tax month 10.  The T35 Remittance Card and ITIP/National Insurance in respect of the payments made in the tax month to February 5 must be sent to the Income Tax Division by February 19.

February 19 – This is the deadline for submission of the T35 Remittance Card and ITIP/National Insurance to the Income Tax Division for tax month 10.

March 5 – This is the final day of tax month 11.  The T35 Remittance Card and ITIP/National Insurance in respect of the payments made in the tax month to March 5 must be sent to the Income Tax Division by March 19.

JERSEY

Payroll Calendar for the Next Month

February 15 – For employers with 80 staff or more, this is the deadline for payment to the Social Security Department of the contributions calculated for January.

February 15 – This is the deadline for submission of the monthly return and payment of tax deducted in January to the Income Tax Office.

REPUBLIC OF IRELAND

Payroll Calendar for the Next Month

February 14 – This is the deadline for P30 monthly PAYE/PRSI payments to the Collector General for January by employers who pay monthly, unless they pay (and file form P30) through Revenue On-Line Service (ROS).

February 15 – This is the deadline for issuing P60 Certificate of Pay, Tax and PRSI for 2009 to all employees.

February 15 – This is the deadline for submitting Form P35 for the year ending December 2009.

February 23 – For employers who make their payments (and file form P30) through Revenue On-Line Service (ROS), whether required by law to do so or not, this is the deadline for P30 monthly PAYE/PRSI payments.

(Note: These dates also apply to equivalent RCT payments and returns made by principal contractors.)

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Payroll FAQ's

Salary Sacrifice Schemes

What happens to the amount that has been sacrificed when the employee has little or no pay?

This article considers a common misconception about the nature of salary sacrifice schemes.  It uses the specific situation of a scheme under which the employer undertakes to make additional contributions to the employee’s pension scheme in return for a corresponding reduction in the employee’s salary.  The scheme has the benefit of reducing both the primary and secondary NICs liabilities.

When an employer and employee enter into a salary sacrifice scheme for a benefit of some kind, they have negotiated two specific changes to the contract of employment.

1. The first is that there is a reduction in the employee's salary. In the case of a salary sacrifice scheme for pensions, for example, the original contractual salary might be £20,000, and the new contractual salary might be £19,000. That is a reduction in the contractual salary, not a deduction of £1,000.
   
   
2. The second is that there is a new contractual benefit. In this case it might be an annual employer pension contribution of £1,000 (in addition to any contribution that the employer is otherwise making).

The common misconception is that a salary sacrifice scheme involves the employer providing a benefit and paying for it by means of a deduction from the employee’s salary on each payday.  Such an arrangement is possible but it does not meet the requirements for a salary sacrifice scheme to be tax effective.  It would mean, in the context of a pension salary sacrifice, that the employer is simply paying some of the employee’s earnings into the pension scheme and that does not serve to reduce the NICs liability.  Rather, there must be a clear contractual reduction in the salary and the pension contribution must contractually be the employer’s contribution, not the employee’s.

A tax-effective salary sacrifice scheme must, therefore, as a result of a clear contractual change, result in two distinct and separate contractual terms - a new salary and a new benefit.  They may be associated in the minds of the employer and the employee but the reality is that they are separate and distinct contractual terms.  For example, at the time of the annual salary review, the employee could have a pay rise independent of the pension contribution benefit.  Although they are separate contractual terms, there is nothing to stop the parties, at a later date, renegotiating a further change that, for example, might replace the benefit with an increase in the salary.

“So, what happens during a period of little or no pay?  In the case of maternity/adoption/paternity leave, paid or unpaid, there is a statutory rule - the employee continues to be entitled to all contractual benefits.  This rule also applies to pension contributions, although only to the period of paid maternity/adoption leave.  However, during unpaid absences for other reasons, such as sickness, there is no statutory rule, so whether or not the employee continues to be entitled to the benefit is a contractual matter between employer and employee.  The usual arrangement is to specify in the salary sacrifice agreement a number of circumstances, commonly known as “lifestyle changes”, which could serve to prompt a renegotiation of the contractual terms, normally a return to the original salary and loss of the benefit.”

So, if, for example, long-term sickness absence is a situation that, if it occurred, would make nonsense of the pension salary sacrifice, it should be included in the salary sacrifice agreement as a reason for the agreement to be renegotiated.  Alternatively, the employment contract may specify certain benefits that cease to be provided in the event of, say, long term sickness absence.  If such a provision is not already included in employment contracts, there is no reason why the employer should not discuss the situation with the employee and agree on new terms.  Otherwise, contractually speaking, the employee is still entitled to the contractual benefit.

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