Payroll Newsletter 08.03.10

News items at - 8^th March 2010

Introduction

A wide variety of topics are covered in this week’s newsletter.  A key article is a summary of the Government’s plans to restrict the tax relief on employer-supported childcare – including childcare vouchers – for employees paying tax at 40% or 50%.  The changes will not occur until 2011/12 and there are yet a number of unanswered questions.  To support this news item, our Employer FAQ this week looks at the childcare tax exemption that is not affected by these plans – the provision of on-site nurseries.

The other major article this week for readers with an interest in International Payroll looks at the changes to the E101 NICs procedures that are due for change from May 2010.  A related item gives details of a new report form for employers using the modified NICs procedures.

Statutory Sick Pay

DWP guidance on “fit notes” for employers and doctors

Our recent review was unable to confirm the date when the new “fit notes” will come into use in Northern Ireland.  The necessary Regulations were made on 1 March 2010 and come into force, as in the rest of the UK, from 6 April 2010.

Further information:

The Social Security (Medical Evidence) and Statutory Sick Pay (Medical Evidence) (Amendment) Regulations (Northern Ireland) 2010

Employment Law Payments and Awards

New statutory limits from 2010

In a newsletter at the end of December 2009 we announced the annual changes to various payments and awards that are reviewed annually on 1 February.  At the time it was expected that the same rates would apply in Northern Ireland from 15 February 2010.

However, the Northern Ireland Department for Employment and Learning has now announced that the rates for the various payments and awards are effective from 7 March 2010.

Further information:

Employment rights – new limits on payments

Employment of Children

Paper boy was not an employee for employment rights purposes

In a decision given on 23 February 2010 in the case Bebbington v Palmer (t/a Sturrey News), the London Employment Appeal Tribunal (EAT) dismissed the appeal and confirmed that the paper boy in question was not an employee for the purpose of employment rights and his claim for unfair dismissal could not therefore be heard.

Mr. Bebbington worked as a paper boy when he was 14 and 15 years old but his employment ended following an altercation between the newsagent and his parents when there was an apparent change in his working hours.  In considering a claim for unfair dismissal, the Employment Tribunal had made an initial finding that, because Mr. Bebbington’s working relationship did not require him to perform his duties personally – he could arrange for someone else to do his paper round – there was no contract of service.  As a result, Mr. Bebbington was not employed and could not claim unfair dismissal.

Mr. Bebbington’s case was supported by the Children’s Legal Centre at Essex University. The EAT was asked to bear in mind the consequences of its decision on appeal to other child employees and hundreds of thousands of paper boys and girls in England and Wales.  An adverse decision, it was argued, would affect children’s rights to claim remedies for unfair and wrongful dismissal and would also impact on whether or not they are protected by Employer’s compulsory liability insurance.  The EAT acknowledged these issues but did not feel that this was an appropriate test case in view of the findings of the Employment Tribunal in this particular case.

The EAT dismissed the appeal, confirming that the lack of a personal service requirement and the lack of mutuality of obligations under the working arrangement meant that Mr. Bebbington was not an employee.

Commenting also on the provisions of the Children and Young Persons Act 1933, which refers to the “employment” of children, the EAT took the view that the term encompasses children who are both employees and those who are employed under contracts for services.  Local authorities have broad powers under that Act to provide protection for children in either situation.  The same distinction is drawn in the Employment Rights Act 1996 between “employees” and “workers” but neither the Employment Tribunal nor the EAT considered what other rights, such as paid holidays, paper boys and girls are entitled to, even if they are “workers” and not “employees”.

The EAT decision in this case should not be seen as applying to all paper boys and girls.  The particular working relationship between Mr. Bebbington and the newsagent indicated self employment but the status of other paper boys and girls would depend on their own contractual relationship with their employers.

Further information:

Bebbington v. Palmer (t/a Sturry News)

Employer CD-ROM 2010

Guidance on installation problems

The 2010 CD-ROM was issued during February and installation errors are already being reported.  HMRC has issued the following instructions:

“If you have encountered a problem where you were asked to run the Diagnostic Tool installed with the Employer CD-ROM:

• There is an issue with the Employer CD-ROM 2010 which may cause the Data Transfer Utility from the 2009 CD-ROM not to work. Please continue to use the 2009 CD-ROM. HMRC will issue further guidance on the internet by 10 March 2010.
  
• The majority of other problems may be solved by either
  
  1. closing the CD-ROM and then reopening it and returning to the function you were using when the difficulty arose
     
  2. checking that your firewall has the correct 'exception rules created'. For more information please look at the frequently asked questions.

When you have checked to make sure that none of the above solve your problem, call the Online Services Helpdesk; explain that you are having difficulties using the Employer CD-ROM and have run the diagnostic tool. Helpdesk advisers will tell you what to do next.”

Further information:

Employer CD-ROM 2010

National Insurance Contributions

New report forms for Modified NICs Procedures

HMRC’s online Employment Procedures Manual includes two Appendices (7A and 7B) that provide special modified procedures for PAYE tax and NICs.  Appendix 7A allows employers to make a formal agreement with HMRC in respect of tax-equalised employees coming from abroad that allows estimated NICs to be paid and reported and final correct payments to be made by 31 March following the end of the tax year.  Appendix 7B makes similar provisions for higher-paid employees working abroad.

HMRC has introduced new NICs Settlement Return for use in connection with each Procedure for reporting correct figures by 31 March following the year end.

Further information:

Tax equalised employees coming from abroad - modified NICs procedure

Modified NICs procedure for employees working abroad

Official Rate of Interest for Beneficial Loans

Reduction in the rate from 6 April 2010

The official rate of interest is reduced from 4.75% to 4.00% from 6 April 2010.  There is no change to the official rates that apply in relation to Japan and Switzerland.  The official interest rate for a particular tax year is published annually in form P11D(INT) and is included on the Employer CD-ROM.  For unknown reasons, the P11D(INT) that is included on the 2010 Employer CD-ROM is for the 2008/09 tax year, not the 2009/10 tax year!

The official rate of interest affects the reportable value of beneficial loans.  An employment-related loan is a taxable benefit in a tax year if it is “beneficial”, i.e. it is provided at a rate of interest that is less than HMRC’s official interest rate.  The cash equivalent of the benefit of an employment-related loan in a tax year is the difference between

• the amount of interest that would have been payable on the loan for that year if it had been calculated using the official rate of interest, and
  
• the amount of interest, if any, that was actually paid on the loan for that year.

As the current 4.75% rate has been in place since 1 March 2009, the average interest rate for loans outstanding for the whole or any part of the 2009/10 tax year is 4.75%.

If there is a change in the official interest rate, HMRC’s practice is to make the change from the start of the tax year. However, if there is a significant fall in mortgage rates during a tax year, it may change mid-year.  If there is no further change to the official interest rate during 2010/11, an employment-related loan will be “beneficial” during 2010/11 if it is made at an interest rate that is lower than 4.00%.

The official rate of interest is also used in the calculation of the reportable value of living accommodation, where the cost of the accommodation exceeds £75,000.  When calculating the “additional yearly rent”, the formula uses the official interest rate at the start of the tax year.  The official rate for such calculations is 4.75% for 2009/10 and 4.00% for 2010/11.

Further information:

The Taxes (Interest Rate) (Amendment) Regulations 2010

Explanatory Memorandum to the Taxes (Interest Rate) (Amendment) Regulations 2010

Company Cars

Improved guidance on advisory mileage rates

In December 2009, HMRC changed the period of notice given to employers of the semi-annual adjustments to the advisory mileage rates for company cars.  Previously any changes had been introduced from January and July each year and a month’s notice was given in advance in each case, allowing employers to introduce the new rates up to a month before their official implementation date.

That arrangement changed in December 2009 however, when new rates were announced for immediate implementation from 1 December 2009.  If employers did not make the adjustments until, say, 1 January 2010, retrospective adjustments had to be made to any payments made in December.

Following discussions with employers’ organisations, HMRC has tempered its instructions somewhat and allows employers to introduce the new rates at any time up to one month after their official implementation date on 1 June and 1 December each year, without having to make any backdated adjustments. Employers are advised to visit the page on which the new rates are announced in late May and November each year in order to get advanced warning of any changes.

Further information:

Company cars - advisory fuel rates from 1 December 2009

National Insurance Contributions

New E101-related rules and procedures from 1 May 2010

From 1 May 2010, new EU Regulations will change the NICs rules for employees working in Europe and their employers.  The following guidance, based on some rather cumbersome material published by HMRC, is the current understanding of the changes but is subject to change.

The new rules apply to nationals of EU Member states and, if they adopt the new Regulations, to nationals of Iceland, Liechtenstein, Norway and Switzerland.  However, the UK has chosen not to apply the new rules to third country nationals who were legally resident in a Member state.  They will continue to be subject to the old rules.

The basic principle of the rules is that

• where the UK’s social security legislation applies, both employee and employer must pay Class 1 NICs and, where applicable, Class 1A and 1B NICs
• where the social security legislation of another Member state applies, no UK NICs are payable.

In principle, therefore, UK employees going to work in another Member state are liable for social security contributions in that state, and nationals from other Member states coming to work in the UK are liable for NICs.  The employees are only exempt from that rule if their employment in another Member state is temporary and the employer has obtained a form E101.

From 1 May 2010, form A1 will be used in addition to the existing form E101 to show that employees continue to be liable to pay social security contributions in the Member state of which they are nationals rather than the Member state in which they are working.  Therefore,

• employees coming to work in the UK from another Member state are liable for NICs unless they hold a valid A1 or E101 form that shows they are liable for social security contributions in another Member state.
  
• the UK employer of an employee going to work in another Member state should apply to HMRC Residency for form E101 or, from 1 May 2010, form A1.  If the form is issued, the UK employer and employee are exempt from paying contributions in the Member state and should continue to pay NICs.

Under the old rules, if the employment in another Member state is not expected to last for more than 12 months and a form E101 is issued, the employer and employee continue to pay NICs.  If the work unexpectedly continues for more than 12 months, an extension is possible for up to a further 12 months if a form E102 is issued.  Under the new rules, the maximum period for the exemption is increased to 24 months and the new form A1 replaces both the E101 and the E102 for this purpose.

In the case of employees working in two or more Member states, the old rule is generally that they come under the legislation of the Member state in which they reside if they also work in that state.  If they do not work in the Member state in which they reside, they are subject to the legislation of the Member state where the employer is registered or has a place of business.  Form E101 is also used to gain exemption from this rule and show that employees are liable for social security contributions in the Member state of which they are nationals.  Different rules apply to transport workers in this situation.

Under the new rules, liability only arises in the Member state of residence if a “substantial part” of the work is carried on in that Member state and there are no different rules for transport workers.  An employee’s working time and level of remuneration will be used to determine where the substantial part of the work is performed, or not performed.  For example, if less than 25% of working time is spent in the UK and/or less that 25% of remuneration is earned in the UK, the indication will be that a substantial part of the employee’s activities are not carried out in the UK.  Form A1 issued by the relevant Member state will indicate which state’s legislation applies in this situation.

In the case of mariners, the rule continues to be that the social security legislation to which they are subject depends on the Member state where the vessel on which they are working is flagged.  From May 2010 there will be just one important exception to this rule.  Where they are paid by an undertaking in the Member state in which they reside, it is the legislation of that state that applies.  For example, if a mariner lives in the UK, is paid by an agent in the UK but works on a vessel flagged in another Member state, the agent is treated as the employer and the mariner is liable for NICs.

There is an important change for employers to consider when employees are subject to the social security legislation in the Member state where they are working but the employer has no place of business in that Member state.  For example, under the old rules, if a foreign national is working for a host company in the UK and is required to pay NICs, but the foreign employer has no place of business in the UK, it is the host company that is treated as the employer for NICs.  However, under the new rules, in that situation, the foreign Member state employer becomes responsible for operating NICs, even though not based in the UK.  Turning that situation around, if a UK employer sends an employee to work in a Member state in circumstances where the employee is subject to the social security legislation of that Member state and the employer does not have a place of business in that Member state, the UK employer must calculate and collect the contributions due under that state’s legislation.  This would require the payroll office to have a knowledge of the social security legislation in that Member State or, alternatively, use an agent who does.  This arrangement is supported by new cross-border enforcement provisions that allow one Member state to enforce payment of contributions owed by an employer to another Member state.

Under the new rules, HMRC continues to have the flexibility to agree exceptions to the normal rules where, if strictly applied, there would be an unjust outcome.  Also, as already mentioned, nationals of countries outside of the EU will continue to be covered by the E101 rules, with the initial exemption limited to 12 months.

There are transitional rules but these are not yet fully finalised.  E101 forms issued before 1 May 2010 will continue to apply for the duration of the 12-month period after that date.  If that posting is unexpectedly extended, a form A1 can be issued but it will expire 24 months after the date on which the original E101 was issued.

The guidance provided by HMRC at the link below is not yet fully developed and employers affected by these changes should visit the pages regularly to keep up-to-date with this developing situation.

Further information:

National Insurance contributions: new rules for workers moving around the European Union on or after 1 May 2010 and their employers

Employer-supported Childcare

Details of tax relief changes announced

In September 2009, the Prime Minister, Gordon Brown, announced that the tax exemption for childcare vouchers would be phased out from 2011.  Following widespread dissent, this decision was reversed in December 2009 and, instead, it was announced that, still from April 2011, the tax relief on childcare vouchers would be restricted to the basic rate of tax.
Some details of this tax relief restriction were published in February 2010 in an HMRC document entitled Reform of the Tax Treatment of Employer-Supported Childcare.  Unfortunately, a number of significant issues are not addressed at all.  However, it is clear from the title of the document that the restriction will apply not only to childcare vouchers but to employer-contracted childcare as well.

There are three separate tax and NICs exemptions covering childcare provision in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and the equivalent social security legislation:

1. Employer-provided childcare, i.e. workplace nurseries, is fully exempt from tax and NICs if the defined conditions are met.
2. The provision of employer-contracted childcare, i.e. where the employer provides access to childcare by contracting with registered childcare providers, is exempt from tax and NICs on the first £55 per week.
3. The provision of childcare vouchers for qualifying childcare is also exempt from tax and NICs on the first £55 per week.

The first of these methods of providing childcare is not affected in any way by the announced restrictions.  Employers are encouraged to continue to increase the overall availability of childcare by making in-house provision.  Only the second and third methods of providing childcare are affected by the restrictions.

The restrictions will also affect salary sacrifice schemes and so-called “salary plus” schemes that depend on the tax and NICs exemption.  A “salary plus” arrangement is simply where the employer provides a benefit in addition to normal salary, rather that funding the benefit by means of a salary sacrifice.

The new rules will apply only to employees who start to use employer-contracted childcare or receive childcare vouchers on or after 6 April 2011.  Employees who are already receiving those benefits on that date are not affected.  They would only be affected if they stopped receiving either of the benefits and resumed at a later date.

Applying the restrictions

The restrictions are aimed at employees who pay tax at the higher 40% rate or the additional 50% rate.  The effect of the restrictions will be to ensure that such higher-paid employees do not receive more from the tax exemption in actual monetary terms than employees who pay tax only at the basic 20% rate.

To achieve this, the weekly limits on the tax-exempt provision of employer-contracted childcare and childcare vouchers will be set at

• £55 for employees whose marginal rate of tax is 20%
  
• £28 for employees whose marginal rate of tax is 40%
  
• £22 for employees whose marginal rate of tax is 50%.

A basic rate employee receiving vouchers worth £55 has tax relief amounting to £11.  The lower weekly limits for 40% and 50% taxpayers ensure that they also have tax relief of approximately £11 (40% of £28 = £11.20, 50% of £22 = £11).
The decision as to which weekly limit applies to employees who join one of the schemes on or after 6 April 2011 will be made by the employer.  At the start of the relevant tax year, or when an employee first applies to join a scheme, the employer will estimate the level of basic employment earnings that each affected employee is likely to receive during the tax year, ignoring potential bonus and overtime payments, but including other known taxable benefits.  If those earnings are

• less than the higher rate threshold (i.e. the sum of the personal allowance and the basic rate limit for the tax year - £43,875 for 2010/11), the weekly limit will be £55
  
• more than the higher rate threshold but less than the higher rate limit for the tax year (i.e. £150,000 for 2010/11), the weekly limit will be £28
  
• more than the higher rate limit, the weekly limit will be £22.

At present, if the value of

• employer-contracted childcare provided exceeds £55 in a week, the excess must be reported on form P11D for tax purposes and for employer Class 1A purposes.
  
• childcare vouchers provided exceeds £55 for a week, the excess must be reported on form P9D or P11D for tax purposes and added to earnings at the time for Class 1 purposes.

If the new rules apply to a higher rate or additional rate employee and the childcare or voucher provision exceeds the £28 or £22 limit, the excess over that limit will be handled for tax and NICs purposes in exactly the same way.

HMRC’s document makes a number of other points in a series of questions and answers:

• If the childcare or vouchers are provided in conjunction with a salary sacrifice, it is the contractually lower salary that is used in calculating the employee’s basic employment earnings.
  
• The initial estimate of basic employment earnings made by the employer applies for the whole of the tax year, even if the employee’s earnings increase or decrease during the year.  The employer makes a new estimate at the start of the following tax year.
  
• However, if the employer’s initial assessment is incorrect with the result that more tax relief if given than the employee is entitled to, amounts in excess of the correct weekly limit are reported on form P11D or P9D, as appropriate.  (This is potentially contentious – if the employee’s earnings change during the year, does that make the assessment incorrect?  Also, no mention is made of how any Class 1 NICs that have been paid by employee and employer on excess value vouchers are corrected if the initial assessment is incorrect.)
  
• If an employee in a scheme leaves and joins a scheme with a new employer, the new employer makes his own assessment of basic employment earnings in the new employment.

What the document does not discuss

This initial review of HMRC’s proposals reveals two aspects that are not discussed or explained in the document.

Transitional provisions

The first is the lack of any transitional provisions.  What is to stop higher-paid employees from joining a childcare voucher scheme, for example, before 6 April 2011 so that they can continue to enjoy tax relief at the £55 level?  HMRC’s answer, as hinted at in the document, is that

“you must be a parent or have parental responsibility for a child at the time you join an employer’s scheme”

Like all statutory tax exemptions, there are conditions that must be met.  The relevant condition for employer-contracted childcare (ITEPA s.318A) is that the child receiving the care must be

• a child or stepchild of the employee and maintained (wholly or partly) at the employee’s expense, or
  
• resident with the employee and a person in respect of whom the employee has parental responsibility.

So there is no doubt that an employee could only join a scheme involving employer-contracted childcare earlier than April 2011 if the employee has a child or has parental responsibility for the child.  Also, the relevant £55/£28/£22 limit applies to each qualifying week in which the care is provided.

However, the corresponding condition for childcare vouchers has subtle differences.  The same child or parental responsibility condition is included but it applies to a voucher that “is provided to enable an employee to obtain care for a child”.  There is no statutory requirement for the child to be born at that time or for a voucher to be used in any particular week or, for that matter, in any particular tax year.  In this situation, the relevant £55/£28/£22 limit applies for each qualifying week in the tax year.  When the voucher is used to obtain qualifying childcare is immaterial.

We asked HMRC to comment on a related matter in 2009.  Can a woman who continues to receive childcare vouchers while on maternity leave save them up and use them some time later when the childcare services are required?  HMRC responded:

“Parents can receive childcare vouchers before they incur childcare costs which can then be redeemed at a later date.  If the employer permits this within the scheme which is offered to all its employees, it does not contravene any HMRC requirements.”

It would be possible, therefore, for a higher-paid employee to join a childcare voucher scheme before 6 April 2011 even though the child is not yet born or there is no current family requirement to use vouchers.  This depends, of course, on whether the rules of the employer’s scheme permit employees without children or without a current requirement for vouchers to join the scheme.

Effect of the NICs exemption

If the conditions for the tax exemption are met, there is corresponding NICs exemption.  Where the exempt weekly limit is exceeded, the excess amount is liable for Class 1A NICs in the case of employer-contracted childcare, or for Class 1 NICs in the case of childcare vouchers.

Although HMRC’s document includes a passing reference to relief from NICs, it does not, surprisingly, consider the effect of the NICs exemption for these benefits.  The objective of introducing the £28 and £22 weekly limits is to equalise tax relief across all employees.  But the NICs relief available for employer-supported childcare is far from equal.  Assuming that the basic tax rate in 2011 is 20%, the standard employee Class 1 NICs rate is 12%, and the top employee Class 1 NICs rate is 2%:

• if an employee liable for basic rate tax is provided with a £55 childcare voucher, there is tax relief of £11 (20% of £55) but also Class 1 NICs relief of £6.60 (12% of £55) - £17.60 in all.
  
• if an employee liable for higher rate tax is provided with a £28 childcare voucher, there is tax relief of £11.20 (40% of £28) but (because earnings exceed the NICs upper earnings limit) also Class 1 NICs relief of £0.56 (2% of £28) - £11.76 in all.
  
• if an employee liable for additional rate tax is provided with a £22 childcare voucher there is tax relief of £11 (50% of £22) but (again because earnings exceed the NICs upper earnings limit) also Class 1 NICs relief of £0.44 (2% of £22) - £11.44 in all.

The Government’s position, as stated in HMRC’s document, is that “it is only fair that those on higher incomes should get the same level of income tax relief as the majority of parents”.  In view of the effect of these planned restrictions, it must be questioned whether they are, in fact, fair to all parents.

Further information:

Reform of the Tax Treatment of Employer-Supported Childcare

Double Taxation Agreements

Developments relating to Libya, Qatar and Georgia

Two Double Taxation Agreements, between the UK and Libya, and between the UK and Qatar, were formalised by the making of two statutory Orders on 10 February 2010.  Their provisions will  not come into force until the respective countries have complete their legislative procedures.

On 3 February 2010, representatives of the UK and Georgia signed a Protocol to the existing Double Taxation Agreement between the two countries.  It will not enter into force until both countries have completed their Parliamentary procedures and exchanged diplomatic notes to that effect.

Further information:

The Double Taxation Relief and International Tax Enforcement (Libya) Order 2010

Explanatory Memorandum to the Double Taxation Relief and International Tax Enforcement (Libya) Order 2010

The Double Taxation Relief and International Tax Enforcement (Qatar) Order 2010

Explanatory Memorandum to the Double Taxation Relief and International Tax Enforcement (Qatar) Order 2010

Protocol to the UK/Georgia Double Taxation Agreement

Payroll Calendar for the Next Month

The calendar includes both HMRC and employer activities over the coming month.  Employer actions are highlighted in bold text.

March All month	Payment reminders to employers who remit monthly
15	Supplementary bulk issue annual code forms P9 commences
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.
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 March 18 at the latest.
31	Final tax code changes on P9 issued.  Payslip booklet for 2010/11 issued.
April All month	Payment reminders to employers who remit monthly
2	Good Friday, in England, Wales, Scotland and Northern Ireland
4 - 6	Annual system upgrade.  Employers unable to send Employer Annual Returns from Online Returns and forms - PAYE
5	Easter Monday, in England, Wales and Northern Ireland
5	This is the final day of tax month 12 and of the tax year.  Tax and NICs etc. for payments made in the tax month to April 5, and any outstanding tax and NICs etc. for the tax year, are due for payment to the Accounts Office by April 19, or by April 22 if paid electronically.
6	This is the first day of the new tax year

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GUERNSEY

Payroll Calendar for the Next Month

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

April 2 – Good Friday

April 5 – Easter Monday

ISLE OF MAN

Payroll Calendar for the Next Month

March 19 – This is the deadline for submission of the T35 Remittance Card and ITIP/National Insurance to the Income Tax Division for tax month 11.

April 2 – Good Friday

April 5 – Easter Monday

April 5 – This is the final day of tax month 12 and the tax year.  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 April 19.

Budget 2010

Taxation changes from April 2010

The following taxation measures for the 201/11 tax year were announced by the Minister for the Treasury in his Budget speech on 16 February.

The following rates and allowances will apply from 6 April 2010:

Employer compliance

To improve employer compliance, legislative changes have been made that introduce three new penalties for employers:.

1. Any late monthly remittance will be subject to a penalty.  Any payment or part payment of ITIP made later than the 19th day of each month will be liable to a 5% penalty. Any amount which remains outstanding after a further 6 months will then be liable to a 5% additional penalty.
2. An employer’s annual return which is submitted late will be subject to a civil penalty. Any return submitted later than 30 days from the end of the tax year or 30 days from the date of cessation as an employer will be liable to a £250 penalty, together with a penalty of £50 per day that the return continues to remain outstanding. A criminal offence occurs if the return remains outstanding for more than six months.
3. The third penalty will apply to any failure to comply with the Income Tax (Instalment Payments) Act 1974 or the Income Tax (Modified ITIP) Regulations 1987 where another penalty does not apply. Any instance of non-compliance with the above legislation will be liable to a £250 penalty. This includes the failure to notify the Division that an employer has commenced or ceased to act as an employer.

Further information:

Budget 2010 – Income Tax Proposals

JERSEY

Payroll Calendar for the Next Month

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

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

April 2 – Good Friday

April 5 – Easter Monday

REPUBLIC OF IRELAND

Payroll Calendar for the Next Month

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

March 17 – St. Patrick’s Day

March 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.

April 5 – Easter Monday

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

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Payroll FAQ's

Childcare Benefits

What are the rules for tax and NICs relief on workplace nurseries?

The statutory provisions affecting the tax liabilities on the provision of childcare are set out in sections 270A and 318-318D of the Income Tax (Earnings and Pensions) Act 2003.  The special Class 1 NICs rules covering the provision of childcare vouchers are to be found in Schedule 3 of the Social Security (Contributions) Regulations 2001.
The legislation draws a distinction between three different ways in which childcare benefits may be provided, namely

1. childcare provided by the employer on the employer’s premises
2. childcare provided by the employer through external childcare providers
   
3. childcare vouchers for employees to redeem at nurseries of their choice.

Each of these provisions has it own, somewhat complex, statutory rules.  This article will consider the rules for the first of these ways of providing childcare, i.e. in workplace nurseries, crèches and play schemes.  This approach is likely to be the mostly costly option for employers but it has the most beneficial tax and NICs relief.

A number of conditions must all be met if the benefit is to enjoy tax and NICs relief, namely:

• the child must be under 18 and be
  • a child or stepchild of the employee and maintained wholly or partly at the employee’s expense, or
    
  • resident with the employee, or
  • a person for whom the employee has parental responsibility.
• the scheme must be open to the scheme employer’s employees generally (even if there is a waiting list), and
• the employees receiving the benefit must be employees of the scheme employer or employees working at the same location.
• the premises in which the care is provided must not be used wholly or mainly as a private dwelling
• the premises must be correctly registered for the provision of childcare
• the premises must be made available either
• solely by the scheme employer, (not necessarily the employer of the employee), or
  
• by a person, or one of a number of persons, with whom the scheme employer is in partnership, under arrangements that make the scheme employer wholly or partly responsible for financing and managing the provision of the care.

The last of these conditions, the manner in which the premises are made available, requires special consideration.  There are three ways in which workplace nursery facilities are generally provided:

1. Childcare provided on the employer’s premises

This approach involves the employer setting up childcare facilities on his own premises, which may be existing premises or premises purchased or rented for the purpose.  Because the premises are provided by the employer alone, the statutory conditions do not require that the employer be involved in the running of the facilities.  Therefore, the provision of the childcare can be subcontracted to a specialist childcare provider, such as Buffer Bear.

2. Childcare provided on other premises

Under this arrangement, two or more local employers club together to finance and manage childcare facilities.  The premises may be existing premises, or premises purchased or rented for the purpose, that are provided by one of the employers or by some other person involved in setting up the arrangement.  One of the employers, the “scheme employer”, is responsible, wholly or partly, for financing and managing the provision of the care.

The requirement for the “scheme employer” to be “wholly or partly responsible for financing and managing the provision of the care” is critical.

The “responsibility for finance” test requires real and substantial commitment to funding the facility or providing it with capital, e.g. an agreement to meet a set proportion of the overall cost of providing the care, or a guarantee to indemnify against losses a primary care provider who would otherwise be at real risk of losses, or a long term undertaking to pay a fixed periodical contribution.

The “responsibility for management” test does not necessarily mean day-to-day management or direct responsibility for the care of the children but it does mean more than occasionally being consulted about operational policy.  It requires close involvement in such matters as:

• appointing and monitoring the performance of those engaged to look after the children
• the extent of the care provided
• the conditions under which that care is provided,
• the allocation of places, and
• the financial management.

3. Childcare provided through commercial schemes

In this arrangement, the employer agrees to provide childcare places through a commercial scheme promoter.  Depending on the scheme, the employer’s payment is made to the scheme promoter or to an independent nursery.  The employer also pays an annual fee to the nursery, typically £400 per annum per place.  The employer appoints the scheme promoter to act as a representative “agent” at meetings of the nursery management committee.

The exemption for workplace nurseries was introduced to encourage employers to provide nursery places for employees, either by opening a nursery on their own premises or by combining with other employers to jointly finance and run a nursery.  The exemption was not intended to apply, and in HMRC’s opinion does not apply, to the third of the schemes described above, where the employer really does no more than to buy in places at a commercially run nursery.  The exemption is not met because

• the additional monetary contribution that the employer is required to make does not satisfy the “financing” requirement, and
• the appointment of the scheme promoter to act as the company’s agent does not satisfy the “management” requirement.

Employers thinking of participating in such a scheme that is operated by a childcare scheme promoter should consider carefully the explanation of “financing” and “managing” in Appendix 11 of Booklet 480 Expenses and Benefits – A Tax Guide.

It should be noted that these questionable schemes are not the same as nursery operators that are subcontracted to run a workplace nursery that operates on the employer’s premises, the first of the schemes described above.

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