Payroll Newsletter 11.02.10

News items at - 11^th February 2010

Introduction

Still over 2½ years away, we are currently finding out more and more about the 2012 pension reforms and the optional NEST scheme – but also identifying new areas where clarification is needed.  This week we have some guidance from the Pensions Advisory Service, detailing some of the issues that employers should already be considering.

We also have more about the new-style Medical Statements that we expect to come into use from April 2010.  And our new-style payroll calendar provides some of HMRC’s activities over the coming month, in addition to the regular employer deadlines.

There might appear to be two Employer FAQs this week but one of them is a new paragraph that clarifies some potentially misleading wording in last week’s article.  This week’s regular FAQ is a somewhat technical explanation of how to calculate NICs thresholds for some of the less common earnings periods – very useful if you need to calculate NICs manually – perish the thought!  This came from another recent response to a question asked on the PayPerShop Forum.

National Employment Savings Trust (NEST)

Further guidance for employers and employees

When the Government’s pension reforms are introduced from October 2012, all qualifying employees will have to be enrolled automatically into a qualifying pension scheme.  Employers will be able to continue to use their existing pension schemes to meet their new statutory obligations if those schemes meet the minimum statutory requirements, which include the ability to handle automatic enrolment and to make the minimum employer/employee contributions.

Employers without an existing scheme, or those whose current scheme does not meet the statutory standards, may choose to use the National Employment Savings Trust (NEST) scheme to enrol employees who are not already pension scheme members or new employees when they qualify.

The Pensions Advisory Service has provided general guidance on the choices that will be open to employers and employees in order to meet their statutory obligations.  The following is a summary of that guidance, with particular slant towards the issues that employers must consider in deciding whether or not to use the NEST scheme.

Automatic enrolment will apply to “qualifying employees”, i.e. those who are between age 22 and state pension age and earn more than the defined minimum earnings, unless they are members of

• a final salary pension scheme that meets defined minimum standards as to the level of benefits it provides, or
  
• a money purchase pension scheme, personal pension plan or stakeholder pension scheme that meets the defined level of employer contributions.

From the employer’s staging date, i.e. the date between 2012 and 2016 when the employer must first auto-enrol employees, those qualifying employees who are not at that time members of one of such schemes must be automatically enrolled in one of them or in the NEST scheme.  The NEST scheme is an occupational money purchase pension scheme that is designed to meet all of the statutory requirements.

Between now and their staging date, employers need to decide what they must do about

• qualifying employees who are already members of a workplace pension scheme at the staging date,
  
• qualifying employees who are not members of a workplace pension scheme at the staging date, and
  
• new qualifying employees who start after the staging date.

Some employers may decide to continue with their existing scheme on the basis that, by the staging date, it will have become a qualifying scheme.  Others may decide to replace their existing scheme with a qualifying scheme, or run a new qualifying scheme alongside an existing scheme.

An employer may decide to close an existing workplace pension scheme, or close it to new members, and make other arrangements.  In this situation, if the scheme is closed before the employer’s staging date (after following the necessary consultation processes),

• the affected employees must, under existing statutory requirements, be given access to a stakeholder pension scheme, and
  
• from the staging date, the qualifying employees must be enrolled automatically in the NEST scheme or in another qualifying scheme.

Employers with a final salary scheme

There will be no requirement to enrol existing scheme members in the NEST scheme if the scheme meets the defined standards for final salary schemes.  If new qualifying employees or existing qualifying employees who are not scheme members are enrolled automatically into the final salary scheme, there will also no requirement to use the NEST scheme.
However, if the rules of the scheme prevent some qualifying employees from joining the scheme, either the scheme rules must be changed before the staging date or the employees must be enrolled automatically in the NEST scheme or another qualifying scheme.

The advice for employees who qualify to join their employer’s final salary scheme but have chosen not to join is to consider doing so now.  Faced with a large number of employees being auto-enrolled into the scheme from the staging date, the employer may consider closing the scheme, or at least closing it to new members.  The pension benefits from a final salary scheme are likely to be considerably better than those provided by the NEST scheme or any other alternative.  Also, the NEST scheme will set a limit on annual contributions that will be lower than that permitted by a final salary scheme.

Employers with a money purchase, stakeholder or personal pension scheme

There will be no requirement to enrol existing scheme members in the NEST scheme if, by the staging date, the scheme makes the minimum statutory contributions and operates auto-enrolment for qualifying employees.  If either or both of these conditions are not met, qualifying employees must be enrolled automatically in the NEST scheme or another qualifying scheme.

However, if the rules of the scheme prevent some qualifying employees from joining the scheme, either the scheme rules must be changed before the staging date or the employees must be enrolled automatically in the NEST scheme or another qualifying scheme.

Further information:

Advice for Employers

Advice for Employees

Transfer of Undertakings

Effect of collective agreements made after transfer

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations) are the current UK implementation of the provisions of the European Acquired Rights Directive.  The Directive and the domestic Regulations provide the right for employees to continue to receive the same terms and conditions of employment when their jobs are transferred to a new employer.

Regulation 5 defines what happens when employees, who are subject to a collective agreement between the original employer and a trade union, are transferred to the new employer.  In that situation,

• the collective agreement is treated as having been made between the new employer and the trade union, and
  
• any aspect of the agreement, in relation to the employee, applies as if the new employer were party to the agreement.

On 29 January 2010, in the case Parkwood Leisure Ltd v Mark Alemo-Herron and 23 Others, the Court of Appeal ruled that Regulation 5 applies to the provisions of collective agreements in place at the time of a “TUPE” transfer but not to subsequent changes to the collective agreement.

The original employer of the employees in this case was the London Borough of Lewisham.  The council’s leisure services department was transferred in 2002 to a private sector employer and, in May 2004, to Parkwood, also a private sector employer.  The employees in question carried with them to Parkwood entitlement to terms and conditions that were made under a collective agreement between Lewisham Council and various trade unions, all members of the National Joint Council for Local Government Services (the NJC).

In June 2004, after the transfer to Parkwood, the NJC met and agreed new rates of pay.  When Parkwood refused to apply the new NJC rates to the transferred employees, on the basis that they were not in force at the time of the transfer to Parkwood, they claimed that they had suffered unauthorised deductions from their wages.  An Employment Tribunal rejected their claim but, on appeal, the decision was overturned by the Employment Appeal Tribunal.  A further appeal by Parkwood brought the case before the Court of Appeal.

The Court of Appeal considered both the wording of the European Directive and Regulation 5 of the TUPE Regulations.  (In fact, the Court of Appeal examined Regulation 6 of the earlier 1981 TUPE Regulations, the wording of which is effectively identical to Regulation 5 of the current Regulations.)  The issue before the Court was whether the Directive and Regulations set out a “static” obligation, i.e. the new employer is obliged to apply only those terms and conditions of a collective agreement that were in force at the time of transfer, or a “dynamic” obligation, i.e. the new employer is required to apply any subsequent changes to terms and conditions made under the collective agreement.

The Court of Appeal’s decision was driven by the 2006 ruling of the European Court of Justice  (ECJ) in the case Werhof v Freeway Traffic Systems, brought in relation to the German government’s implementation of the Directive.  In an almost identical case, the ECJ decided that the Directive does not bind the new employer to collective agreements reached subsequent to the agreement that was in force at the time of transfer if the new employer is not a party to those later agreements.  The employer, therefore, had only a “static” obligation to maintain those terms and conditions in force at the time of the transfer.

On that basis, the Court of Appeal ruled that Parkwood was not required by the TUPE Regulations to apply the later terms and conditions decided by the NJC and reinstated the original Employment Tribunal decision.

Further information:

Parkwood Leisure Ltd v Mark Alemo-Herron & 23 Ors

Subsidised Meals for Employees

Draft legislation preventing use of salary sacrifice

Section 317 of the Income Tax (Earnings and Pensions) Act 2003 provides a tax exemption for the provision of free or subsidised meals provided for employees in a canteen or on the employer’s business premises.  The 2009 Pre-Budget Report announced that the legislation would be changed to prevent this exemption being used in conjunction with salary sacrifice schemes or flexible benefits schemes.  The restriction will apply from April 2011.

The Government’s objection to the subsidy exemption being used in conjunction with these schemes is that the exemption is intended to benefit all employees, not to provide an additional tax and NICs advantage for those employees who purchase meals out of their gross pay.

HMRC has published in draft the changes to legislation that will give effect to this restriction.  Currently, use of the exemption depends on the following conditions being met:

1. the meals are provided on a reasonable scale,
   
   
2. all the employer's employees or all of them at a particular location may obtain a free or subsidised meal and/or a
   free or subsidised meal voucher or token, and,
   
   
3. if the meals are provided in the restaurant or dining room of a hotel or a catering or similar business at a time when meals are being served to the public, part of the restaurant or dining room is designated for the use of employees only, and the meals are taken in that part.
   
   The new restriction will add a fourth condition, namely
   
   
4. the provision is not pursuant to
   
   • “relevant salary sacrifice arrangements”, or
     
   • “relevant flexible remuneration arrangements”.

These terms are defined as follows:

• “relevant salary sacrifice arrangements” are arrangements (whenever made) under which the employee gives up the right to receive an amount of general earnings or specific employment income in return for the provision of free or subsidised meals, and
  
  
• “relevant flexible remuneration arrangements” are arrangements (whenever made) under which the employee and employer agree that the employee is to be provided with free or subsidised meals rather than receive some other description of employment income.

The reference to “whenever made” means that the restriction does not apply just to new arrangements made on or after 6 April 2011.  Rather, it applies to existing arrangements as well.  Therefore, if free or subsidised meals are provided under the terms of a salary sacrifice scheme or a flexible benefits scheme, irrespective of whether the arrangements are made before or after April 2011, the exemption will not apply from 6 April 2011 and the benefit must be reported as a taxable benefit on form P11D.  The amount reported will be the cost to the employer of subsidising the meals for the particular employees.

Further information:

Restricting the tax exemption for Workplace Canteens - draft legislation

Restricting the tax exemption for Workplace Canteens - Explanatory Note

Benefits and Expenses

Clergymen’s heating and lighting expenses

As part of the process of replacing a number of Extra-Statutory Concessions (ESCs) with specific statutory tax exemptions, ESC A61 Clergymen's heating and lighting etc expenses has now been included in the Income Tax (Earnings and Pensions) Act 2003 as sections 290A and 290B.

The effect of these new sections is to formally exempt from income tax expenses paid for or reimbursed to ministers of religion in respect of heating, lighting, cleaning and gardening in connection with living accommodation provided with the employment, and for allowances paid in order to meet such expenses.  The exemptions only apply where a minister is in “lower-paid employment”, i.e. has an annual earnings rate of less than £8,500.

Corresponding amendments, giving similar relief for Class 1 NICs, have also been made to the Social Security (Contributions) Regulations 2001.

Further information:

The Enactment of Extra-Statutory Concessions Order 2010

The Social Security (Contributions) (Amendment No. 2) Regulations 2010

Statutory Sick Pay

Update on proposed new medical statements

In May 2009, the Department for Work and Pensions (DWP) published a consultation document with proposals to replace the current “sick note” issued by doctors with a new Medical Statement.

The proposal was that the new form would be called a “Statement of fitness for work”.  It would allow doctor’s to indicate not simply whether a person is or is not fit for work, but also whether the person “may be fit for some work now”, in which case the doctor could also indicate that the person, with the employer’s agreement, might benefit from a phased return to work, or altered hours, or amended duties, or workplace adaptations.  The design of the proposed form was also included in the consultation document.

At the end of January 2010, the DWP published the Government’s response to the consultation exercise and announced the following amendments to the original proposals:

• The use of the new Medical Statements will not be assessed by means of a pilot exercise as national consistency is needed to ensure everyone has the same access to entitlement of payments.  However, the Statement’s use will be evaluated by means of a research exercise, with the results to be published in 2012/13.
  
  
• Responding to comments that it is the employer, not the doctor, who is best-placed to decide whether any changes are possible to facilitate a return to work, the advice given on the Statement will no longer include “you are fit for work” but will have just two statements: “you are not fit for work” and “you may be fit for work taking account of the following advice”, followed by four suggestions for the employer to consider.
  
  
• The maximum duration for which a Medical Statement may be issued is reduced from six months to three months during the first six months of the person’s health condition.

The design of the new Medical Statement, as now proposed, is as shown below.  It is still intended that the new Statements will come into use from 6 April 2010

Further information:

Reforming the Medical Statement - Government response

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.

February 9	Student loan start notices issued to employers
13	Main bulk issue annual code forms P9 commences
16	Employer pack, CD-ROM and Orderline information issue period commences - continues to mid/late February
19	NIC (contracted out employers) table issue period 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 February 18 at the latest.
March All month	Payment reminders to employers who remit monthly
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.
9	Employer Annual Return P35 issue completed
10	P11D(b) return 2008-09 second interim penalty notice scheduled

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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 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.

Double Taxation Agreements

Agreement with Malta comes into force

On 23 October 2009, the Isle of Man concluded a comprehensive double taxation agreement with Malta.  Both governments having ratified the agreement, it will enter into force on 26 February 2010.

Further information:

Double taxation agreement with Malta comes into force

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.

Double Taxation Agreements

Agreement signed with Malta

On 25 January 2010, Jersey signed a comprehensive Double Taxation Agreement (DTA) with Malta.  It is the Island’s first DTA which is based on the OECD model convention.

This DTA also represents Jersey’s sixteenth international tax agreement to meet the OECD tax standards on transparency and information exchange.

Further information:

Jersey signs tax agreement with Malta

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

National Insurance Contributions

How are the NICs limits and thresholds calculated for less common earnings periods?

When calculating Class 1 NICs manually, using the exact percentage method, it is necessary to calculate the limits and thresholds that apply to the earnings period in question.  The headline weekly figures and, in some cases, the monthly and annual figures, are quoted specifically in the Social Security (Contributions) Regulations 2001, in regulations 10 and 11.   However, the equivalent values for other earnings period have to be calculated and, also in regulation 11, the calculation methods are defined precisely, as follows:

Lower Earnings Limit and Upper Accrual Point

The calculations are based on the weekly rates as specified in legislation:

Earnings Threshold and Upper Earnings Limit

The calculations are based on the annual rates as specified in legislation:

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