Payroll Newsletter 14.01.10

News items at - 14^th January 2010

Introduction

Our first newsletter of 2010 considers a number of changes that are effective from the start of the year, such as the new Acas Code of Practice on trade union duties and activities, additional resources for HMRC to identify employers paying below the national minimum wage, some revised booklets and the merger of the RCPO with the CPS to made the RCD of the CPS (try working it out!)

Other items look forward to the April changes, such as the new tax provisions and the important new penalty regime that applies to all employers who make their monthly and quarterly payments late.  This latter change is also the subject of this month’s Employer FAQ.

And even further into the future to 2012, we have a one-off extra bank holiday and the opportunity for employees to set aside their “nest egg”.

PAYE Procedures

Applying the 50% additional rate of tax

This is an adjustment to the item that appeared in the last newsletter of 2009.  The explanation confused the way in which HMRC will handle two tax changes from April 2010, namely (1) the new 50% additional rate of tax and (2) the reduction to the personal allowance for individuals with an annual income of £100,000 or more.

A new “additional” higher tax rate of 50% is introduced for the 2010/11 tax year and applies to all taxable income, including savings income, above the £150,000 higher rate limit.  The Finance Act 2009 made no reference to this change; it should be expected to be included in the Finance Bill for 2010.

The tax due when earnings exceed the higher rate limit will be handled, from April 2010, by new tax table calculations.  These will appear in HMRC’s published tax tables for 2010/11 and payroll system developers have been provided with new technical specifications and test data.

It might have been expected that, for higher-paid employees with more than one job, the new 50% rate of tax would prompt the return of tax code D1, the equivalent of tax code D0 but requiring all earnings to be taxed at 50%.  The current computer specifications for PAYE tax table routines define the use of tax codes D1 and even D2 for higher rates of tax.  Most, if not all, computerised payroll systems are capable of handling tax code D1.

HMRC’s explanation for not using a D1 tax code is that,

“in the time available it was not possible to introduce a new D1 tax code for those circumstances where an individual has a subsidiary source of employment income liable to tax at 50%.  In addition the tax codes for those individuals liable to tax at 50% will not include any adjustments to take account of the additional rate of 50%.  It is our intention to introduce these changes from the 2011-12 tax year.”

The other key tax change from April 2010/11 is the removal of some or all of the personal allowance when an individual’s annual income exceeds £100,000.  This will be handled by means of an adjustment to the individual’s tax code for 2010/11.  HMRC will estimate how much of the personal allowance will be lost and notify the employer and the employee by issuing a coding notice.

As individuals with annual income of £100,000 are required to complete a self-assessment tax return, any final adjustments to tax liabilities for 2010/11 as a result of both the new 50% tax rate and the personal allowance reduction will be made after the tax return for that year has been processed.

Further information:

Notes for Payroll Software Developers – December 2009

Time Off for Trade Union Duties and Activities

New Acas Code of Practice comes into effect

This revised Code of Practice came into effect from 1 January 2010.  It has been revised, after consultation, to reflect the changing nature of the British workplace and the effect this has had on time off arrangements for trade union representatives.

The law requires time off with pay for

• union representatives to perform trade union duties, including accompanying workers at disciplinary and grievance hearings, and
  
• union representatives and Union Learning Representatives to attend relevant training.

The Code provides detailed guidance on how such payments must be calculated.  However, there is no statutory requirement for time off for union activities to be with pay.

Further information:

New Acas Code of Practice on Time Off for Trade Union Duties and Activities comes into effect

National Minimum Wage

New HMRC team to respond to cases of underpayment

From January 2010, HMRC’s new Dynamic Response Team will work on the most high profile and complex National Minimum Wage cases faced by HMRC, particularly in areas where employers are using migrant labour to undercut competitors by paying below the minimum wage.  The team, made up of highly-trained specialist officers, is funded from the Department of Communities and Local Government’s Migration Impacts Fund, a £70 million Government fund that is paid for by a levy on migrant workers.

The new team will work with other Government departments and Local Authorities to ensure the most effective action is taken to deal with non-compliant employers, including civil and criminal prosecutions where appropriate.

There are around 1 million low paid workers who benefit from the minimum wage and, since April 2009, HMRC has helped around 14,000 workers re-coup over £3.5 million of wage arrears.  This included more than £640,000 alone in the hospitality sector.

Further information:

The New Year will see a new team taking up the fight against rogue employers who refuse to pay their workers the National Minimum Wage

Bank Holidays

New bank holiday for Diamond Jubilee 2012

The Government has announced that there will be an extra bank holiday in June 2012 to mark the Queen's Diamond Jubilee.  The date will be Tuesday, 5 June 2012 and, to form a long weekend of celebration, the late May bank holiday will be moved to Monday 4 June.

Further information:

New bank holiday for Diamond Jubilee 2012

HMRC Guidance

Newly updated publications

The following publications have been updated and reissued:

• Using you own vehicle for work – Information for employees
  
• IR115 - Paying for Childcare - Getting Help From Your Employer
  
• E18(2009) – Employer Helpbook – How to help your employees with childcare
  
• CSL2 – The Collection of Student Loans – Common queries

Employer and Contractor Compliance

New penalty regime for late payments

A draft statutory Order has been published in order to bring into force, from 6 April 2010, the new penalty regime for employers who fail to make their monthly or quarterly payments to their Accounts Office on time and in full.  The Order was published for comment so the date is subject to final confirmation.

The Order confirms that the penalty regime applies to payments of

• PAYE income tax due in respect of tax periods starting on or after 6 April 2010, and
  
• income tax due in respect of charges arising under registered pension schemes, starting with any tax reported on the quarterly return due on 30 September 2010

A similar Order will be made relating to payments of NICs.

As the new penalty regime applies to all employers, irrespective of size, the existing surcharges that are applied when “large” employers, i.e. those with 250 employees or more, fail to make cleared payments by the 22nd of each month, are removed from the start of the 2010/11 tax year unless they arise in respect of tax periods ending on or before 5 April 2010.  Although the late payment surcharges are abolished, the requirement for large employers to make their payments electronically remains in force.

More information about the new penalty regime is contained in this week’s Employer FAQ.

Further information:

Penalties for late payment of employer and contractor PAYE

Online Security

New web scam

A spam email, supposedly issued by "HMRC Online services - test@test.com", is being circulated, stating that recipients have 1 new ALERT message, and should log into their Online Account to read the message.

The email contains a link to a fraudulent website that requests the disclosure of personal account information and password.  The email is not from HMRC.  Anyone receiving such an email is asked to forward it to HMRC at phishing@hmrc.gsi.gov.uk.

Further information:

HMRC related scam examples

Pension Personal Accounts

Pension reforms get a new name

On 7 January, the Personal Accounts Delivery Authority (PADA) announced that the permanent and statutory name of the new national workplace pension scheme, due to be introduced from October 2012 onwards, will be “National Employment Savings Trust”, NEST for short.  The logo shows the word “nest” on top of an egg, suggesting the idea of the scheme as providing a “nest egg”.

PADA is the statutory body with the authority to implement the personal accounts scheme which, in part, involves establishing a brand that would be understood by employers and scheme members.  PADA’s role will end when the NEST Corporation, a not-for-profit trustee corporation, takes up the operation of the scheme.  NEST will be one of the schemes available for employers to use to fulfil their new duties under the workplace pension reforms.

Further information:

PADA launches new brand for the Personal Accounts Scheme

Welcome to NEST (National Employment Savings Trust)

Deduction from Earnings Orders

Procedures when employees leave

At the end of December, the following item appeared in News Online, published weekly by the Institute of Payroll Professionals (IPP) to its members.

“An IPP member recently raised a query in respect of the operation of a CSA Deduction of Earnings Order after an employee leaves. Although the regulations state that any payment made after an employee has left should still be subject to the DEO being applied, after discussions with the CSA policy team, a more pragmatic approach will be taken by the CSA to simplify the process for employers.

“It is important, as IPP members know, to ensure that all monies that are due to the employee are paid in their final pay.  However, where an oversight such as payment for an overtime claim that was not sent through in time is received, once the payroll has been cleared down and the employee made a permanent leaver, the CSA will not expect the employer to apply the DEO.

“However, this flexibility will only be afforded where the period end processes have all taken place. A letter should be sent to the CSA and other third parties informing them that the employee has left the employment. The P45 should be issued and it is important to note that the employer must issue the P45 as soon as the employee is deemed a leaver and that it is not withheld for any reason.”

Further information:

Institute of Payroll Professionals

HMRC Prosecutions

Merger with the Crown Prosecution Service

On 1 January 2010, the Revenue and Customs Prosecutions Office (RCPO) merged with the Crown Prosecution Service (CPS) and became the Revenue and Customs Division (RCD) of CPS.

The RCPO was established by the Commissioners for Revenue and Customs Act 2005 as an independent prosecuting authority accountable to the Attorney General.  In 2009, the Attorney General's Strategic Board agreed that, in light of public expectations and the need to find efficiencies, RCPO and the CPS would be combined to provide enhanced prosecution services.

The Revenue and Customs Division (RCD) has offices in London and Manchester and provides a specialist tax and revenue prosecution service, together with expertise in the prosecution of illegal arms dealing and sanctions violations.  Work that has passed from HMRC to the UK Borders Agency (such as smuggling) will be prosecuted by the CPS' specialist UKBA team within the Organised Crime Division.

RCD handles cases involving:

• all types of direct and indirect tax fraud
  
• evasion of the duty on tobacco, alcohol and oils
  
• illegal arms trafficking, export controls and sanctions violations
  
• related money laundering.

RCD is also responsible for ensuring that criminals do not benefit from the profits of their crimes and does this by restraining and confiscating their criminal assets.

Further information:

Revenue and Customs Division

Payroll Calendar for the Next Month

January 19 – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 9 by employers who pay monthly, for tax months 7 to 9 by employers who pay quarterly, unless they make their payments electronically.

January 22 – For employers who pay their tax and NICs to the Accounts Office electronically, this is the deadline for electronic payments to be cleared into the HMRC bank account.  Payments through BACS must be initiated by January 20 at the latest.

January 31 – This is the final date by which the responsible person for an employer-financed retirement benefit scheme must inform HMRC that a scheme has come into operation.

February 2 – This is the date by which any changes to the provision of company cars in the three months to January 5 must be reported using form P46(Car).

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.

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GUERNSEY

Payroll Calendar for the Next Month

January 15 – This is the deadline for submitting Insurance Schedules and the remittance for contributions calculated for the contribution quarter ending December 2009.

January 15 – This is the deadline for submission of the quarterly tax deduction return and, other than in the case of employers with 80 staff or more, payment of tax deducted in the quarter ending December 2009 to the Income Tax Office.

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

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

January 19 – This is the deadline for submission of the T35 Remittance Card and ITIP/National Insurance to the Income Tax Division for tax month 9.

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.

JERSEY

Payroll Calendar for the Next Month

January 15 – This is the deadline for submitting the Contribution Schedule for the contribution quarter ending December 2009.

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

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

January 30 – This is the deadline for providing each employee with an annual summary of remuneration and tax deducted.

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

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

January 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.

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.

(Note: These dates also apply to RCT30 payments and returns made by principal contractors.)

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Payroll FAQ's

Payments to the Accounts Office

What issues must be considered when meeting payment deadlines?

The statutory rules governing the payment of tax and NICs to HMRC each month or quarter are set out in the Income Tax (Pay As You Earn Regulations) 2003.

Regulation 69 says that payments to HMRC must be paid

• within 17 days after the end of the “tax period”, where payment is made by an approved method of electronic communications, or
• within 14 days after the end of the “tax period”, in any other case.

The “tax period” in this context is either a tax month or, if the employer qualifies to make payments quarterly, a tax quarter.

Employers for whom electronic payment is optional

Employers who are “small” or “medium-sized”, i.e. PAYE schemes with fewer than 250 employees, may send their payments by an approved electronic method or by some other method.  An approved method is one that allows payments to be made directly into HMRC’s bank accounts without manual intervention.  Approved methods include Direct Debit, credit card or credit transfer payments by telephone or Internet, BACS Direct Credit and CHAPS.  Payment by cheque is also an acceptable method of electronic payment if it is paid into a bank or post office with the result that HMRC receives the funds electronically.  See http://www.hmrc.gov.uk/payinghmrc/paye.htm.

As long as payment is made by one of these approved electronic methods, the deadline for HMRC to receive cleared payments into its bank account is the 17th day following the end of each tax month or quarter, i.e. 22nd of the month.  Postal payments by cheque, which do not result in monies being paid direct into HMRC’s bank account, must be received by the 19th of each month.  A cheque does not have to be cleared into HMRC’s bank account by the 19th, only received by that date.  The time that a payment is received is presumed, unless it can be shown to the contrary, to be the time that it is recorded in HMRC’s computer systems.

When the 22nd of the month falls on a non-banking day, the electronic payment must be cleared by the banking day immediately preceding that date.  For example, as 22 August 2010 is a Sunday, payment is due by Friday, 20 August 2008.  Similarly, when the 19th of the month is a non-banking day, the payment must be received in the post by the first banking day preceding that date.  For example, 19 September 2010 is a Sunday so a cheque must be received in the post on Friday, 17 September 2010.

Employers for whom electronic payment is mandatory

Regulation 199 of the PAYE Regulations requires employers who are “large” employers for year-end electronic filing purposes, i.e. PAYE schemes with 250 or more employees and for which a notice to that effect has been issued before the end of December in the previous tax year, to make their payments electronically.

Regulation 201 describes a large employer being “in default” if a payment is not “received in full” by HMRC by the 22nd deadline if it is made electronically, or by the 19th deadline if it is not made electronically, e.g. by sending a cheque to HMRC.

A large employer may, therefore, pay HMRC by sending a cheque each month by post early enough to ensure that, on receiving the cheque, HMRC has enough time to bank it and for it to be cleared by the 19th of the month.  HMRC routinely banks all cheques on the same day as they are received, suggesting that a cheque posted on the 16th could be received and processed in time.  An earlier posting date would be necessary if the 19th were not a banking day or if a weekend fell in between.

However, there is no certainty of a cheque being handled that promptly.  As a result, there is clearly a risk of an employer being in default if reliance is placed on a cheque being received and handled by HMRC in time for it to be cleared by the 19th.  This approach cannot be recommended and also makes little ‘cash flow’ sense.

Penalties for late payments or underpayments

In the tax years up to and including 2009/10, the only penalty regime applicable to late payment of the tax and NICs to the Accounts Office applies to “large” employers.  Depending on the number of “defaults” in a tax year, the employer has a surcharge added to his PAYE account, calculated as a percentage of the total payments due for the year.  This surcharge regime is replaced from the start of the 2010/11 by a penalty regime that applies to all employers, irrespective of their size.

The Finance Act 2009 creates two new penalty regimes, one for late payment of PAYE tax and NICs, the other for underpayments.  The first applies where no tax has been paid for 6 months or more; the second where the tax due each month or quarter is not paid in full by the due date.  An employer can only be liable for one or other of the penalties, not both.

Where the payment relates to a period of 6 months or more, the penalty is 5% of the unpaid tax.  If the tax is still unpaid

• 5 months after the penalty date, an additional penalty is incurred of 5% of the unpaid tax
• 11 months after the penalty date, an additional penalty is incurred of 5% of the unpaid tax.

The “penalty date” is the day following the day on which the payment was due.
Where the tax due each month or quarter is not paid in full by the due date, the penalty is an amount determined by reference to the number of defaults of payments made of the same tax during the tax year.  An example of underpayment would be a number of low payments during the tax year, followed by a high balancing payment at the year end.  The first failure to pay the tax in full by its due date does not count as a default.  Beyond that,

• for the first 3 defaults, the penalty is 1% of the total of the defaults
• for the next 3 defaults, the penalty is 2% of the total of the defaults
• for the next 3 defaults, the penalty is 3% of the total of the defaults
• for 10 or more defaults, the penalty is 4% of the total of the defaults
• where tax is unpaid 6 months after the penalty date, the penalty is 5% of the unpaid tax
• where tax is unpaid 12 months after the penalty date, the additional penalty is 5% of the unpaid tax.

Provision is made to suspend penalties if the employer enters into a “time to pay arrangement” with HMRC before the tax becomes due for payment.

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