Payroll Newsletter 27.01.10

News items at - 27^th January 2010

Introduction

Two new sets of Regulations have been published over the past week, namely the Agency Workers Regulations 2010, which will require agency workers to be treated effectively as employees for the purpose of employment benefits, and a series of Additional Paternity Leave Regulations, which will allow fathers and adoptive parents to take up to a half of their partner’s maternity or adoption leave entitlements.  Both provide a long preparatory period.  We will be covering the Regulations in more detail when we have had time to check them over in more detail.

Our Employer FAQ this week is entirely new and based on a question and answer about salary sacrifice schemes that appeared recently in the PayPerShop Forum.  What do you do when some employees want to participate in a salary sacrifice scheme but they don’t or can’t meet the statutory conditions for the tax and NICs exemption?

Are you joining in the PayPerShop Forum discussions or using it to obtain answers to everyday questions?

Paid Annual Leave

Failure to take full entitlement die to insufficient notice

In a decision given on 18 January 2010, the London Employment Appeal Tribunal (EAT), in the case Lyons v Mitie Security Ltd, ruled that annual holiday entitlement is not an absolute right as workers are required to give statutory or contractual notice to take leave.

Among Mr. Lyons complaints to an Employment Tribunal was that he had not been allowed to take his full annual entitlement because, according to the employer, he had not given the period of notice required by his contract in order to take the remainder of his annual entitlement in the final month of the holiday year. 

One of the key issues before the EAT therefore was: Is the employer legally obliged to permit an employee to take all of his paid leave within the leave year even if requested by the employee towards the end of the leave year at a time when it may not fit in with the staffing patterns of the business?

In reaching its decision, the EAT considered

• the statutory notice requirement in the Working Time Regulations (WTR) for booking holidays
  
• the provisions in the WTR that allow contractual notice requirements to supersede the statutory rules
  
• the decision by the European Court of Justice (ECJ) in 2006 that, with reference to rest periods (a related requirement of the WTR), employers should actively ensure that workers are able to take their statutory
• entitlements
  the decision by the ECJ in 2009 that the Working Time Directive does not prevent national legislation laying down conditions that could limit the right to paid annual leave, resulting in the loss of that right at the end of a leave year.

The EAT concluded that, because the right to paid annual leave is subject to statutory and, where relevant, contractual notice provisions, it is not an inalienable right.  However, the notice provisions must not be operated by an employer in “an unreasonable, arbitrary or capricious way so as to deny any entitlement lawfully requested”.

In the particular case, Mr Lyons had not followed the contractual procedures for booking holidays but, even so, there had been no business reasons why the period of absence requested could not have been accommodated.  The case was remitted to a different Tribunal for a rehearing.

Further information:

Lyons v Mitie Security Ltd

Expenses and Benefits

Applying online for a dispensation

Form P11DX, which has traditionally been used by employers to apply for a dispensation, now has its online equivalent, at the link below.

Further information:

Dispensations

PAYE Income Tax

2010/11 tax tables available to view

HMRC has made available ‘pdf’ versions of the Taxable Pay Tables A to D for 2010/11 available on its website.  They include the new manual calculation method required to handle the additional 50% rate of tax from April 2010.

Further information:

Tables B to D (2010)

Calculator Tables (2010)

Making Payments to HMRC

Reminder to use HMRC’s new bank account details

Early in 2009 HMRC announced that it was changing its bankers from the Bank of England to Citi and Royal Bank of Scotland Group and that new sort codes and accounts numbers were being introduced in April 2009.

The old accounts details have remained in use since then but HMRC is now warning that the old accounts are to be closed.  Employers who have not already changed their systems and records should do so as soon as possible to avoid the risk of payments being returned and penalties being imposed for late payments.

Employers paying by Direct Debit are not affected.

Guidance for employers who pay in different ways is provided at the HMRC link below.

Further information:

HMRC's old bank accounts are closing - make sure you use the new ones

Additional Paternity Leave and Pay

Final Regulations published in draft

The right to additional paternity leave and pay will be introduced from April 2011 (although some employees gain entitlement before that date).  Following a third consultation period in late 2009, the Government has now published the final Regulations in draft.  They are expected to come into force from 6 April 2010, providing up to a year for employers to prepare.

We published an article in this newsletter in September 2009 that covered the new entitlements in some detail.  In a coming newsletter, when we have had time to check over the final Regulations, we will update that article and re-issue it in this newsletter.

For readers interested in studying the Regulations straight away, we have provided links to the six sets of documents below.

Further information:

Additional Paternity Leave and Pay – Final Impact Assessment

Additional Paternity Leave (Adoptions from Overseas) Regulations 2010

Explanatory Memorandum to the Additional Paternity Leave (Adoptions from Overseas) Regulations 2010

Additional Paternity Leave Regulations 2010

Explanatory Memorandum to the Additional Paternity Leave Regulations 2010

Additional Statutory Paternity Pay (Adoptions from Overseas) Regulations 2010

Explanatory Memorandum to the Additional Statutory Paternity Pay (Adoptions from Overseas) Regulations 2010

Additional Statutory Paternity Pay (General) Regulations 2010

Explanatory Memorandum to the Additional Statutory Paternity Pay (General) Regulations 2010

Additional Statutory Paternity Pay (Weekly Rates) Regulations 2010

Explanatory Memorandum to the Additional Statutory Paternity Pay (Weekly Rates) Regulations 2010

Employment Rights Act 1996 (Application of Section 80BB to Adoptions from Overseas) Regulations 2010

Explanatory Memorandum to the Employment Rights Act 1996 (Application of Section 80BB to Adoptions from Overseas) Regulations 2010

Agency Workers

New Regulations come into force from 1 October 2011

In a newsletter article in October 2009, we reviewed the Government’s final consultation document on the implementation of the European Directive on Conditions for Temporary Workers.  The final Agency Workers Regulations 2010 were laid before Parliament on 21 January and come into force on 1 October 2011, leaving over a year for agencies and hirers of agency workers to prepare for the changes.

In a coming newsletter we will update the article that appeared last October and provide some guidance on the practical implications of the Regulations for agencies and employers.

For readers who are interested in exploring the new provisions in detail immediately, the Explanatory Memorandum is a useful source of information. 

Further information:

Legislation to give Britain’s 1.3 million agency workers important new rights was laid before Parliament today

Agency Workers Regulations 2010

Explanatory Memorandum to the Agency Workers Regulations 2010

Payroll Calendar for the Next Month

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.

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.

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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.

JERSEY

Payroll Calendar for the Next Month

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

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.)

Mandatory Electronic Filing and Payments

Phase 2 starts from January 2010

Regulations made in 2008 require Government Agencies and larger companies to file returns and make payments to the Revenue online, using Revenue Online Services (ROS).

The first phase took effect from January 2009, involving Government Departments, certain named Government Offices and companies whose tax affairs are dealt with by Large Cases Division.

From January 2010, the second phase extends mandatory filing and payments to companies with annual turnover of more than €7.3m and more than 50 employees.  The original intention for Phase 2 to include all larger companies which are obliged to file audited accounts with the Companies Registration Office (CRO) has been dropped.  Companies that have that obligation but do not meet both the turnover and employee number requirements are not currently required to file and pay online.

Further information:

Mandatory Electronic Filing and Payment of Tax – Clarification of companies included in Phase 2

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Payroll FAQ's

Salary Sacrifice Schemes

How do we ensure that our salary sacrifice scheme meets the conditions for the tax and NICs exemptions on which it relies?

In December 2009, HMRC published instructions for employers who operate salary sacrifice schemes that rely on the tax exemptions for

• the provision of cycles and cyclist’s safety equipment, and
  
• financial support for public bus services.

HMRC’s guidance on these two tax exemptions warned employers that, if they did not start to operate the schemes in line with the statutory rules by 18 December 2009, the schemes would not be treated as tax effective for salary sacrifice purposes for any new employees joining the schemes.  As a concession, existing salary sacrifice scheme members would only benefit from the tax exemption if the operation of the scheme were corrected to comply with the statutory rules not later than, in the case of cycles, the time their membership was up for renewal or, in the case of financial support for bus services, twelve months.

Although these two particular schemes were targeted by HMRC, it is a fundamental requirement that all of the conditions defined in legislation for a tax or NICs exemption must be met for that exemption to apply.  If even one of the conditions is not met, the effectiveness of the salary sacrifice scheme for individual members or even all of the members is lost.

Looking at these two salary sacrifice schemes, the conditions that much be met and the implications of failing to meet them are explained below.

Cycle-to-Work schemes

The three conditions that must be met for the loan of a cycle and cyclist’s safety equipment to be exempt from both tax and NICs are:

1. there is no transfer of the property in the cycle or equipment in question,
   
2. the employee uses the cycle or equipment in question mainly for qualifying (i.e. commuting) journeys, and
   
3. cycles and equipment are available generally to employees of the employer.

Therefore, if an employee is loaned a cycle and cyclist’s safety equipment, the benefit is only exempt from tax and NICs if the cycle and equipment does not belong to the employee, the cycle is used mainly for commuting to and from work, and all other employees in the business are able to loan a cycle if they want to.

Notice that there is no condition requiring that a Cycle-to-Work salary sacrifice arrangement must be made available to all employees.  Rather, the requirement is for the availability of a cycle and equipment for all employees. Everyone is the business must be able to use the scheme if they wish - but it does not have to be offered to everyone as part of a salary sacrifice arrangement.

Two examples illustrate how the conditions can be met in cases where certain employees cannot participate in a Cycle-to-Work salary sacrifice scheme:

1. Where company car drivers are required to have their cars at the workplace during working hours, they are unable to meet condition 2.  A cycle cannot be used routinely for commuting journeys.  However, in order for other employees to benefit from the exemption, company car drivers must still have the option of loaning a cycle.  If they don’t have that option, condition 3 is not met and that would prevent the exemption from applying to all other employees in the business.
   
   If a company car driver takes up the option, the exemption cannot apply so there is no salary sacrifice advantage.  Deductions could still be made through the payroll towards the employer’s costs and they would serve to reduce the amount reported for the benefit on form P11D at the year end.
   
   
2. Where employees earn at or just above the National Minimum Wage (NMW), it would not be lawful for them to agree a salary sacrifice that would reduce their pay to below the NMW.  However, they must still be entitled to use the scheme (condition 3) and they can still meet condition 2. Therefore, such employees could only participate in a salary sacrifice arrangement to the extent that their reduced rate of pay does not fall below the NMW.
   
   Therefore, outside of the salary sacrifice arrangement, they could still make payments through the payroll towards the costs of the cycle.  There would be no reportable benefit as all three conditions are met.

There may be other situations where groups of employees cannot participate in the salary sacrifice scheme.  It is essential, however, that they are still allowed to participate so that condition 3 is met.

Bus passes for travelling to work

Bus passes are non-cash vouchers for tax purposes and are normally reported on form P11D and liable for Class 1 NICs.  The salary sacrifice scheme for bus passes takes advantage of the tax and NICs exemption that allows employers to subsidise public transport to reduce the costs of commuting.

The two conditions that must be met for subsidies to be exempt from both tax and NICs are:

1. the employee uses the bus service mainly for qualifying (i.e. commuting) journeys, and
2. the service is available generally to employees of the employer.

The exemption also applies if the bus services are provided by means of non-cash vouchers.  The financial support provided for local bus services may, therefore, take the form of a bus pass for use on the specific bus services that constitute “qualifying journeys”.

Two examples illustrate issues that can arise in meeting the statutory conditions:

1. Again, company car drivers cannot meet condition 1 if they are required to have their cars at work during working hours, so the provision of a bus pass would be a taxable benefit if it were provided.  However, as in the case of cycles, company car drivers cannot be excluded from the offer of a bus pass as that would prevent condition 2 being met for all other employees.  If a driver decided to take a bus pass and make payments through the payroll, the benefit would be reportable on form P11D, reduced by the amount paid towards it.
   
   
2. If the bus passes provided to employees under the salary sacrifice scheme can be used for area-wide travel, not just for particular commuting journeys, condition 1 is also not met.  To qualify, the bus pass must only be available for the commuting journeys.  If the bus pass is not limited to just the commuting journey, the benefit is reportable on form P11D, reduced by any payments made by the employee.

Childcare vouchers

Although not a scheme picked out by HMRC for special attention, it is worth clarifying the statutory conditions for the provision of childcare vouchers.  As with all benefits, the tax exemption on which this popular salary sacrifice scheme is dependent can be lost to an employee, or even to all employees, if the conditions are not met.

The three conditions that must be met for childcare vouchers to be exempt (up to the prescribed limit) from tax and NICs are:

1. the care is for a child or stepchild of the employee, maintained by the employee and living with the employee,
2. the voucher can only be used to obtain qualifying childcare, and
3. the vouchers are available generally to employees of the employer, or generally to those at a particular location.

It may be noted that, in this case, the availability of vouchers may be restricted to one particular location rather than generally to the business as a whole.  Nevertheless, within that particular location, all employees must have the opportunity of obtaining vouchers, even if they cannot participate in a salary sacrifice scheme because they are earnings at or just above the NMW, or because they cannot meet condition 1.  For example, childcare vouchers must not just be available to employees with a child or expecting a child.  To meet condition 3 they must also be available to those who cannot meet condition 1, even though they would be fully taxable.

In summary, where a tax exemption requires a particular benefit to be “generally available”, the scheme to provide the benefit must be open to all employees, irrespective of their circumstances. However, only those wishing to take up the benefit who can personally meet all of the statutory conditions can participate in the salary sacrifice aspect of the scheme.  The employer must report the benefit on form P11D or P9D as appropriate if any wishing to take up the benefit cannot meet one or more of the statutory conditions.

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