Payroll Newsletter 30.06.09
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News items at - 30th June 2009
Introduction
Just a few small items of news this week, but the adjusted definition of “qualifying child care” has prompted a reworking of our Employer FAQ on the tax and NICs liabilities of childcare vouchers.
Probably the most popular benefit provided under salary sacrifice schemes at the present time, childcare vouchers enjoy what is called a “limited” tax and NICs exemption – they are not entirely tax free but are only taxable to the extent that their value exceeds £55 per week or £243 per month.
Strictly speaking, however, that simple statement of tax liability is incorrect – it describes a “simplified” approach granted by HMRC in circumstances where the same value of childcare vouchers is provided every pay period and the value never exceeds the £55 or £243 limits.
But, if the value of vouchers provided varies each pay period and/or exceeds the limit, the “statutory” calculation of tax and NICs liabilities must be used and, if you have not come across it before, you are not going to like what you read.
Time Off for Trade Union Duties and Activities
Acas releases final draft of new Code of Practice
The final draft of a new detailed Code of Practice on time off for trade union duties and activities has been released on the Acas website. The code 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 Code also provides guidance on time off for Union Learning 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.
There is no statutory requirement for time off for union activities to be with pay.
The new statutory Code is subject to Parliamentary approval and will come force from 1 October 2009.
Further information:
Code of Practice – Time off for trade union duties and activities http://www.acas.org.uk/index.aspx?articleid=2391
Double Taxation Conventions
Agreements with Qatar and Belgium
A first-time Double Taxation Agreement between the UK and the State of Qatar was signed in London on 25 June 2009 by the respective Finance Ministers. The Agreement will enter into force thirty days after both countries have completed their legislative procedures. In respect of income tax, the provisions of the Agreement will then take effect from the start of the next tax year.
A Protocol to the existing Agreement between the UK and Belgium was signed in Paris on 24 June 2009 by the respective Finance Ministers. The amended and additional provisions will enter into force thirty days after both countries have completed their legislative procedures. In respect of income tax, the provisions of the Protocol will then take effect from the start of the next tax year.
Further information:
Text of Agreement http://www.hmrc.gov.uk/international/Qatar.pdf
Text of Protocol http://www.hmrc.gov.uk/international/Belgium.pdf
Employer-supported Childcare
Changes to the definition of “qualifying child care”
The limited tax/NICs exemption for the provision of employer-supported childcare and childcare vouchers (i.e. cost to the employer of up to £55 per week) depends on, among other conditions, whether or not the childcare is “qualifying child care”. The definition of “qualifying child care” is complex and differs for each part of the UK.
New Regulations make minor and largely technical amendments to the definition of “qualifying child care”, mostly as a result of changes to the registration requirements for child carers and to maintain consistency with the Working Tax Credit rules. The changes have no direct relevance to payroll and the only change of any significance is the express confirmation that “qualifying child care” excludes child care “provided by a foster parent in respect of a child whom that foster parent is fostering”.
Further information:
The Income Tax (Qualifying Child Care) Regulations 2009 http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091544_en.pdf
Explanatory Memorandum to the Income Tax (Qualifying Child Care) Regulations 2009 http://www.opsi.gov.uk/si/si2009/em/uksiem_20091544_en.pdf
ISLE OF MAN
Payroll Calendar for the Next Month
July 5 – This is the final day of tax month 3. The T35 Remittance Card and ITIP/National Insurance in respect of the payments made in the tax month to July 5 must be sent to the Income Tax Division by July 19.
July 19 –This is the deadline for submission of the T35 Remittance Card and ITIP/National Insurance to the Income Tax Division for tax month 3.
REPUBLIC OF IRELAND
Payroll Calendar for the Next Month
June 30 – This is the final day of tax month 6. The P30 monthly PAYE/PRSI payment for June, or for the tax quarter to June, is due for payment to the Collector General by July 14, or by July 23 if paid through Revenue On-Line Service (ROS).
July 14 – This is the deadline for P30 monthly PAYE/PRSI payments to the Collector General, for June by employers who pay monthly, for April to June by employers who pay quarterly, unless they pay (and file form P30) through Revenue On-Line Service (ROS).
July 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/quarterly PAYE/PRSI payments.
July 31 – This is the final day of tax month 7. The P30 monthly PAYE/PRSI payment for July is due for payment to the Collector General by August 14, or by August 23 if paid through Revenue On-Line Service (ROS).
(Note: These dates also apply to RCT30 payments made by principal contractors.)
Payroll deadlines during the next month
July 5 – This is the final day of tax month 3. Tax and NICs etc for payments made in the tax month to July 5, or in the tax quarter to July 5, are due for payment to the Accounts Office by July 19, or by July 22 if paid electronically.
July 6 – This is the deadline date for filing, in paper form or electronically,
- form P9D Expenses payments and income from which tax cannot be deducted
- form P11D Expenses and Benefits
- form P11D(b) Return of Class 1A National Insurance contributions due and Return of expenses and benefits – Employer’s declaration
Copies of forms P9D and P11D must also be given to the employees concerned by this date.
July 7 – This is the deadline date by which the responsible person for an employer-financed retirement benefit scheme must provide HMRC with details of relevant benefits provided during the previous tax year.
July 17 – (July 19 is a Sunday) – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 3 by employers who pay monthly, for tax months 1 to 3 by employers who pay quarterly, unless they make their payments electronically.
July 17 – (July 19 is a Sunday) – This is the deadline for payment of Class 1A NICs to the Accounts Office in respect of benefits in kind reported by employers on forms P11D for the 2004/05 tax year, unless they make their payments electronically.
July 22 – For employers who pay their tax and NICs to the Accounts Office electronically, this is the deadline for electronic payments, including payments of Class 1A NICs to be cleared into the HMRC bank account. Payments through BACS must be initiated by July 20 at the latest.Payroll FAQ's
Childcare Benefits
How are the tax and Class 1 NICs liabilities on childcare vouchers determined?
In principle, no liability for tax or Class 1 NICs arises where childcare vouchers with a value of not more than £55 per week are provided for employees. Where the weekly “exempt amount” is exceeded,
- the tax liability is reported on form P9D or P11D, as appropriate, after the end of the tax year
- the NICs liability is checked in each earnings period and, if a liability arises, the amount is added to the employee’s gross pay for that period (for NICs purposes only).
As with all non-cash vouchers, any NICs liability on childcare vouchers is for Class 1 NICs, not Class 1A NICs. Both employee and employer must pay Class 1 NICs if the weekly limit is exceeded. Any liabilities are determined for each earnings period.
The rules for determining the NICs liability for childcare vouchers, as set out in the Social Security (Contributions) Regulations 2001, are similar to those for tax but are complicated by the requirement to meet liabilities in each earnings period rather than annually. HMRC is happy for employers to use a simplified method if vouchers are provided in regular monthly instalments throughout the tax year.
The cost of providing childcare vouchers for tax and NICs purposes
The value on which the tax charge for non-cash vouchers is the “cost of provision”, i.e. the expense incurred in providing the vouchers. The value for Class 1 NICs purposes is called the “chargeable expense” but it is the same as the “cost of provision”. However, the value of childcare vouchers for both tax and NICs purposes is not necessarily the same as the face value of the vouchers.
For example, employers can obtain Marks & Spencer gift vouchers with either a 2½% or 5% discount depending on the order value. It may, therefore, cost the employer £47.50 to provide a £50 gift voucher. Unless there are any other acquisition costs, the value of the voucher for both tax and NICs purposes would be £47.50.
The same rule applies to childcare vouchers except that, as most childcare vouchers provided for employees under salary sacrifice schemes are provided by specialist suppliers, employers normally pay an amount equal to the face value of the vouchers, plus additional administration costs. For example, the management fee on a £55 childcare voucher could be £5.50. On this basis, the “cost of provision” and the “chargeable expense” would be £60.50 – the expense incurred by the employer in providing it.
The “exempt amount” for tax and NICs purposes
The “exempt amount” for both income tax and NICs purposes is defined as
- £55 for each qualifying week in the tax year, plus
- the “voucher administration costs”.
The “voucher administration costs” are the difference between
- the cost of providing the voucher, and
- its face value, i.e. the value of the childcare for which it can be exchanged.
The effect of including the “voucher administration costs” is that the “cost of provision” or the “chargeable expense” for a childcare voucher with a face value of £55 is always the same as the “exempt amount” for that voucher.
Examples
An employer buys a voucher with a face value of £55 for £60.50, i.e. £55 plus £5.50 administration charge. The “voucher administration costs” are £5.50, i.e. the difference between £60.50, the cost of providing the voucher, and £55, its face value. As a result, the “exempt amount” is £60.50, i.e. £55 + £5.50, the same as the “cost of provision”.
An employer buys vouchers with a face value of £55 at a discount. Each voucher costs £58.50, i.e. £53 plus £5.50 administration charge. The “voucher administration costs” are £3.50, i.e. the difference between £58.50, the cost of providing the voucher, and £55, its face value. As a result, the “exempt amount” is £58.50, i.e. £55 + £3.50, the same as the “cost of provision”.
In practical terms therefore, the additional administration costs can be ignored for childcare vouchers. For this reason, HMRC’s guidance presents a simplified approach to assessing the tax and NICs liabilities for each pay period. The “exempt amount” is treated as being £55 per week, or £243 per month, or the equivalent for any other pay period. As long as the face value of the voucher(s) provided each pay period does not exceed the relevant figure, there is no tax or NICs liability. The administration costs are ignored.
Record-keeping and reporting for tax purposes
For P9D and P11D reporting purposes, employers must, for each employee, keep a record of each week during the year for which vouchers were provided that exceeded the exempt amount, i.e. £55 per week, or that did not meet the qualifying conditions. So, for example, if vouchers to the value of £100 are provided for a single week, the extra £45 is recorded and reported at the year end. However, if an employee receives, say, four £55 vouchers at one time but they relate to four separate weeks, they all qualify for the exemption.
There is no “averaging” provision in the tax legislation.
Example
If vouchers to the value of £200 are provided for each of the 6 weeks summer holidays and no vouchers are provided for the rest of the year, the reportable benefit at the year end is £870, i.e. 6 weeks × £145. The exempt amount is £55 per week, not £2,915 per annum.
Record-keeping and reporting for Class 1 NICs purposes
There are two methods of determining liabilities for Class 1 NICs – the “statutory” method and the “simplified” method.
The simplified method
This approach is not defined in legislation and is a concessionary approach that may only be used when the value of childcare vouchers provided:
- is the same every earnings period, or
- varies in each earnings period but never exceeds £55 per week or £243 per month, or the equivalent for any other earnings period.
Example A (using simplified method)
A monthly-paid employee is provided with childcare vouchers with a face value of £243 each month. The exempt amount is £243. For both values, any administration charges are ignored. As the chargeable expense does not exceed the exempt amount, there is no NICs liability for the earnings period, or for any of the earnings period during the tax year.
The statutory method
The statutory calculation procedure must be used if
- the value of the vouchers provided exceeds the exempt amount in any earnings period(s), or
- the vouchers are provided in instalments that differ from the employee’s earnings period.
In either of these situations, the “exempt amount” is defined as
- the exempt amount for one week, including the administration charges, multiplied by
- the number of qualifying weeks
- for which the employee has been employed by the employer in the current tax year, and
- for which no other qualifying voucher has been provided by the employer.
This arrangement recognises that, unlike tax liabilities, NICs liabilities have to be assessed for each earnings period and, where a certain value of vouchers provided in one earnings period relates to earlier earnings periods, it would be unreasonable to treat them all as having been provided in that earnings period. The procedure provides a cumulative method of determining the NICs liabilities.
Examples
- A weekly-paid employee is provided with childcare vouchers with a face value of £220 in tax week four (i.e. 4 weeks @ £55). The employer paid £242 (i.e. £220 + £22) for them, including administration charges. No other vouchers were provided in the first three weeks of the tax year. The chargeable expense for the earnings period is £242. The exempt amount is also £242, i.e. £60.50 × 4 weeks. As the chargeable expense does not exceed the exempt amount, there is no NICs liability for the earnings period.
- A weekly-paid employee is provided with childcare vouchers with a face value of £220 in tax week one, for use during the first four weeks of the tax year. The employer paid £242 for them, including administration charges, so the chargeable expense for the earnings period is £242. However, the exempt amount in this situation is £60.50 (i.e. £55 + £5.50) as the number of qualifying weeks is 1. The chargeable expense exceeds the exempt amount by £181.50, so there is a liability for Class 1 NICs on £181.50 for the earnings period.
If the statutory calculation method had been used in Example A (using the simplified method, above), there would have been an NICs liability in several of the months during the year. This is because the statutory calculation looks at the number of completed tax weeks up to the end of each earnings period.
Example A (using statutory method)
During the 2009/10 tax year, a monthly-paid employee is provided with childcare vouchers with a face value of £243 each month. The employer pays £267.30 for them, including administration charges (i.e. £243 per month, plus £24.30). The exempt amount is £60.50 per week (i.e. £55 plus £5.50). The monthly salary is paid on the last banking day of each month.
April: On 30 April the employee has completed 3 tax weeks (week 3 ends on 26 April). The chargeable expense is £267.30. The exempt amount is £181.50 (i.e. £60.50 × 3 weeks). There is an NICs liability on £85.80.
May: On 29 May the employee has completed 7 tax weeks (week 7 ends on 24 May). The chargeable expense is £267.30. The exempt amount is £242.00 (i.e. £60.50 × (7 weeks – 3 weeks)). There is an NICs liability of £25.30.
June: On 30 June the employee has completed 12 tax weeks (week 12 ends on 28 June). The chargeable expense is £267.30. The exempt amount is £302.50 (i.e. £60.50 × (12 weeks – 7 weeks). There is no NICs liability.
The following Table shows the results of the statutory calculation for the full 2009/10 tax year.
Pay Day 2009/10 |
Chargeable Expense | No. of Tax Weeks | Exempt Amount | Liable for NICs |
| 30 April | 267.30 | 3 | £181.50 (£60.50 × 3) | 85.80 |
| 29 May | 267.30 | 7 | £242.00 (£60.50 × 4) | 25.30 |
| 30 June | 267.30 | 12 | £302.50 (£60.50 × 5) | - |
| 31 July | 267.30 | 16 | £242.00 (£60.50 × 4) | 25.30 |
| 31 August | 267.30 | 21 | £302.50 (£60.50 × 5) | - |
| 30 September | 267.30 | 25 | £242.00 (£60.50 × 4) | 25.30 |
| 30 October | 267.30 | 29 | £242.00 (£60.50 × 4) | 25.30 |
| 30 November | 267.30 | 34 | £302.50 (£60.50 × 5) | - |
| 31 December | 267.30 | 38 | £242.00 (£60.50 × 4) | 25.30 |
| 29 January | 267.30 | 42 | £242.00 (£60.50 × 4) | 25.30 |
| 26 February | 267.30 | 46 | £242.00 (£60.50 × 4) | 25.30 |
| 31 March | 267.30 | 51 | £302.50 (£60.50 × 5) | - |
Further information:
www.hmrc.gov.uk/manuals/nimmanual/nim02445.htm