PAYE and NIC update: May Ros Martin

Transcription

1 PAYE and NIC update: May 2015 Ros Martin

2 Current issues

3 Simplification of expenses and benefits OTS recommended to Government that certain changes be made to regime Related to employee benefits and expenses Two are in FA 2015, two have draft legislation but not yet finalised

4 Payrolling of benefits Allowing employers to deal with BIK via payroll First looked at in 2007 Proposal then was to make mandatory which was not well received So this is a voluntary process

5 What is payrolling? Adding the value of BIK to salary so PAYE and NIC is applied to that Rather than BIK collected (typically) through tax code after P11d/P9d submitted Little noticeable difference other than tax collected in real time

6 The real upside No obligation to complete P11d or P9d Can informally payroll currently but still have to complete end of year forms Finer details still being worked on

7 What we know already Payrolling will be voluntary Not locked into the scheme can opt out from start of next tax year Being phased in From 2016/17 will be able to use for car and car fuel, medical insurance, gym membership Further benefits added idc

8 Still to be resolved How to avoid double charge Class 1A Likely to be option to pay in real time but on voluntary basis due to cash flow disadvantages

9 Trivial benefits Specific legislative provision that trivial benefits will be exempt from income tax Number of conditions to be met for benefit to be treated as trivial Will also apply to benefits provided to member of employee s family

10 Conditions A: not cash or a cash voucher B: cost of providing benefit or average cost does not exceed 50 C: benefit not provided pursuant to relevant salary sacrifice arrangements D: benefit not provided in recognition of particular services provided by employee

11 Further details Exemption works on all or nothing basis If breaches limit benefit will be taxable and NICable in full If more than one benefit in category then cumulative

12 Abolition of 8,500 threshold Lower paid employments no longer applicable All employees taxed on their BIKs and expenses NIC provisions also aligned with this

13 Exemption Exemptions provided to Ministers of Religion in LPE will be retained Reimbursement of accommodation costs such as heat & light etc for low paid will remain

14 Carers New exemption will be retained for employees working as carers In respect of board and lodging in home of person caring for So no tax and NIC on this BIK

15 Exemption for expenses Replacement of current regime With exemption for allowable expenses that are paid or reimbursed Applies from 6 April 2016 No longer any reporting requirements for qualifying expenses No need to apply for dispensation

16 Expenses included? Any amounts which would be treated as earnings But where a deduction would otherwise be due under s336 and s337 But not if offered in conjunction with salary sacrifice arrangement

17 Conditions? Employer or third party must have system in place to check expenses And that person could not reasonably have known or suspected that employee was not incurring deductible expenses

18 Flat rate expenses New legislation for applying for flat rate in respect of deductible expenses Requirement to provide reasonable estimate Covers things like flat rate subsistence costs

19 To note No intention to change rules which determine whether tax relief is available Apply to all employers without option to opt in or out Still have to maintain records and checks

20 Employment allowances From 5 April 2014 many employers have been able to claim 2,000 reduction in NI Exclusions for certain organisations From 6 April 2015 to be change in relation to domestic care and support employees

21 Abolition of NIC for youngsters From 6 April 2015 no NIC for earnings for employee aged under 21 Until earnings exceed UEL Exemption extended from 6 April 2016 to include apprentices up to the age of 25

22 Deductions under PAYE For K codes, deductions cannot exceed 50% of income Been applied informally by HMRC for all tax codes From 6 April 2015 will apply on statutory basis for all codes

23 Status

24 Basic provisions Looking at contractual relationship between parties If written contract then that is starting point Autoclenz has changed the emphasis of contracts

25 Factors Number of factors to be considered Not a tick list Each has different relevant weight Depending on circumstances

26 Control Very important Some control in all relationships But right of control is vital in determining employment Falls into different categories where, when, how, what

27 Substitution Again, very important Although not necessary considered so determinative HMRC will want to make sure untrammelled And substitute must be paid by worker or PSC Cannot be employee if really can send substitute

28 Business operation Increasingly considered, particularly in IR35 case Does this person feel like a person in business on their own account? Many different facets to this Includes ability to benefit from sound financial management

29 Mutuality of obligation Employment law criteria Commitment by one party to continue to provide work And by other party to continue to be available for work HMRC often not confident in arguing this point

30 Other factors Part of organisation Employment type benefits Training Provision of equipment

31 Tax case EMS collected cars on behalf of insurance companies Engaged M to do work HMRC argued was employee

32 Outcome No control over how M carried out job No guarantee of work M paid for equipment, safety clothing Paid for own training Bore risk of default on payment Paid insurance Worked for others

33 Termination payments

34 Introduction Looking to get first 30,000 exempt from PAYE This is the last resort when all other angles have been eliminated not automatic that payment is to be treated as termination

35 Specifics Redundancy Covered by specific employment law provisions Unapproved retirement benefit scheme HMRC taking increasingly aggressive stand Once these eliminated must consider Is it employment income? Is it for a restrictive covenant? Only then can it be termination Compensation type payments including PILON?

36 Other issues What if payment received over number of years? Payments under ERA Ongoing benefits

37 Termination of healthcare scheme F retired from Nestle in 1995 but continued to benefit from health insurance In 2009 he was offered opportunity to leave scheme with one off payment Nestle deducted income tax F contended was either capital or a termination payment so subject to 30,000 exemption

38 Decision FTT found that this was a scheme within retirement benefit provisions And payment was relevant benefit So taxable to income tax And not available to benefit from 30,000 exemption

39 Automatic enrolment

40 Introduction Scheme of implementing workplace pensions 7 million people potentially under-saving for retirement Four people for every pensioner now But by 2050 will only be two Only one in three private sector workers were in pension scheme before AE started

41 The basics Assess staff Eligible jobholders enrolled Then can opt out Then must reenrol if still eligible Non eligible jobholder can opt in Entitled workers can join Any member can then leave if scheme allows

42 The easy bit First need to establish staging date This is date you need to be ready for AE Established at 1 April 2012 Or when PAYE set up after that date

43 Finding the staging date taging-date.aspx

44 Notification from Pensions Regulator All businesses will receive a letter Supposed to be 12 months and then 6 months before staging date But now issuing letters as far ahead as 2017 This gives unique 10 digit reference Which needs to be retained Also need to nominate primary and secondary contract

45 Postponement Can postpone implementation Called the waiting period Can be used for all or some workers Not actually postponement of staging date Although will be effectively if postpone for all workers Must tell workers that postponement is applying

46 But note Must make decision and issue postponement notice within deadline No later than six weeks and one day from date when would apply Not designed as delaying tactic But more to allow flexibility for employer Must pick deferral date Cannot be more than three months and one day after staging

47 Postponement (cont) Once deferral date chosen cannot not then be changed Various statutory information must be included within postponement notice Template available at Must be in writing (includes )

48 Postponement post staging Once past staging can also postpone AE from: The first day of employment The date the criteria to be an eligible jobholder will be met Again the intention is to allow flexibility Same information requirements

49 Bringing date forward All employers can bring their staging date forward Regulator must be notified one month before the earlier staging date Can be done online List of available dates

50 Can only bring forward if Have an existing staging date Have contacted pension fund to ensure is OK with them Have notified Regulator

51 Identifying workers Employer must identify their workers Only workers within the UK (but careful) First issue is to be able to identify what a worker is

52 Worker Individual under contract of employer Or contract to perform work or service personally and not undertaking work as part of their own business Might include agency workers Does not necessarily exclude self employed Includes personal service workers

53 Directors Type of company Single director no employees More than one director no employees Director and workers AE obligations Director is not a worker so no AE obligations to that individual As above unless more than one with employment contracts Employer duties in relation to those workers but not to directors unless there is a contract of employment

54 Practical issues Regulator will try to identify single director companies If they do then they will not write to them with staging date If get a letter PR ask that contact helpdesk customersupport@autoenrol.tpr.gov.uk

55 Once you know you have a worker Must then categorise into Eligible jobholder Non eligible jobholder Entitled worker

56 Different employees Earnings Earnings of at least earnings trigger per annum Earnings of between lower earnings threshold and earnings trigger per annum Earnings of less than lower earnings threshold per annum Age state pension age Non eligible jobholder Non eligible jobholder Entitled worker Eligible jobholder SPA 74 Non eligible jobholder

57 What s the difference? Eligible jobholder has to be enrolled both employer and employee have to pay Non-eligible jobholder has right to ask to be enrolled, both then have to pay Entitled worker has right to ask to be enrolled by employer does not have to contribute

58 Key details Age of worker Whether they are working or ordinarily working within the UK Whether qualifying earnings are payable in the relevant pay period

59 When do you make assessment? Staging date First day of employment The day of the worker s 22 nd birthday The day of the worker s 16 th birthday The deferral date First day of each pay reference period where no previous eligibility

60 Age of worker Should be fairly straightforward!

61 Are they working or ordinarily working in the UK Under contract to work at a location within the UK If not working in UK, may be ordinarily working in UK Will cause problems were secondments

62 Do you have qualifying earnings? First identify pay reference period Then work out what is payable in period Then compare with relevant thresholds

63 Pay reference period Two options Aligned with tax weeks or months One aligned to period person is paid Can change or have different for different workers

64 Qualifying earnings Earnings between 5,824 and 42,285 Consisting of amounts within legislation Amounts pro-rataed for each period

65 What falls within definition? Salary Wages Commission Bonuses Overtime Statutory sick pay Statutory maternity pay Ordinary or additional statutory paternity pay Statutory adoption pay

66 Qualifying earnings Consider what is payable for PRP even if assessment date falls part way through Amount payable not amount paid

67 Variable earnings Have to assess at assessment date If fluctuating may want to wait until know what actual earnings are Must act within six weeks if meet conditions So may be some problem with waiting Otherwise would have to estimate Only not AE if know earnings trigger will never be reached

68 Opt in and right to join Eligible jobholders Have to consider automatic enrolment And re-enrolment (see below) Non-eligible jobholders Have a right to enrol (opt-in) Entitled workers Can ask to join (right to join)

69 Eligible jobholder Employer must make sure they are automatically enrolled Mandatory list of information Must then provide employee with certain information List is in notes

70 Non-eligible jobholder Has a right to opt-in unless Already an active member of a qualifying scheme Jobholder who has been re-employed and meets certain conditions Must supply opt-in notice to employer who must then process unless Leaving Previous opt-in notice in last 12 months but then left

71 Opt in Once opt in notice received then dealt with as if eligible jobholder Jobholder can withdraw notice before enrolment date Normally the first day of the PRP which starts after receipt of notice

72 Entitled worker Right to join scheme unless Already an active member of a qualifying scheme Jobholder who has been re-employed and meets certain conditions Must supply joining notice to employer who must then process unless Leaving Previous opt-in notice in last 12 months but then left Employer does not have to go through same process

73 What happens if circumstances change? For example, qualifying earnings fall below the threshold Once enrolled, stay in pension scheme Unless the pension scheme rules say that will not happen No contributions if less than lower figure

74 What if pension pot is full? Will be rare But would have to AE And then get employee to opt out

75 Opt out Employee can opt out even if automatically enrolled Can only opt out once are active member of scheme Starts from date become active member And have one month Unless invalid opt out notice received when then six week time limit

76 Process Opt out notice comes from pension fund Employee must not be pressurised If opt out after end of period then termination only within pension scheme rules

77 Automatic re-enrolment Automatic re-enrolment is designed to encourage those who have opted out Two types Cyclical re-enrolment Automatic re-enrolment

78 Pension funds Existing workplace pension New workplace pension NEST Personal pension

79 When does pension fund need to be set up? Do not have to have a pension fund up and running just in case But only have six weeks to get employee into pension scheme from date at which assessed as eligible Or where get request from non-eligible jobholder to join So have to be certain that can react if circumstances change

80 Contributions Being phased in Amount between lower earnings limit and 42,285 Employee payments net of basic rate tax

81 Phasing in of contributions Total minimum contribution Minimum coming from employer Staging to 30 Sept % 1% 1 Oct 2017 to 30 Sept % 2% 1 Oct 2018 onwards 8% 3%

82 Certificate of compliance Must submit certificate of compliance within five months of staging date And within two months of every re-enrolment date Done online

83 RTI

84 RTI penalties Penalties were to apply from 6 April 2014 Now being delayed as follows No late filing penalties as long as up to date by 5 October 2014 For those with < 50 employees, not until March Late payment penalties not until April 2015 But late payment interest charged from April 2014

85 Late filing First time late no penalty Then penalty will depend on number of employees Tax geared penalty if failure continues

86 Late payment This is as a % of tax paid late % depends on number of defaults Nothing for first Then increases incrementally Additional charge if more than 6 months late

87 Reasonable excuse Lots of cases now Claygold Property Ltd Eclipse Generic Ltd Valley Centre Kestrel Guards Ltd Anaconda Equipment International Ltd

88 Inaccuracy penalty As with all returns can charge penalty if return is wrong Only if careless or deliberate Penalty then linked to culpability

89 PAS Online process to appeal against filing penalties System live although no penalties issued Any penalties will be displayed Will have a drop down box of potential excuses

90 Employer compliance work

91 Starting point HMRC have authority to examine all records held by employer Will also be looking at following aspects NMW Student loan repayments Tax credits RTI Pensions going forward

92 Starting point HMRC have authority to examine all records held by employer Will also be looking at following aspects NMW Student loan repayments Tax credits RTI Pensions going forward

93 PAYE Have PAYE and NICs been deducted from all relevant payments? At the right rate? Are all relevant persons on the payroll?

94 The type of issues Does the workforce on the books look like the workforce on the premises? Are there indications of shiftwork (and possibly an additional workforce paid through a second set of books)? Are cash wages paid? Are significant round sum payments made? (Even if it seems reasonable that these represent genuine business expenditure, large amounts paid without supporting documentation point to a lack of control.)

95 The type of issues Is there a large casual wages charge (ie large relative to the size of the business)? Are wages paid to domestic staff or gardeners? Do spouses or other relatives receive excessive wages? Is personal expenditure paid by the business?

96 Areas of interest Round sum allowances Tips and service charges Termination payments Salary sacrifice Agency workers Students

97 Case law

98 Company car Mrs G married director of company after joining as employee Provided with car and fuel Marriage broke down and she stopped working Continued to have car But she claimed that this was part of maintenance package and she had been told no longer a company car

99 Decision FTT found that papers showed this was part of maintenance She was not taxable on this But should be taxed as benefit on ex-husband if she held by company

100 Holiday pay Test cases to Employment Tribunal Under Working Time Directive each employee entitled to four weeks paid annual leave Can only be replaced by allowance if employment terminated Must be paid any amount which puts the worker in the same position as a comparable period of work Causes complications where remuneration contains elements such as overtime It is this point which the ET was addressing

101 Decision ET found that normal pay should be easily identifiable And include any element which it is usual for the employee to receive If no such normal pay then average over reference period should be used Consequently overtime which employees were required to work must be included in calculation of normal pay Significant impact from PAYE and NIC perspective too as overall costs of employment may increase Directive is not directly effectively but UK regulations made to implement this

102 CIS returns Jobbing builder failed to provide monthly returns No tax lost as all gross payment Penalty was still 7,200 (after mitigation) Procedural errors So appeal allowed

103 Wrong deductions HMRC seeking to collect underpaid PAYE from employee On basis that company had taken reasonable care Challenged by employee His view accepted by FTT

104 Status (2) Chinese takeaway visited by HMRC and police Found illegal immigrant worker Also driver who maintained was self employed Former was definitely employee But driver found not to be employee

105 Why? He was paid per delivery Provided his own delivery Paid all costs of vehicle Not supervised by appellant Could turn down work Not guaranteed work

106 PAYE on other? Dispute about whether should have operated emergency cumulative code HMRC argued that should have been deducting basic rate tax on cumulative basis As no P46 HMRC were right

107 Dividend vs salary Appellants directors and shareholders of company Received dividends and very modest salary Company went into insolvent liquidation after failing to secure funding Advised to reclassify some interim dividends as salary

108 Continued... HMRC concluded there had been wilful failure to deduct PAYE and NIC Sought to recover this from Mr and Mr Jones Contended were dividends FTT found were dividends Reclassification did not reflect true nature

109 Other cases? Distinguished from a 2012 case which was similar Except appellant in that case knew the dividends were illegal As had no reserves