Employers PAYE, NI and benefit update. Presented by. Ros Martin CTA

Transcription

1 Employers PAYE, NI and benefit update Presented by Ros Martin CTA No responsibility for loss occasioned to any person acting or refraining from action as a result of the material in these notes can be accepted by the author or 2020 Innovation Training Limited 2020 Innovation Training Limited 6110 Knights Court Solihull Parkway Birmingham Business Park Birmingham B37 7WY Tel. +44 (0) Fax +44 (0) info@the2020group.com Website: Page 1

2 1. Update on current issues Real Time Information... Error! Bookmark not defined. 3. Pension autoenrolment Status Construction industry scheme... Error! Bookmark not defined. 6. Employer compliance work by HMRC Case law... Error! Bookmark not defined. DISCLAIMER AND COPYRIGHT The views expressed in this material do not necessarily represent the official views of the course organiser. No responsibility for loss occasioned to any person's action or refraining from action as a result of reliance upon any information in the material can be accepted by the course organiser, speaker, or other contributors. Legislation, case law, tax practice and accounting and auditing standards are complicated and these course notes should not be regarded as offering a complete explanation of every topic covered. These papers are for the personal use of those attending the seminar. Where indicated, material may be subject to Crown Copyright protection. It may be reproduced free of charge provided that it is reproduced accurately and that the source and copyright status of the material is made evident to users. Page 2

3 1. UPDATE ON CURRENT ISSUES 1.1 The Budget Childcare The Government's 'tax-free' childcare scheme that will provide working parents with financial support towards childcare costs for the under-12s will begin to be phased-in early in The Chancellor confirmed that the existing employer-supported limited exemption childcare schemes will remain open to new entrants until 5 April Workplace crèches and nurseries that qualify for the complete exemption will continue unaffected. Termination payments The rules relating to the taxation of termination payments are to be tightened from April This will include introducing legislation to clarify that all payments in lieu of notice and certain damages payments are taxable as earnings and removing foreign service relief. The employer NICs and tax treatments of termination payments will be aligned, so that employers will have to pay NICs on the elements of termination payments that exceed 30,000. Company vans The rate of the benefit charge for company vans for 2016/17 is confirmed as 3,170 and for van fuel benefit 598. Currently the benefit charge applicable on a company van that has a zero rate of emissions is 20% of the full benefit charge and was set to rise each year until 2020/21 when it was would be the same as the full rate. In today's Budget the Chancellor announced that the van benefit charge for zero emission vans will remain at 20% for 2016/17 and 2017/18 and be reviewed at Budget 2018, with the intention that the charge would then increase on a tapered basis to the full rate by 2022/23. Year % of full van benefit charge 2016/17 20% 2017/18 20% 2018/19 40% 2019/20 60% 2020/21 80% 2021/22 90% 2022/23 100% Page 3

4 Illegal workers An employer who takes on a worker without the legal right to work in the UK already faces significant civil penalties of up to 20,000 per illegal worker (see the Checking the employee's right to work guidance note). In the Budget today, the Chancellor announced that in addition to those civil penalties, the employer will not be entitled the employment allowance for one year (see the Employment allowance guidance note). This additional sanction will start in Testimonials Professional sportspersons are sometimes granted benefits or testimonials that can consist of a benefit match or a series of events throughout a benefit period. Where the right to a match or benefit period is written into a player s contract, or where the player s club always grants the benefit match or period after a set qualifying period of service, the proceeds are taxable as earnings and NICs are payable. Where this is not the case, HMRC s practice is to treat the proceeds as exempt. With effect in relation to sporting testimonial events held on or after 6 April 2017 where the testimonial has been awarded on or after 25 November 2015, income arising from a non - contractual or non-customary sporting testimonial or benefit for an employed sportsperson will be liable to income tax and NICs as employment income. This will be subject to an exemption for the first 100,000. The exemption will hold good for 12 months beginning with the date the first testimonial event is held. The previous practice above will continue where the testimonial or benefit was awarded before 25 November 2015, regardless of when it is held. Share schemes A number of changes are to be made to the rules for taxing the award of employment-related securities (ERS) and options to acquire employment-related securities (ERS options). These include the following. A list of events is introduced in consequence of which a plan would cease to qualify as a taxadvantaged share incentive plan (SIP). It has effect in relation to events occurring on or after the date of Royal Assent to Finance Act Under self-certification of tax-advantaged ERS schemes and ERS option schemes, HMRC must be notified of a scheme by 6 July in the tax year following that in which the first option is granted or, in the case of a SIP, the first shares are awarded. A reasonable excuse provision is now to be introduced in relation to notifications made on or after 6 April Page 4

5 The tax advantages of an enterprise management incentive (EMI) option will be preserved where minority shareholders in an EMI scheme exercise so-called tag-along rights. These are rights in a takeover to have share options acquired by the offeror and exchanged for share options in the offeror company. This amendment is backdated to 17 July If a disqualifying event occurs in relation to an EMI option, shares acquired by the exercise of that option are qualifying EMI shares for capital gains tax purposes only if the option is exercised within 40 days (currently) of that event. This is to be increased to 90 days. This has effect in relation to disqualifying events occurring on or after the date of Royal Assent to Finance Act A rights issue which takes place on or after 6 April 2016 in respect of shares received on exercise of an EMI option will be treated in the same way for share identification purposes as other rights issues; the new shares will be treated as acquired at the same time as the original shares. A company controlled by an employee ownership trust will now be permitted to operate an EMI scheme. This change is backdated to 1 October Where restricted stock units (RSUs) are awarded to internationally mobile employees, the charge to tax will arise specifically under the ERS options rules instead of the rules dealing with income tax on earnings. This will have effect in relation to ERS options on and after 6 April 2016, including options acquired before that date. RSUs are arrangements used particularly by US companies to incentivise employees long-term via rewards linked to shares or securities. Intermediaries Legislation is being introduced with effect on and after 6 April 2016 to restrict tax relief for travel and subsistence expenses of workers engaged through an intermediary. For workers who personally provide their skills or labour through an employment intermediary (broadly an umbrella company, recruitment agency or employment business), each engagement is to be regarded as a separate employment for the purpose of the rules for income tax relief on travel and subsistence expenses. The result is that daily commuting by such workers will be regarded as ordinary home-to-work commuting and will not qualify for tax relief. The measure does not, however, apply to a worker whose services are not subject to supervision, direction or control by another person. The above will also apply to a worker operating through a personal service company which is required to operate the so-called IR35 rules, but only to those contracts where a deemed employment payment is made (or would be made were the worker not receiving all his income in Page 5

6 the form of employment income). The supervision, direction or control exception will not apply in such cases. IR35 From April 2017 public sector bodies and agencies will be responsible for operating the tax rules that apply to off payroll working in the public sector. The rules will remain unchanged when individuals are working in the private sector. Pension advice Employers may provide one-on-one pensions advice to employees without giving rise to any tax liability provided certain conditions are met (see the Pension contributions and pension advice guidance note). One of those conditions is that the advice per employee may not exceed 150. The Chancellor announced today that this limit on cost is to be increased to 500 per employee as from April PAYE settlement agreements The Government will consult on proposals to simplify the process for applying for and agreeing PAYE settlement agreements and on aligning the dates by which the employee has to make a payment to the employer in order for it to count as him "making good" for the purposes of the benefits legislation. There is no timescale given for these consultations. National insurance contribution limits The following announcements were made regarding NI limits and thresholds for year starting 6 April 2016: the main rate of primary Class 1 NICs will remain at 12% and the secondary Class 1 NICs rate (and Class 1A/Class 1B) remains at 13.8%. Additional rates of primary Class 1 NICs remains at 2%. The Lower Earnings Limit will be 112 per week The Primary Threshold will be 155 per week The Secondary Threshold will be 156 per week The Upper Earnings Limit will be 827 per week Salary sacrifice The government is still concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary. The government is to gather further evidence, including from employers, on salary sacrifice arrangements to help it decide what to do. Page 6

7 Company car diesel supplement The Chancellor has announced that the three percentage point differential between diesel and petrol cars, which was due to be abolished from 6 April 2016, will be retained until April 2021 when EUwide testing procedures will ensure new diesel cars meet air quality standards even under strict real world driving conditions. Taxation of accommodation benefits Following recommendations from the 2014 OTS report on simplifying the administration of employee benefits and expenses, the government is to publish a call for evidence on the current tax treatment of employer-provided living accommodation. The report found that: rules for exempting staff living in employer-provided accommodation because it is customary and for the better performance of their duties are not working well or consistently; Grandfathering from the pre-1977 rules causes anomalies; rules for calculating the benefit are outdated, often relying on 1973 rateable values and a 75,000 value for expensive properties; a better way forward is to frame the exemption more closely around necessary for the job ; an obvious way to assess any benefit is to use open market value rental, taking into account all relevant factors 1.2 Simplification of expenses and benefits Following recommendations from the Office for Tax Simplification, the Government have amended legislation to simplify the expenses and benefits regime. The core package consisted of the following changes: Introducing a system of voluntary payrolling for benefits in kind. Introducing a statutory exemption for trivial benefits. Abolishing the threshold for the taxation of benefits in kind for employees who earn at a rate of less than 8,500 a year ( lower paid employments), with action to mitigate the effects on any vulnerable groups disadvantaged by the reforms. Replacing the expenses dispensation regime with an exemption for paid and reimbursed expenses. Payrolling benefits The idea of allowing employers to deal with the tax on benefits in kind through the payroll is not a new one, with the Government first looking at this seriously in However, this was looking at making payrolling of benefits mandatory and so gained little support from businesses. The new proposal takes a much more relaxed approach to this idea. Payrolling involves adding the taxable value of a benefit in kind to the salary so that PAYE and NIC is applied to the benefit in kind as it is to other payments within the scope of PAYE. This means the employee will pay tax on that benefit in each pay package rather than being collected (normally) Page 7

8 after the submission of a P11D via an adjustment to the tax code. This means, arguably, that there will be little noticeable difference between the two systems other than payrolling perhaps giving a more accurate result by allowing tax to be collected in real time. That is certainly the argument that HMRC have put forward in promoting this idea. The real winners, of course, will be the employers who will be removed of an obligation to complete a form P11D for any benefits which have been payrolled. Again this is a move from the current system where even if the employer informally payrolls benefits (and some do), they still have to complete the end of year forms. The following is the wording of a press release which was published by HMRC recently which highlights the relevant issues. Register now to use the Payrolling Benefits in Kind online service if you want to start or continue payrolling in the 2016 to 2017 tax year. Introduction PAYE legislation is changing. If you re intending to or already payroll benefits and expenses you must register them with HM Revenue and Customs (HMRC) using the new online Payrolling Benefits in Kind (PBIK) service. If you use this service and payroll benefits and expenses you won t have to report them on a P11D. The only benefits you cannot payroll using this service are: vouchers and credit cards living accommodation interest free and low interest (beneficial) loans If you re already payrolling these benefits you can continue to do so but you must still report them on a P11D. You ll need to align your payroll software and register to payroll using the new service by 5 April You won t be able to register after this date for the 2016 to 2017 tax year as HMRC can t process changes in-year. To avoid being sent multiple tax codes for your employees you need to register before the annual coding process which usually starts around 21 December. If you don t register the benefits and expenses you ll have to report them on a P11D. From the 2016 to 2017 tax year HMRC will no longer accept informal reports of employee benefits, sometimes referred to as lists. All payrolled benefits and expenses need to be included when you report your payroll information in a Full Payment Submission. Page 8

9 P11D (b) forms must still be completed, including the total benefits and expenses provided, whether or not they ve been put through your payroll. However, if you payroll car and car fuel benefit you mustn t complete P46 (Car) forms as you re deducting the tax due on these benefits at source. Using the online service You can: choose which benefits and expenses you want to include in the payroll for the following tax year add or remove benefits and expenses exclude employees who receive benefits or expenses but don t want them payrolled - for these employees you must continue to report the benefit or expense on a P11D Section M on the P11D is used to report other items. For payrolling this needs to be treated with an all or nothing approach - you must either payroll all items that usually fall within Section M or none. Income Tax paid but not deducted from a director s remuneration needs to be selected and payrolled as a stand-alone benefit within the PBIK service. When you register HMRC will automatically: identify which of your employees have the selected benefits or expenses in their tax code remove the selected benefit or expense and issue an amended tax code You only need to register to payroll each benefit once unless you remove the benefit your registration will be carried forward every year. Once the tax year has started you must continue to payroll the benefit or expense you ve registered for the whole tax year or for as long as you provide it. To use the service you ll need your Government Gateway ID. How to payroll benefits and expenses You collect the tax due on benefits and expenses by adding a notional value to your payroll, rather than reporting them separately on a P11D. Before making the first main relevant payment to an employee in a tax year you need to calculate the cash equivalent of the benefit. You then need to determine the number of payments to be made to the specified employee in the tax year (weekly, fortnightly, monthly etc.) and divide the cash equivalent by the total number of payments to be made. The resulting amount is the taxable value of benefit which should be added to the payroll each pay cycle as a notional value. Then deduct or repay tax as usual by reference to the employee s code, even if this is the subject of an objection or appeal. Further technical guidance will follow after publication of the PAYE regulations. End of Informal Payrolling process If you have an agreement with HMRC, the existing informal payrolling process will stop on 5 April Page 9

10 Up to this date you must: complete the amount made good or from which tax deducted fields where this applies complete a P11D(b) including the total benefits and expenses provided, even though they ve been put through your payroll How you submit P11Ds depends on which payments you ve put through your payroll. If all the benefits and expenses paid to all your employees have gone through your payroll and you submit electronic P11Ds you need to agree with HMRC in advance that you ll be sending P11Ds for directors or employees using this online form. If all the agreed benefits and expenses paid to some or all of your employees have gone through your payroll and you submit paper P11Ds you need to: submit P11D information where the benefits you ve put through your payroll have a corresponding entry for amount made good or from which tax deducted mark your paper submission (individual P11Ds or a list) PAYROLLED Trivial benefits exemption Up until this point, there has been no deminimis limit for the charge to tax on benefits in kind provided by employers. HMRC officer have been instructed to be pragmatic in relation to this issue but it has caused problems. Hence the decision to introduce a legislative definition of trivial benefits and a specific exemption for items falling within that definition. The exemption provides a number of conditions that must be met for a BiK to qualify as trivial. No liability to income tax arises in respect of a benefit provided by, or on behalf of, an employer to an employee or a member of the employee s family or household if conditions A to D are met: Condition A the benefit is not cash or a cash voucher Condition B the cost of providing the benefit, or the average cost per person of providing the benefit does not exceed 50. Condition C the benefit is not provided pursuant to relevant salary sacrifice arrangements or any other contractual obligation. Condition D the benefit is not provided in recognition of particular services performed by the employee in the course of the employment or in anticipation of such services. If a benefit is provided to more than one person and the nature of the benefit or the scale of its provision means it is impracticable to calculate the cost of providing it to each person to whom it is provided, then the total cost can be divided amongst employees to give us an average cost and it is this average cost that is included in condition B. A relevant salary sacrifice arrangement is one 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 the benefit. Page 10

11 The exemption will work on an all or nothing basis. This will mean that a trivial BiK with a cost covered by the annual exemption will not have any liability to tax or NICs, but a trivial BiK with a cost that breaches the exemption limit will be subject to tax and NICs in full. Although the exemption works on a benefit by benefit basis, the overall limit is 300 if it is a close company. Examples of how this cap will work have been published and are included below: Example 1 Mr and Mrs Smith are directors of a close company and their daughter Jo is an employee. In October Mrs Smith receives a bottle of wine from the company for her birthday. The cost to the company is 30 and this amount is deducted from her annual cap of 300, leaving her an available exempt amount for any future trivial BiKs in the tax year of 270. At Christmas Mr and Mrs Smith both receive a gift from the company that cost the company 50 each, and their daughter receives a gift costing 25. As Mr Smith has not received any other trivial BiKs, the cost of the Christmas gift is deducted from his annual cap of 300, leaving him an available exempt amount for any future trivial BiKs in the tax year of 250. For Mrs Smith, the cost of her Christmas gift is deducted from her available exempt amount of 270, leaving her an amount to set against any further trivial BiKs in the tax year of 220. Jo is an employee, but as she is also a member of the directors family, an annual 300 cap applies to her. The cost of her Christmas gift must be deducted from her cap, leaving her with an available exempt amount of 275 for any future trivial BiKs in the tax year. Example 2 Peter and his brother George, are directors of a close company. They have a sister, Sarah, who is not an employee of the company. At Christmas they are each provided with a turkey by the company, each costing the company 50. Due to the provision of eligible trivial BiKs earlier in the tax year, Peter has an available exempt amount of 55 (he has already received 245 of eligible trivial BiKs) and George has 95 (he has already received 205 of eligible trivial BiKs). The available exempt amount for both Peter and George will be reduced by the cost of their own turkeys, leaving 5 and 45 respectively. As Sarah is not an employee, the cost of her turkey must be allocated equally between any employees who are members of her family or household and directors or other-office holders of the company. This means that an amount of 25 ( 50/2) will be allocated to each of her brothers and deducted from their available exempt amounts. Peter will exceed his annual exempt amount of 300, as he only has 5 available. As the exemption is an all or nothing provision, he will be liable to tax on the full allocated amount of 25. George s available exempt amount is sufficient for the allocated amount to be fully covered, and he has 20 ( 45-25) available for any future trivial BiKs in the tax year. The exemption will be available at each employment that provides trivial BiKs (within the statutory definition) held by an employee in a tax year. Employees with more than one employment will benefit from more than one exemption. Abolition of the 8,500 threshold FA2015 includes provisions to repeal the 8,500 threshold which excludes lower paid employments from parts of the benefits code. This will mean that all employees will be taxed on their BiKs and expenses in the same way. This will apply from 6 April Page 11

12 The NIC provisions will also be amended to align the payment of NICs by the employer with the income tax treatment. The abolition simplifies the administration of employee BiKs and expenses as it removes the need for form P9D. Employers will also no longer need to continually monitor an employee s earnings and BiKs to see whether they fall above or below the threshold. However, the exemptions currently provided in relation ministers of religion in lower paid employment will be retained. This will mean that the reimbursement of accommodation costs, such as heat, light and water, or the payment of an allowance towards these costs for ministers of religion earning at a rate of less than 8,500 will remain exempt from income tax. Similarly, there will be no NICs liability in these circumstances. In addition, a new exemption will be introduced to cover other BiKs for ministers of religion earning at a rate of less than 8,500 which will maintain the current exemption to income tax and NICs that applies to these BiKs. A further exemption is also introduced for employees who work as carers in respect of board and lodging that is provided in the home of the person who they are caring for. This will mean that the carer will be completely exempt from income tax on this BiK, and the employer or for the person who is providing the board and lodging (depending where the liability falls) will be completely exempt from NICs on the provision of this BiK. The vast majority of employees will now be treated in the same way for income tax and NICs on their BiKs and expenses, whatever the level of the employee s earnings. It also provides equity since it means that the tax and NICs treatment of BiKs and expenses is the same for employees whether they have a single, or multiple employments. Exemption for expenses The Government has accepted the OTS s recommendation of replacing the current dispensation regime with an exemption for allowable expenses that are paid or reimbursed by employers. The legislation will apply from 6 April 2016 and its effect will be that there is no longer any reporting requirement on employers, and employees will automatically receive the tax relief they are entitled to. In addition, there will be no need for dispensations once the exemption becomes effective. Legislation will be introduced with an exemption for the amount of paid or reimbursed expenses which would be treated as earnings under the benefits code under circumstances where a deduction would otherwise be due under s336 or s337 ITEPA 2003 or similar legislation. An example of a deductible expense relates to costs necessarily incurred in travel for the performance of an employee s duties. The exemption will not apply if the payment or reimbursement is offered in conjunction with a relevant salary sacrifice arrangement. Conditions A and B need to be met in order that the exemption will apply: Condition A is that the employer, or a third party, must have a system in place to check that the employers employees are actually incurring deductible expenses of the same kind, and that they are deductible. Page 12

13 Condition B provides a level of protection for employers and third parties operating checking systems as long as they do not know or suspect (or could not have reasonably been expected to know or suspect) that the employee is either not incurring the deductible expense or that the expense is not deductible then the system can be operated. A new section is also introduced which gives provisions for applying for a flat rate in respect of deductible expenses. This includes a requirement to provide a reasonable estimate of the actual costs incurred. The flat rate may only be applied if an officer of HMRC approves the application and issues an approval notice as provided for in that legislation. This will apply to things such as flat rate subsistence costs. Overall these changes mean that employers will no longer be required to choose between applying to HMRC for a dispensation and reporting expenses payments to HMRC. Instead all employers would need to determine themselves whether the expenses they pay are subject to tax relief or not and treat them accordingly. The following should be noted: The exemption will apply to all qualifying expenses paid or reimbursed by an employer. There is no intention to change the rules that determine whether or not tax relief is available for expenses incurred by employees the proposed exemption is intended only to simplify the way in which employees receive that tax relief when their expenses are paid or reimbursed by their employer. The exemption will apply to all employers without any option to opt in or out. The current requirements to maintain records and perform checks where dispensations are in place will continue. One way of providing certainty for employers would be to provide one or more models of acceptable record-keeping and processes for checking employee expenses. The legislation includes provision to remove ability to claim a deduction against benefits or reimbursed expenses for any amount paid pursuant to a relevant salary sacrifice arrangement. A relevant salary sacrifice arrangement means: The employee gives up the right to receive an amount of general earnings or specific employment income in return for the payment or reimbursement or The amount of other general earnings or specific employment income received by the employee depends on the amount of the payment or reimbursement It is interesting to note the second limb of that test was introduced without warning and without scrutiny given this legislation was in FA2015 which passed through Parliament in 7 days due to the impending election. Many practitioners are unaware of this and it has not been publicised but it extends the definition so it applies where the remuneration of the employee depends on the amount of the payment or reimbursement of expenses. Page 13

14 1.3 Employment allowances As from 5 th April 2014, most employers have been entitled to claim a 2,000 reduction in the secondary NIC that they have to pay over to HMRC. As currently drafted there are exclusions from the ability to claim the allowance including: Organisations which wholly or mainly carry out work of a public nature Public authorities Individuals employed to undertake personal, domestic or household work With effect from 6 April 2015, there is a relaxation in the final of those exclusions in relation to domestic care and support employees. This means that anyone employing someone to provide domestic car and support for themselves or a family member will come within the regime and will not have to pay the first 2,000 of employers NICs due. With effect from 6 April 2016 we will see more changes as the rate will increase to 3,000 but there will be a new exclusion. This has been described as applying to companies which have only one employee being the director. It is unlikely that draft legislation when published will be this simple as there are obvious loopholes. The December Employer Bulletin contained a reminder that to claim the Employment Allowance it is necessary to put yes in the Employment Allowance indicator in either the payroll software being used or HMRC s own software. Once the maximum has been claimed, it is important not to change this to no as the previous relief will be clawed back. 1.4 Travelling expenses In July 2015 HMRC published a consultation document which proposes to remove tax relief for ordinary commuting (home-to-work travel and associated subsistence) for workers who are: o Supplying personal services o Engaged through an employment intermediary (including umbrella companies and PSC) and o Subject to or to the right of the supervision, direction or control of any person For the purposes of these changes an employment intermediary will be defined as an entity, including a company, a partnership, or an individual, which interposes itself between a worker and the engager, as part of an arrangement for the worker to provide their personal services to the engager. An employment intermediary s business must be substantially in the supply of labour services. Employment businesses, umbrella companies and PSCs will be within the definition. However, professional service firms that second staff to clients will not be caught by the new rules, as their business is not substantially in the supply of labour. The desired effect will be that individuals whose relationship with their engager is such that they look and act like employees cannot claim relief on the everyday cost of travelling to work if they are employed through an intermediary. This will ensure a level playing field for access to tax relief for travel and subsistence. However the actual draft legislation is much wider than that. It is aimed at Page 14

15 the problem created by the use of overarching employment contracts which circumvent the current travelling expenses rules (although not always deliberately). It is actually unclear as to how the provisions are going to operate. In particular, there is a real issue for people who have no base or who work from home. It is going to be extremely difficult to devise a definition of an engager s workplace that excludes those whom HMRC wish to exclude from claiming expenses, but includes those whom HMRC wish to include. For example, take the statement at the top of page 12 of the condoc: The government s intention is that, where a worker is employed through an intermediary, then they will not be entitled to tax relief and NICs relief on travel and subsistence expenses incurred for home-to-workplace travel. This does not mean the same as the actual proposal only two paragraphs further on. This is that where a payment is made to a worker, employed through an intermediary for travel between their engager s workplace and the workers [sic] home then these payments will likely be treated as earnings from employment, and therefore subject to income tax and NICs. The first version would deny relief for travel from home to any workplace, whereas the second would deny relief only for travel from home to an engager s workplace. Domiciliary care workers and meter readers, who visit a large number of workplaces during the course of a day and are also groups noted for being badly paid and engaged through employment intermediaries, would be treated differently here. Under the first sentence they would not be entitled to claim expenses for the first and last journeys of their day, but on the second they generally would a third party s private house would not on an ordinary definition be an engager s workplace. However the term engager s workplace might well exclude a number of other places that HMRC would wish to see included. This also renders the position unclear for those whose work base is their home, where they might spend most of their time. If making an occasional trip to their engager s office, is this one from home to engager s office or a trip from one workplace to another? The proposal as framed would suggest the former and so would not be eligible for an expense claim. Move on to page 18 of the consultation document and the proposal changes yet again. It is to provide that any services provided within an engagement by workers who meet the criteria set out above are, for the purposes of ITEPA 2003, s 337, s 338 and s 339 [the travel expenses sections], to be treated as being provided under a separate employment with that engager. Is this in addition to the two alternatives above, or is this what the government actually intend to legislate for, whereas the two definitions above are merely there to indicate what the government is trying to achieve? It is a radically different definition, focusing on what constitutes an employment, not on what constitutes a workplace. If, in addition, it is hard to see why one needs both these definitions, which will serve to give an extra means of avoiding the law (as one will have the choice of which of two provisions to circumvent); if not, which one is it? It is all very confusing. If this definition is used, it will be difficult to legislate for the inevitable grey area. Another issue that will need treating with some care concerns domiciliary workers and meter readers. Is each visit a separate engagement? Are all the day s visits one engagement? Does HMRC have some longer period in mind? It would be wrong to treat each visit as a separate engagement and thus deny travel expenses between homes (in this instance s 337 would not apply), yet it is hard Page 15

16 to see how a foolproof definition of an engagement can be drawn up that takes account of this without also permitting cases that are not intended to be allowed. Finally there is already legislation coming into force from 6 April 2016 which is going to have a big impact in this area. This removes the ability to claim a deduction against benefits or reimbursed expenses for any amount paid pursuant to a relevant salary sacrifice arrangement. A relevant salary sacrifice arrangement means: o The employee gives up the right to receive an amount of general earnings or specific employment income in return for the payment or reimbursement or o The amount of other general earnings or specific employment income received by the employee depends on the amount of the payment or reimbursement It is interesting to note the second limb of that test was introduced without warning and without scrutiny given this legislation was in FA2015 which passed through Parliament in 7 days due to the impending election. Many practitioners are unaware of this and it has not been publicised but it extends the definition so it applies where the remuneration of the employee depends on the amount of the payment or reimbursement of expenses. This is likely to have a big impact on many umbrella companies and there is little optimism in the business at the moment. 1.5 Abolition of employer NIC for younger employees It had been previously announced that from 6 April 2015 employers would not have to pay employers NICs in respect of earnings to an employee aged under 21 at the date of payment until the earnings exceed the Upper Earnings Limit. It has been announced that this exemption will be extended from 6 April 2016 to include apprentices up to the age of 25, again applicable for earnings up to the UEL. It had been previously announced that from 6 April 2015 employers would not have to pay employers NICs in respect of earnings to an employee aged under 21 at the date of payment until the earnings exceed the Upper Earnings Limit. It has been announced that this exemption will be extended from 6 April 2016 to include apprentices up to the age of 25, again applicable for earnings up to the UEL. 1.6 Termination payments HMRC have been consulting on proposals to simplify the tax and National Insurance contributions treatment of termination payments. Comments were initially invited by 16 October 2015 and announcements on any changes were expected to be made at the Autumn Statement 2015 but nothing was heard. It is understood that there is still a commitment to changing the provisions. Proposals include: Page 16

17 removing the distinction between tax and NICs treatment of contractual and non-contractual termination payments; aligning the income tax and NICs treatment of termination payments, which would include imposing employer (secondary) NICs on certain termination payments where none are currently payable; a possible blanket exemption, which would mean that the employee would only be subject to income tax (and possibly NICs) to the extent that their termination payment exceeded a set amount, which would be lower than the current 30,000 exemption; and linking payments to statutory redundancy. 1.7 Starter checklist HMRC have identified that payroll teams are still using form P46 which has now been replaced by the starter checklist. Once information is collected from the employee, the tax code can be worked out using the HMRC online tool. The checklist does not need to be sent to HMRC. Page 17

18 2. PENSION AUTOENROLMENT Auto enrolment is the name given to implementing and running a workplace pension for all employees. It is being introduced because the Government believes that as many as 7 million people are under-saving for their retirement and as we are mainly living longer, healthier lives, this creates a crisis for funding of retirement. There are currently four people of working age for every pensioner but by 2050 there will be just two. In 2012 only one in three private sector workers were in a pension scheme and this figure has been on a downward trajectory for years. 2.1 The staging date The staging date is the date by which each business must have its pension and auto enrolment processes in place by. Every employer has a staging date which was set into law at 1 April This is the date when the employer needs to be prepared; not the date when the need to start thinking about getting prepared. The single piece of information needed to ascertain the staging date is the PAYE reference. The following is the web address to find the staging date: The Pensions Regulator will send a letter 12 months and then six months before the staging date to remind the employer. This letter will include the unique letter code for the employer which is a 10 digit reference starting with 1. At the time of receipt of the letter, the Regulator will ask the employer to provide the primary contact and further information will be sent to that person. If the business is such that there is someone different who will be carrying on the day-to-day tasks of management of the systems, they can be nominated as a secondary contact. This information can be provided online. 2.2 Postponement Once the employer has identified the staging date they can postpone implementation for all or some of their workers this is described by the Regulator as the waiting period. The postponement is not of the staging date but of the assessment of some or all of the workers. If the employer is using postponement for all of his workers, then it will effectively delay the staging date. All workers who are subject to postponement must be notified of this. The use of postponement is not straightforward because of the following reasons: The decision must be made in advance as the deadline for issuing the postponement notice is six weeks and a day from the date from which they wish to use postponement. Postponement cannot be applied if the notice is not issued. Postponement is not designed to allow the employer to simply delay the implementation of autoenrolment but is, in reality, a facility to allow the employer more flexibility. An example given by the Regulator is that it would allow the employer to automatically enrol groups of workers at different points post-staging to smooth the overall process or to align the administration going forward (we will see later when postponement can be used once the business is post-staging). Page 18

19 Once it has been decided that postponement will apply, the employer must choose the deferral date which is the last day of the postponement period. It is the date at which the worker must be assessed and it must be included in the postponement notice. It cannot be any more than three months and one day after the staging date but could be earlier. Once that date has been chosen it cannot be changed even it is less than three months after the staging date. A template for the postponement letter which has to be issued to the employees is available at Once we get past the staging date, there are two other situations where postponement can occur: The first day of employment where this is after the employer s staging date The date that the criteria to be an eligible jobholder will be met Both of these do clearly allow an employer to streamline their processes and make the administration much simpler. Exactly the same information and notification requirements exist in either of those cases. 2.3 Bringing the date forward All employers can bring their staging date forward. The Regulator must be notified one calendar month before the new earlier staging date. This can be done online. The date which can be chosen is one from a list of available dates. Those dates are the 1 st of each month starting on 1 June 2015 and continuing until 1 January 2018 although in each relevant year 1 December is not a possible date. To bring the staging date forward, the employer must: Have an existing staging date Have contacted a pension scheme that can be used to meet the pension obligations and secured the agreement of the trustees to the earlier date and Have notified the Regulator within the timeframe indicated above. Once the notification has been submitted to the Regulator, a written acknowledgement should be received and once that has been received there is no ability to revert to the original staging date. In order to notify the Regulator the employer will need their 10 digit reference (which will not be issued to them if it is more than 12 months before the staging date and can be found online at by entering the Accounts office reference and the PAYE reference). The employer will also need the PAYE reference and the Government Gateway User ID. Page 19

20 2.4 Enforcement The Pensions Regulator has responsibility for the compliance with autoenrolment. Their overall stated approach is to educate and enable employers to comply with the legislation. However, they do have specific tools at their disposal to enforce compliance. This falls into the following categories: Non-statutory action The Regulator can issue guidance and instruction by telephone, , letter and in person or warning letters confirming set time frames for compliance with obligations. This is likely to be the first step in most cases. Statutory notices Statutory notices can be issued directing employers to comply with their duties and/or pay missing or late contributions. These fall into the following categories: Compliance notice Improvement notice Unpaid contributions notice Further discretionary power allowing estimates of liability to be raised along with interest levied on unpaid contributions; this would include a direction to calculate the unpaid calculations Powers to recover unpaid contributions on behalf of trustees or scheme managers Appoint, suspend or prohibit (including unsuitable trustees) or appointment of new trustees Penalty notices Penalty notices can be issued to punish persistent and deliberate non-compliance including: Fixed penalty notice of 400 for failure to comply with statutory notice or if there is sufficient evidence of a breach Escalating penalty notice for failure to comply with a statutory notice at a daily rate of between 50 and 10,000 depending on the number of employee Prohibited Recruitment Conduct Penalty Notice for cases where an employer fails to comply with a compliance notice or there is sufficient evidence of a breach. This is set at a maximum fixed daily rate of 5,000 if there are 250 or more workers with rates from 1,000 per day for smaller firms. Civil Penalty of up to 5,000 for individuals and up to 50,000 for organisations who fail to pay contributions. The Regulator has indicated that they aim to recover all penalties issues, through court action if necessary. They can also prosecute employers who wilfully fail to comply with their duties. They also have the capacity to issue Third Party Compliance Notice which can lead to daily penalties of up to 200. All enforcement decisions can be appealed to the First Tier Tribunal. Page 20

21 2.5 Assessing workforce The first issue is to identify if the employee is a worker who falls within one of the relevant categories. Autoenrolment only applies to workers within the UK which is someone working or ordinarily working in the UK. What is a worker? A worker is defined as an individual who works under a contract of employment or has a contract (which does not have to be written) to perform work or services personally and is not undertaking the work as part of their own business. This might include agency workers. The guidance stresses that just because someone is self-employed for tax purposes does not automatically mean they cannot be a worker for these purposes. The guidance calls these personal service workers and sets out some criteria as to how those persons might be identified. If an individual is a director of a company and that company has no other employees, the individual is not a worker by virtue of any office they hold or contract of employment under which they work. The company is therefore not subject to employer duties in relation to that individual. This would apply if there is more than one director unless two or more directors have employment contracts. Where the company takes on one or more workers in addition to the directors, the company will have employer duties in relation to those workers, but will not have duties in relation to the directors unless they have contracts of employment with the company. Once it has been established that someone is a worker, then you have to categories them into: Eligible jobholders Non-eligible jobholders Entitled workers The following table shows the differentiation: Earnings Age state pension age SPA 74 Earnings of at least the earnings trigger per annum Earnings of between lower earnings threshold and earnings trigger per annum Non eligible jobholder Eligible jobholder Non eligible jobholder Non-eligible jobholder Page 21

22 Earnings of less than the lower earnings threshold Entitled worker The lower earnings limit means the same as for PAYE purposes, so for 2015/16 is 5,824 per annum or 112 per week/ 486 per month. The earnings trigger is set at 10,000 for 2015/16 (so 192 per week or 833 per month). So even though the earnings trigger was the same as the personal allowance for 2014/15, it is not linked to this in the way that the lower earnings threshold is the same as the figures for PAYE purposes. For each of the categories of employee, then there are different obligations on the employer which can be summarised below. Eligible jobholder: this person has to be enrolled into a pension scheme and the employer and employee will have to pay pension contributions. Non-eligible jobholder: this person is not automatically enrolled but has a right to ask to be enrolled. If they are enrolled then the employer has to pay pension contributions. Entitled worker: this person has the right to be enrolled but if they are the employer does not have to pay contributions. From the above, it can be seen that the key details are: The age of the worker Whether they are working or ordinarily work within the UK Whether qualifying earnings are payable in the relevant pay period When do you make the assessment? This could be one of a number of dates: Staging date for worker already in employment at that date The 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 The first day of each pay reference period where any previous assessment has identified the worker as not being an eligible jobholder. Age of the worker It is thought to be unlikely that this is going to be a problem for any business. Are they working or do they ordinarily work in the UK? Working in the UK would effectively means a worker who is under a contract which provides for him to be based at a location within the UK and where there is no simultaneous employment relationship between the worker and an employer outside the UK (ie the worker is not simply on secondment). It does not matter that the employee might make occasional business trips outside the UK or whether or not he is a UK national. Page 22