All Posts By

Bob L

Will the Christmas Party be Taxable?

Although I am not sure if we are allowed to discuss Christmas in early September, there have already been stirrings in the media, not the least of which is the failure of the Korean shipping company, Hanjin. So aside from concerns that there will be no toys in the shops this Christmas, do we need to worry whether the Christmas Party is taxable?

This will be relevant to some employers, and every employer should be aware of the rules governing whether a social function needs to be reported to HMRC.  If you go outside the rules, you will need to declare the Christmas Party for tax.

Rules for Reporting and Paying

Currently there are a few rules, and if your social function / party meets the rules it will be exempt and you do not need to report or pay.

  • The cost is less than £150 per head.
  • It is open to all employees
  • It is an annual event

So, if your Christmas Party does not meet these rules you will need to pay Class 1A NICs on the full cost of the event and report it on employee P11Ds.

£150 per head is an Annual Limit, and includes VAT

To arrive at a cost per head you divide the total cost by the number of employees that attend. The cost of the function includes VAT, and any transport or overnight accommodation provided.

The £150 is an annual figure, so if there are two or more functions it is the aggregate that is considered. Each function has the cost per head calculated and then they are brought together, if the total cost is over £150 then the will be a liability for reporting and paying taxes.

Where the total cost does rise above £150 the function that best utilises that limit can remain exempt, but the full costs of other functions are taxable and must be reported.

£150 is not an annual allowance

The £150 is not a tax free allowance available to spend on social functions. If a function rises above the £150 per head limit, or is not exempt, then Class 1A NICs are payable on the full cost of the event, and the event should be recorded on the P11D.

The Event is Open to All Employees

If an event is not open to all employees, for example it is only for the directors of a company, it will not be exempt and so be liable for reporting and taxes.

If a company has more than one location, then an event open at one location can still count as an open event. You can also have events per department and remain exempt, as long as all your employees can attend at least one of them.

For full details see here, or for the .gov.uk overview see here

 

Payroll Bureau

Payroll Options is a payroll bureau founded in 1991.  The aim was to simplify the process of accurately and efficiently paying employees.

What is a Payroll Bureau?

A payroll bureau is an accountancy service provider, which specialises in providing outsourced payroll services for other businesses.  Only payroll services are usually offered, but sometimes the bureau will be part of a larger organisation.

A payroll bureau will supply HMRC with information on behalf of other businesses, and may receive and act upon information from HMRC regarding those businesses.  The payroll bureau will also be a source of expertise for the business, without them employing their own payroll specialist.

Why use a Payroll Bureau?

Any business could potentially employ the services of a payroll bureau.  Businesses will outsource to a bureau where they want efficiency savings, usually with time but often cost is a factor as well.

Many businesses do not want the ‘hassle’ of payroll.  They are looking for peace of mind and reliability, and an organisation they can speak to if they have questions.  They are looking for reliable payroll and not disgruntled staff every pay day.  They may also be aiming to avoid HMRC fines and penalties.

A clear audit trail can also be an advantage.  There is a clear separation between information supplied to the payroll bureau, the information sent to HMRC and the reports received by the business.  The information sent to the payroll bureau can even come from one department, whereas the reports are sent back to another.

Some businesses outsource because they are concerned with confidentiality.  The reports can only be seen by designated members of the team, and if employee payment is made via BACS, the bank statement may only show the bulk wage transaction.  Timesheets and time and attendance approval can also be more easily delegated, as hourly rates are held at the bureau and so only hours need to be submitted.

Why use Payroll Options as your Payroll Bureau?

Payroll Options is well established and offers an accurate and reliable service.  There are numerous internal audits to ensure RTI compliance with HMRC, and every payroll it processed in parallel and then cross checked for errors.  We expect 100% first time accuracy.

By outsourcing to Payroll Options we expect you to experience hassle free payroll through a simple but powerful solution.

Contact us for more information

Why is my RTI Submission Failing?

Well there could be numerous reason for an RTI submission failing, but HMRC has highlighted an issue with some recently issued National Insurance numbers.

The importance of a valid National Insurance number

There is a database of valid National Insurance number prefixes, and certain prefixes such as GB or ZZ will not be allocated.  There are also rules such as the first letter should not be a Q, and the second letter should not be an O.

If you submit an RTI file with an invalid National Insurance number the file will be rejected.  The format is two letters, followed by six digits, then a final letter.

Sometimes HMRC will issue a temporary reference that is not a National Insurance number, this will not be in the correct format and cannot be used in its place.  HMRC will still sometimes refer to the temporary reference as a National Insurance number, but this is misleading.

Software Validation

Most software has built in validation to check if a National Insurance number is valid before it is submitted, so the error should be detected before the RTI submission is rejected by HMRC.

It is also possible to use HMRC basic tools to verify a National Insurance number, but this is not straightforward.

We will validate all National Insurance numbers before applying them to an employee as part of our normal process.

The Current Issue – KC prefixes

National Insurance numbers have recently been issued with the prefix KC, but HMRC will not currently accept these as valid.  Most software will reject the KC codes, but some people have reported that they have managed to enter the number, but when they tried to submit the RTI files the whole file was rejected.

So if you have had issues with RTI submissions it would be worthwhile a quick check that it is not an invalid National Insurance number causing the problem.

The current Solution

HMRC have issued the following advice:

  • the National Insurance number field should be left blank
  • you should make sure the employee address field is completed in those cases
  • if you/your employee has a ‘KC’ National Insurance number, they don’t need to request a new one

 

HMRC are working on this issue and hope to have everything resolved shortly.  There is a link to the HMRC update page here.

If you have experienced issues and are considering outsourcing please contact us.

 

 

What Payroll Solution Do You Need?

Payroll is a very important part of your business activities. Having a well-motivated and happy workforce can make a huge difference to a business’s performance and wellbeing.

Find the Correct Payroll Solution

Although payroll cannot give you a well-motivated, happy workforce, if you get your payroll wrong then you are very unlikely to achieve this. Find the correct payroll solution for your business and you will find life a lot simpler, but get it wrong and it can be a real chain around your neck.

The payroll solution should take a minimal amount of time to prepare, provide quick and accurate results, and meaningful and useful reports. There are many options from DIY, to cloud based SARS, to full bureau services.

The Payroll Solution to fit YOUR Business Needs

There is diversity in payroll solutions because there is no one size fits all option. So, although it may sound obvious, you need to consider what is important to you and your business, what is a must have and what is a nice to have. Sometimes there will be items to avoid.

What Should You Consider?

  • Hassle from employees because their payslip is wrong on pay day: For most people this is a very high priority to eliminate this, but some people accept this and are not worried if the problem remains and see corrections after pay day as part of the normal business process.
  • Time: How much time can be devoted to the payroll, and can it be guaranteed at every payday? So using something that is time intensive when you are already pushed, is probably unwise.
  • Straightforward Reports: This is important for many people but again this may be a lower priority. It is important you know what is happening with your payroll and why.
  • Cost: Are you able to fully calculate the costs involved with a solution, including those costs that are sometimes hidden such as training and preparation / processing time?
  • Data: Not everyone wants data but for some people this is essential. Can your payroll solution produce data, as for instance an Excel or .csv file?
  • How to transfer the information to the payroll solution: Do you want to key into an online portal, use time and attendance output, provide a complete spreadsheet or use locally installed software? Do you want to supply minimal information?
  • Training: do you want /need in-house payroll expertise?
  • Support: What level of support will you receive? Some people will be happy with just emails, others will want to phone, and some will not need any.
  • Data Protection: Do you know if your data will be held in the UK on secure servers?

There a multitude of other factors to consider as well, such as back-ups, disaster recovery, software failure, key staff absence, notice periods etc.

Summary

Choosing the right payroll solution for you is not always easy. We are a payroll bureau that do our best to provide hassle free payroll but we do not suit every company, and every company does not suit us.

If you wish to discuss your payroll needs, and see whether our bureau solution may fit, please contact us 

 

Payroll Outsourcing

If you are finding your payroll unnecessarily stressful and frustrating it does not need to be, you should consider payroll outsourcing. If you are finding deadlines around pay day difficult to meet, and chaos and raised voices, then payroll outsourcing could provide an excellent solution for your business.
By doing a good job, we at Payroll Options like to think we are improving more than just your payroll.

Free-up and Focus Your Resources

If you are processing your payroll in-house you may find you are spending a surprising amount of time, money and resources on putting your payroll through every payday. If you could divert that time back to your business core activities, you could achieve surprising results.

The trick then is to find the best fit with your business, to maximise the efficiency gained.

Gain access to payroll Expertise

You do not need to employ a full time payroll team if you outsource. Many companies do not have complex payroll all of the time, but it is reassuring to know there is knowledge and experience available when required.
Payroll outsourcing to Payroll Options provides access to a full time payroll team at our bureau. We do not expect you to have any knowledge of payroll and can accept instruction in plain English.

Your payroll hangs on a single member of staff

If absence of a critical team member could result in disgruntled employees not getting paid, and fines from HMRC, then payroll outsourcing is a good solution to look at. Your payroll is now under the care of a whole team of people, where one absence would have little or no impact.

Providing the information to HMRC for every pay day

This does not need to be difficult, and RTI submissions are part of what successful payroll outsourcing will do well. Payroll Options have multiple data validation and audits in place to ensure RTI compliance with every payroll.

Paying your staff the correct amount

If you have more than 10 staff you should be considering BACS payments, and even with less staff this can be more convenient. The disaster of switching around staff payments can have larger repercussions, and so accurately paying the staff based upon an accurate payroll is paramount.

Payroll outsourcing to Payroll Options brings the opportunity for automatic payments via the BACS system. This is more reliable than using .csv files with banking portals, and far safer than keying in individual amounts.

Reducing your Overheads

If you are processing your payroll in house then you need to consider more than just the cost of the payroll software:

  • Time cost of putting the payroll through the software
  • Time cost of double checking everything and submitting RTI
  • Time cost to pay the employees
  • Cost of holiday and sickness cover
  • Training Costs
  • Cost of secure IT equipment
  • Cost of secure back-up

Payroll outsourcing, as well as all the other benefits, can often save a company money.

SaaS or Bureau?

We sometimes have people compare a bureau with a cloud based SaaS solution, which is not really accurate. SaaS can be an excellent solution for some companies, but would be more usefully compared to a local software solution.

A bureau can do a lot more, and be more responsive to an individual company’s needs, although sometimes it can be difficult to spot the difference from a company’s website.

In Summary

Of course payroll outsourcing is worthwhile, and of course you should contact Payroll Options.

We should add that we are a payroll bureau offering a payroll outsourcing solution, and so our opinion may be biased.

Auto-Enrolment Pension Assessment

Most employers in the UK will have to carry out at least one auto-enrolment pension assessment.  The aim of the assessment is to assign a pension status to your workers, and identify anyone that needs to be placed automatically in a qualifying pension scheme.

This does not have to be complicated, and The Pension Regulator has attempted to simplify and demystify the process.  The employee’s age and earnings need to be taken into account and then action is taken accordingly.

At Payroll Options the auto-enrolment pension assessment can form part of the normal payroll process, allowing a very quick and simple solution.

The timing of the assessment can be more difficult.  The Pension Regulator refers to pay reference periods, which are usually straightforward but with certain pay frequencies can be awkward.  If care is taken it should be easy to assess in the right period, and make the pension deductions at the correct time.

When the assessment is made there are three possible results and then ‘unclassified’ for those employees that do not meet any of the criteria:

STATUS
ACTION
EXPLANATION
Compulsory Employer
Contributions
ELIGIBLE Automatically enrol Earning over £833 in a month, and between 22 years old and the state pension age (SPA). Yes
NON-ELIGIBLE Has a right to opt in Monthly earning from £486 – £833 and between the ages of 16 and 74, or earning over £833 but aged 16 – 21 or the SPA and 74. Yes
ENTITLED Has the right to a pension scheme earns £486 and below, and aged 16 – 74 No
No defined position No action Aged over 74 or below 16

For those employees that join the scheme you do not have to continue to assess them, and their membership will continue until they leave the scheme.  Their contributions may vary in line with earnings, but they would not be removed from the scheme if the status were to change.  All other workers should be assessed each pay period, unless postponed.

It is also possible to operate a contractual scheme, and not perform the assessments.  This is a different way of approaching auto-enrolment, and The Pension Regulator does have some specific guidance.

 

Salary Sacrifice Pension

Salary Sacrifice, also known as salary exchange, is a method of paying into a pension scheme.  There are other salary sacrifice schemes besides pensions, but they are sometimes treated differently for tax and National Insurance purposes.

Currently salary sacrifice pension schemes are not subject to tax or National Insurance deductions.

What is a Salary Sacrifice Pension?

Simply there is a contractual agreement where an employee agrees to forego a proportion of their salary in exchange for a benefit, in this case pension contributions.

Salary sacrifice pensions can be used in conjunction with auto-enrolment duties, but joining a salary sacrifice scheme cannot be mandatory.  It is not straightforward using salary sacrifice for auto-enrolment, and we recommend seeking advice, there also is further guidance available from The Pension Regulator.

Using Salary Sacrifice Pensions

There are some concepts that people seem to initially struggle with when adopting a salary sacrifice pension scheme:

  1. The salary is reduced. The pension is treated as a ‘benefit’
  2. The contributions are now 100% from the employer. The employer is providing the ‘benefit’

A salary sacrifice pension scheme usually requires more work to set up, but is made attractive by the National Insurance savings available.  Because of confusion between terms we sometimes have net pay arrangements described as salary sacrifice schemes, but as can be seen they are different.

For higher rate taxpayers the contributions have not had tax deducted, and so full tax relief has already been applied.  This is similar to a pension scheme under a net pay arrangement.

As with other methods of pension deductions it is essential that payroll know if a pension scheme is to be set up as a salary sacrifice, and what pay types are considered to be pensionable.

The NIC saving

An Example:
Consider an employee on £30 000pa, 1100L tax code and NI category A, they have agreed to sacrifice £50 of monthly salary, and the employer will match the contribution.  Shown with and without the salary sacrifice.

Salary Approximate
Net Pay
Employee
Pension
Employer
Pension
Approximate
Employer NIC
£2500 £1965 £252
£2450 £1930 (£50) £100 £245

The employee net salary does not reduce by the full £50 as they also pay less tax and National Insurance. There is an employer’s National Insurance saving and this can be treated in different ways.

Some employers will pay the full NIC saving into their employee’s pension, in the example above this would be £7, and others will keep the saving towards the cost of the scheme, or share a proportion with the employee.

The employee NIC saving is already reflected in their net pay.

Salary Sacrifice Pensions for low paid workers

Generally this is not a good option and should be treated with caution.  If the worker does not earn above the NIC thresholds then there will be no saving, and the salary after the sacrifice must not be below the National Minimum Wage or Living Wage as appropriate.

Disadvantages of the Salary Sacrifice Pensions

There are disadvantages and these should be considered.  Several are centred on the simple fact that the salary has been reduced, and this can have an impact on items such as mortgages, to SMP payments.

The employer also needs to consider that they will be providing a benefit to their employees, which will be treated differently to salary.

Summary

Seek advice before launching a salary sacrifice pension scheme – this appears to be the most complex method of making pension deductions.

 

The Pension Regulator

The Pensions Advisory Service

Tax Relief on Pensions

Tax relief on pensions should be straightforward, but can become complex, and sometimes people get lost with what is supposed to be happening with their pension contributions.  As more employers become involved with auto-enrolment pensions, we are commonly receiving questions about tax relief.

Some pension providers only have one default scheme type, so they may only offer relief at source or a net pay arrangement; it is important to be aware of what the implications are

There are two ways of receiving tax relief, and also salary sacrifice / exchange schemes.  Salary Sacrifice is slightly different, managed separately for auto-enrolment pensions, and will be dealt with later

1. Tax Relief at Source

With this type of contribution the deduction is made after all tax and NI has been calculated, and so from the employee’s net pay.  The pension company will then add tax relief at 20% back into the member’s pension pot.

Higher rate tax payers may need to claim money back via their Self-Assessment tax return.  They will only have received tax relief at 20% on their contributions, rather than 40%.

If an employee does not earn enough to pay Income Tax, they can still receive tax relief on pension contributions.  The tax relief is currently available on contributions up to a maximum of £3600 per year or 100% of earnings, whichever is greater.

Relief at Source is usually considered fairer for lower paid workers.

2. Under a Net Pay Arrangement

With this type of contribution the deduction is made after NI but before tax has been calculated, and is sometimes called “Gross for Tax”.  There is no tax deducted from the pension contribution.

Higher rate tax payers do not need to do anything, as they have not paid tax on their contributions, and so have already received full tax relief.

Lower paid workers may be disadvantaged however, as they will not receive tax relief if the contributions mean their earnings are below their personal tax threshold.  This is why relief at source schemes are usually recommended for lower paid workers.

Pensions and Payroll

The way the scheme is treated for tax will affect how the contributions are calculated, and the information submitted to HMRC with the payroll.  It is very important the scheme is set up correctly within the payroll, as errors are difficult to resolve at a later date.

Examples

A typical UK worker on a monthly salary with a 1100L tax code and NI category A

Example 1: £1000 earnings and 1% employee, 1% employer pension scheme

Employer Contribution Employee Contribution Approximate Net Pay after Pension Deduction Tax Relief Claimed by the Pension Company Total Contribution to the Pension
Tax Relief at Source £10 £8 £935 £2 £20
Net Pay Arrangement £10 £10 £935 £20

Example 2: £800 earnings and 1% employee, 1% employer pension scheme

Employer Contribution Employee Contribution Approximate Net Pay after Pension Deduction Tax Relief Claimed by the Pension Company Total Contribution to the Pension
Tax Relief at Source £8 £6.40 £778 £1.60 £16
Net Pay Arrangement £8 £8 £777 £16

It can be seen that in example 2 although the pension contributions are the same the take home pay will be slightly less under a net pay arrangement.

Helpful Tips

If the amounts are the same for employees and employers on the payslip it will generally be a gross for tax deduction under a net pay arrangement.  If the employee is contributing 80% of the employer’s amount, it will usually be a deduction with tax relief at source.  This should be confirmed with the pension company.

Further Information

The Pension Regulator

The Pension Advisory Service

The Money Advice Service

 

Pensionable Pay for Auto-Enrolment

Most auto-enrolment pension schemes will be defined contribution schemes, rather than defined benefit.  The Pension Regulator has set minimum contribution levels for these schemes, both the total contribution and the employer’s contribution.

Total Contribution Employer Worker
Current 2% 1% 1%
April 2018 5% 2% 3%
April 2019 8% 3% 5%

Auto-Enrolment Schemes based upon Qualifying Earnings.

Many auto-enrolment schemes will be based upon qualifying earnings.  Qualifying earnings is a band of payments that is set by the Department of Work and Pensions, currently based upon National Insurance bands.  The National Insurance bands used are the lower earnings limit (LEL) and upper earnings limit (UEL).

For the 2016/17 tax year qualifying earnings are between –

Annual Weekly Monthly
Lower Level £5824 £112 £486
Upper Level £43000 £827 £3583

Pensionable Pay for Auto-Enrolment

You do not have to use qualifying earnings for calculating pension contributions, and existing schemes are very unlikely to be using this method.  Existing schemes will be using the concept of ‘Pensionable Pay’.  The Pension Regulator has minimum contribution limits, and you will have to certify that your scheme meets the requirements.

One option for using pensionable pay is for the employer to certify their scheme meets one of three sets of requirements:

Set 1 A total minimum contribution of at least 9% of pensionable pay (at least 4% of which must be the employer’s contribution), or

Set 2 A total minimum contribution of at least 8% of pensionable pay (at least 3% of which must be the employer’s contribution), provided that pensionable pay constitutes at least 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at scheme level), or

Set 3 A total minimum contribution of at least 7% of earnings (at least 3% of which must be the employer’s contribution) provided that all earnings are pensionable.

For sets 1 & 2 pensionable pay must equate to basic pay, where basic pay is the gross earnings but may disregard certain elements of pay.  Elements such as bonuses, commissions and overtime could be disregarding for the definition of basic pay.

If a scheme is to be based on pensionable pay the employer has one month from the effective date this starts to carry out the necessary checks and calculations, and then sign the certificate.  The maximum certified period is 18 months, and a new certificate would need to be issued within one month of the end of this period.

If you are considering self-certification it is best to seek advice, and we would be very happy to assist with the figures needed for the calculations.

If you want to find out more you can visit The Pension Regulator or your scheme provider.  Financial advisors will also be able to help.  We suspect The Pension Regulator does intend employers that are choosing their own scheme, to select a self-certification option.

Budget 2016

Salary Sacrifice
Tax Allowances
Termination Payments
Employment Intermediaries
Dividend Tax
Other notices

There were several announcements made in Budget 2016, including rates for April 2017.  Many of the more interesting items were not directly relating to payroll.

Salary Sacrifice was mentioned as predicted, but no immediate changes announced.  Pensions, Child Care and Cycle to Work schemes seem likely to continue to attract relief, but other schemes may be limited or stopped.

The tax allowances will remain as published.  What we did not previously include was that the higher rate limit will be raised to £43000 in April, from the current £42385.  The national insurance rates will also be the same as previously published.  For further details see here.

Termination payments are complicated, and with how they are dealt with for tax and National Insurance.  The government previously announced this was something they were looking at and now the first changes have been announced.  From April 2018 payments over £30000 will be subject to National Insurance as well as income tax.  There is also a further technical consultation planned.

Employment intermediaries are being challenged with changes in the tax relief for travel and subsistence.  Tax relief for home to work travel, and subsistence expenses, for workers engaged through an employment intermediary is to be removed from April.  This will bring them into line with employees, and may affect those employed by umbrella companies, personal service companies or recruitment agencies.

Dividend taxes are also changing, which will affect company directors.  Dividend Tax Credit is being abolished, and replaced with a £5000 a year Dividends Allowance.  Tax will be due on dividend income above the allowance at 7.5% for basic rate, 32.5% for higher rate, and 38.1% for additional rate tax payers.

Do not hire illegal workers, apart from the fines the government will also remove a year’s employment allowance.  This measure is planned to start in 2018.

The employment allowance is raising to £3000 per year this April, as we previously reported, but the rules are changing slightly with which companies are eligible.  Where a director is the sole employee, that company will no longer be eligible.  Guidance notes were expected this month.

The Minimum Wage will change in October 2016, which is as expected, with the rate for 21-24 year olds moving to £6.95 per hour.  What is a little more interesting is that the Minimum Wage and Living Wage cycles are to be brought into line, and both rates will be amended together from April 2017.

The statutory payments are not changing this April which is quite unusual.  So SMP, SSP rates etc will remain the same.  For more information on rates and thresholds see here.

Budget 2016, as with everything the Devil is in the Detail.