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Bob L

False, or Bogus, Self-Employment

False, or bogus, self-employment is the process where a worker is treated and paid as self-employed, but in reality are actually treated as an employee.  So their employment status is incorrect.

What are the attractions?

For an employer the attraction is that they do not have to pay employers National insurance or provide employee benefits such as sick or holiday pay, or even pay the minimum wage.  This means they potentially gain access to a cheaper workforce, and thus a competitive advantage.

For the genuinely self-employed worker the advantage is the freedom, flexibility and opportunity to build up a business for themselves.  The Citizen Advice Bureau cites 75% of their clients as happy with their employment status.

What are the issues?

For the employee they will pay more in National insurance and will not receive any employee benefits such as sick or holiday pay.  Being self-employed may also bring additional costs such as insurance or accountancy.

For the employer they could have to prove the status of the worker, and if they fail will be liable for all tax and National insurance as if the worker had been employed for that period, and probably unable to claim anything back from the employee.

Is there a problem with getting it wrong?

The two main issues are with employees losing their employment rights and the cost to the Exchequer of lost revenue – the recent report from the Citizens Advice Bureau estimated as much as £314 million annually.  So there is a human cost and a financial one.

What is happening now?

HMRC are tackling this, and have openly targeted umbrella companies.  There is a tool available on the HMRC website that can be used to try and establish whether a worker should be classed as employed or self-employed.

Recently there has been more attention both with the CAB investigation and the Office of Tax Simplification report.  The OTS describe employment status as a complex and wide-ranging subject, and acknowledge it will be difficult to solve.

The OTS published their consultation report in July and it is likely there will be changes, as well as an increase in HMRC enforcement actions.  In their earlier March report they do refer to the French system, with a minor fine for a mistake in the region of €1500, and for a deliberate false classification in the region of €45 000 possibly including imprisonment.

It is important to get this right, both for the employee and for the employer.  The Government wants to encourage people to start businesses for themselves, but is also actively targeting employers they believe may be falsely classifying workers.

PAYE Late Filing Penalties

HMRC can apply penalties if filing of Real Time Information (RTI) is late. Initially this was only for larger companies but now applies to all employers regardless of the size of their workforce.  HMRC have now issued the first in year notices to employers with fewer than 50 employees.

Real Time Information

Real Time Information, or RTI, is the information that needs to be sent to HMRC for every pay day.  It is a legal requirement that RTI is submitted on or before the date that employees are paid, or due to be paid.  An RTI submission contains a lot of information, and has meant we no longer have to submit things like P45 or P14 forms.

Late Filing Penalties

HMRC are not automatically applying the fines, and will take a risk based approach with a proportionate response for more serious defaults. HMRC have said they do not want to apply the penalties, but do want the RTI files submitted on time.  It is possible to appeal, and if you receive a penalty notice, but were only a day late, you should follow the instructions on the HMRC website.

For 2015/16 the penalties are as follows:

Number of Employees Monthly Penalty
1 to 9 £100
10 – 49 £200
50 – 249 £300
250 or more £400

For up to date information, and further details of how to appeal, visit the HMRC website.

RTI submission is part of the service provided by Payroll Options, and as long as we have completed the payroll before the payday, the RTI submissions will be made on the correct date.

For more information about RTI filing and penalties see here

Robust Payroll Solution

Outsourcing your payroll function to Payroll Options can be a good measure to ensure you have a robust payroll solution in place.

Reliable and Predictable Performance

When a company is looking at their payroll requirements it is an obvious, but sometimes overlooked, requirement that the payroll should be produced in the same way every pay period, and be prepared accurately and on time.   For a truly robust payroll solution this is an essential component.

It is not enough to have a payroll produced around pay day, which may produce a completely different result depending on who has to do it this time, and the time they have away from their other duties.  Outsourcing the payroll can produce a reliable and predictable outcome.

By outsourcing the payroll you no longer have to worry about a key member of staff being off sick, or on leave near pay day.  Just preparing a timesheet, or list of changes, is a far more straightforward task than being asked to do the whole payroll.

Back-Up and Contingency

You need to maintain back-ups and have contingency plans against failure for many of your company’s processes.  Do you have similar for payroll?  The payroll must be completed on time, so how are you prepared if there is an interruption to your current processes?

Again, as part of a robust payroll solution, outsourcing can answer many of those questions.  Our back-ups, and contingency planning, are wholly aimed at keeping the payroll process running without interruption.  As long as you can get the information to us, we can process your payroll.

Complex Systems

We deliberately avoid complex spreadsheet requirements.  We believe that the more complex we make your job, the more likely we are to produce errors in the payroll.  We will therefore work with you to make your payroll duties as simple as we can, you are paying for us to take control of the complexity so that you don’t have to.

Outsourcing can again help provide a robust payroll solution as the responsibility for many of the complex steps are taking over by a specialist company.   These steps are likely to require additional knowledge that is probably outside your company’s day to day duties.

Find a Robust Payroll Solution by Outsourcing to Payroll Options

Minimise Payroll Risks

Minimise payroll risks by outsourcing your company payroll function to Payroll Options.  Outsourcing the company payroll has many benefits, some of which are sometimes overlooked:

Reliability

At Payroll Options we have taken numerous steps to ensure accurate delivery of your payroll on time, every time.  Payroll has to be able to meet deadlines and here are some of the steps we have taken to make this happen:

  • Staff – one of our aims is that any member of staff can process any payroll. Although a company’s payroll is frequently managed by a small team, if that entire team were absent, with no notice, for any reason, another payroll team could take over.  The payroll would be processed in the usual way, the only difference being the names on the payroll report.
  • Technology – We cannot have our systems fail if we need to process payrolls, so we have taken steps to ensure that we minimise the risk of ‘system outage’. We use live parallel duplicate payroll systems, providing excellent system redundancy.

We also have incremental and offsite backups, and for a worst case scenario we keep a back-up disaster recovery site, that would enable a quick restore and back to operations in the case of a catastrophe.

Expertise

Do you have time to keep up to date with the payroll legislative changes?  Mistakes can be costly, both in terms of possible HMRC fines and the time taken to rectify them.  Payroll only seems to become more complicated each year, and the advent of auto-enrolment pensions has added another layer of worry.  Allow Payroll Options to take on this burden and gain peace of mind.

We employ payroll qualified staff and specialise exclusively in payroll.  We keep our people, and systems, up to date so you don’t have to.

Security

Fraudulent behaviour by employees is a very real problem, and employers should take steps to manage this risk.  Payroll fraud does happen and one possible, relatively simple, step that can be taken is to outsource the payroll function, and so divide the chain of the payroll process as well as an external source looking at the payroll.

The person producing the data, should ideally not be the person reviewing the payroll.  Payroll Options can send the payroll reports to nominated contacts, and so it is straightforward for a company to control the audit chain for payroll.

Outsourcing the payroll can be a practical step to minimise the risk of payroll fraud.

If you want more information on how Payroll Options can help your company minimise payroll risks, contact us today.

PAYE Reconciliation

HMRC has just announce they are starting their reconcialtion process for the PAYE system for the 2014/15 tax year, and expect to be completed by October. PAYE (Pay As You Earn) tax is that which is collected through the payroll, and is effected by the tax code.

 

There were issues last year but HMRC seems confident that the vast majority of PAYE tax payers will be correct and no action will need to be taken. If tax was overpaid a P800 notice will be issued, followed by a cheque within 2 weeks. If tax was underpaid then P800 notices will still be issued but you will be offered a few options which will also depend on how much is owed.

 

There is further guidance on what happens if a P800 notice is issued here, but as HMRC have said, very few people will receive them!

AE Pensions Simplified

We are about to start becoming very busy with new companies staging for auto-enrolment, but The Pension Regulator has made life a little more straightforward. The new ‘step by step’ guide seems to have been well thought out, and although there may well be pitfalls it seems a much more readable than some of the lengthy documents previously produced.

 

The single page check list is very helpful, and a simple way of seeing what is required. There is the proviso of seeking ‘legal or other specialist advice’ at the base, but we view this as a positive and constructive approach from The Pension Regulator.

 

What has been less publicised is the reduced correspondence burden. There are less letters to be handed to employees, and although there are still duties, one of the changes is that it appears there is only the requirement to contact an employee the first time their status changes, rather than repeated correspondence. Also several documents have been combined.

 

The Pension Regulator is clear that giving more information than the statutory minimum is still acceptable, if companies already have a system in place. The link to the detailed guidance document can be compared with the step by step guide, and shows that The Pension Regulator is trying to simplify and explain. Long may this continue.

Be Cautious with Holiday Pay

There have been various opinions on what constitutes holiday pay, and some companies have changed their policies already. We did suggest caution as there is no definitive position yet, and companies need to be careful they do not implement policies that may need to be rewritten within months. On May 5th it was announced that British Gas were appealing in the ‘Lock case’. This is one of the cases referring to commission payments that is regularly referenced, and this appeal will only add to the ongoing uncertainty with holiday payments.

 

We do not have the answer here, we have many strategies that companies have used following advice from their HR departments or advisors, but we cannot advise on what the best way forward is at the moment, or in six months’ time. Following the election maybe we will get a dynamic and conclusive answer?

Marriage Allowance

The start of the new tax year has brought a few changes, one of which is the ability to transfer tax allowance between spouses or civil partners. This is not terribly straightforward and at the moment you are still having to ‘register an interest’.

 

If an employee manages to successfully transfer part of their allowance, both parties will receive a new tax code and we expect a P6 tax notification to be issued. The maximum that can be transferred is £1060 for this tax year and the income of the person donating the tax allowance should generally be less than £10 600pa.

 

For further details you can visit the government website here.

Tax & National Insurance

Tax & National Insurance for the 2015/16 Tax Year

We have picked out some of the headline Tax and National Insurance rates for the year ending April 2016:

PAYE Tax

Allowances April  2015 – March 2016
Personal Allowance £10,600
Tax Rates Taxable Income
20% Up to £31,785  Basic Rate
40% over £31,785 up to £150,000 Higher Rate
45% over £150,001  Additional

 

National Insurance

Employees
Lower Earnings Limit Primary Threshold
(12% contributions)
Upper Earnings Limit
(2% contributions)
Weekly £112 £155 £815
Monthly £486 £672 £3532
Yearly £5824 £8060 £42385
NI Category A Most employees not in a contracted out pension scheme
NI Category C Employees over the state pension age
NI Category M Employees under 21 not in a contracted out pension scheme
NI Category X Employees don’t have to pay National Insurance

These are the commonly used categories, for more information visit the HMRC website

Employer
Lower Earnings Limit Secondary Threshold
(13.8%)
Upper Secondary Threshold* Upper Earnings Limit
(13.8%)
Weekly £112 £156 £815 £815
Monthly £486 £676 £3532 £3532
Yearly £5824 £8112 £42385 £42385

*Point where 13.8% contributions commence for NI category M

NI Category A Employers contribute 13.8% above the Secondary Threshold
NI Category C Employers contribute 13.8% above the Secondary Threshold
NI Category M No Employer contributions until the Upper Secondary Threshold
NI Category X No Contributions

If you want manual tax calculation tables please see here, and for manual National Insurance calculations see here

 

Payroll Options have put this very simple guide together to give an indication of bands and contribution rates.  This should not be relied upon for calculations and for further guidance please contact us.

Statutory Payments to April 2016

Statutory Payments for the 2015/16 Tax Year

Statutory Sick Pay (SSP) 2015/2016
Minimum weekly earnings to qualify £112.00
Weekly rate of SSP £88.45
Statutory Maternity Pay (SMP)
Minimum weekly earnings £112.00
Higher weekly rate for first 6 weeks 90 % of average weekly earnings (in the qualifying period)
Lower weekly rate for 33 weeks is the lesser of £139.58 or 90% of average weekly earnings

SMP is now paid for up to 39 weeks within this period an employee may have 10 keep in touch days (KIT) which will not effect the payment of SMP

Ordinary Statutory Paternity Pay (OSPP)
Minimum weekly earnings £112.00
Weekly rate for up to 2 weeks is the lesser of £139.58 or 90% of average weekly earnings
Statutory Adoption Pay (SAP)
Minimum weekly earnings £112.00
Weekly rate for up to 39 weeks Is now in line with SMP

All employers are entitled to recover 92% of the SMP/OSPP/SAP they pay.

If you qualify for Small Employers Relief (annual liability for National Insurance less than £45,000) you are entitled to recover 100% of the SMP/SPP/SAP you pay plus 3% for payments made after 6th April 2014.

Statutory Redundany Pay

The statutory redundancy rate is £475.00 maximum per week

You can also visit the HMRC website for more details.