Category

Payroll Outsourcing

Furloughed Workers

25.3.2020

Coronavirus Job Retention Scheme (Furloughed Workers)

We are getting a number of enquiries about this at the moment, and there are a lot of details we just don’t know.  There also seems to be some conflict between some of the announcements and Government’s official guidance.  Here are some key points:

  1. This scheme is not for employees working from home
  2. This scheme is not to replace SSP
  3. All UK employers are eligible for this scheme
  4. This is where the current coronavirus pandemic would otherwise mean a worker could be laid off and issued a P45 eg bar staff or a gym instructor.
  5. If a worker would be laid off and issued a P45 then they could be classified as a Furloughed Worker instead.
  6. There will be a mechanism for employers to claim back costs against the gross pay of furloughed workers
  7. There will be a portal for employers to report furloughed workers earnings
  8. The full details of when, how and for how long are not available

We do not know if an employer should determine an amount to be 80% of the wages and then be able to claim back that full amount up to a £2500 cap, or the employer will pay a furlough wage and then be able to claim back 80% of that amount up to the £2500 cap.

The basic principle is to support employers to keep people employed but at home where they would otherwise lose their job.  At the moment current advice suggests:

  1. Pay the furloughed worker
  2. Record the furloughed workers and the amounts paid
  3. Claim when you are able via the Government Portal

 

What we need for payroll:

Furloughed workers costs are not reclaimed via payroll; there is no flag in the RTI to mark an employee as furloughed with HMRC.  We suggest the following for our clients:

  1. Give us the details of the furloughed worker and to stop all other payments
  2. Give us the amount of furlough pay
  3. We will pay these amounts on a new pay component line using Furlough in the description.
  4. We can put these workers in a new cost centre FURL if you wish.
  5. Your payroll reports will then contain the details and amounts for the Furloughed Workers

Please see the Governments website for further details of the support available for employees in the current crisis:

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

 

Update 1.4.2020

The Government have been updating their website, so please have another look if you are planning to furlough workers: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

A few more details have been clarified:

  1. Employees who are shielding in line with public health guidance can be placed on furlough.
  2. “You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.” 

    So you can claim the 80% wages + Employers NI + Employers AE Pension up to 3%
    (The 3% pension appears to be limited to 3% on the amount above the lower limit of qualifying earnings so above £520 from 6th April)

  3. There is guidance on what to do if an employee’s pay varies
  4. “Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.”
  5. The portal for making claims will be available towards the end of April, this has been moved up the page so clearly HMRC are getting a lot of enquiries about when it will be ready.

 

Update 14.4.2020

The Coronavirus Job Retention Scheme information has been updated and there are a few more points to highlight based upon questions we have been receiving:

  1. You can claim for regular payments the employee would receive, this would not be limited to salary
  2. You cannot claim for discretionary bonuses (including tips)
  3. If there is a salary sacrifice scheme or benefits in kind the reference salary used for the furlough calculation should disregard these amounts.
  4. It is unclear whether the whole salary sacrifice pension payments should continue to be made by the employer – speak to your pensions adviser
  5. It may be possible for furloughed employees to leave the salary sacrifice scheme and join a conventional scheme – again speak to your pension adviser

Please read the Government website for the latest information.  We have also been asked for a template for furlough letters – there is one available from ACAS here

Coronavirus Covid 19 Updates

Coronavirus Updates

As the pace of change has been so quick, moving forwards we will bring service updates together onto this page.

We are registered as an essential service provider with the Department of Health and Social Care during the COVID pandemic.

Open hours:  During the COVID 19 pandemic please send your payroll instructions early and allow extra time for processing.  As with the previous lockdowns we may be closing one or both offices for some or all of the day on Thursdays and Fridays, this will depend upon the work load on the particular day as well as our local lockdown tier.  We will be available on normal working hours otherwise.

27.10.2020

There should be more details for JSS (open) and JSS (closed) by the end of this week.  From what we have seen so far we are expecting an approach similar to flexible furlough, so we are developing a spreadsheet to aid with calculations but we will not release this until the further details have been published.  Employees cannot be JSS (closed) and JSS (open) at the same time and we suggest avoid both in the same pay period.  The scheme is complex but appears similar to the flexible furlough of the past two months.

23.10.2020

Job Support Scheme is now JSS(open) and JSS(closed).  Full details are promised from HMRC at the end of month but some highlights:

  • Larger companies with over 250 employees have some tests before they can claim for JSS(open)
  • JSS(open) is where there is decreased demand but the business is operating
  • JSS(closed) is where an employer has to close their premises as a result of COVID
  • JSS(open) – the minimum hours worked is now 20% and the government will reimburse 95% of the additional 66.67% pay for hours not worked up to a cap
  • JSS(closed) – the employee will receive to thirds of their normal pay up to a cap, and this will be reimbursed by the government
  • Employer’s National Insurance and pension contributions are not covered by either scheme
  • The employer must pay the employees before each claim is made
  • Any payments to employees above the minimums are voluntary and will not be reimbursed.

Further details are available here and we will publish some additional material once we have more information.

21.10.2020

The Job Support Scheme Expansion is for employers affected by business closures due to COVID, and will operate differently to the previously announced job support scheme.  Further details are available here.

19.10.2020

The full details of the Job Support Scheme are still not confirmed.  At the moment we think it will be best to either just put the whole payment through as a single payment, or split into two between the worked amount and the job support amount.  The detail we are waiting for:

  • What is ‘normal’ for the reference pay/hours worked
  • How will the cap work
  • If at the cap does the employer match the cap or make up the difference

The claim process will be between the employer and HMRC, but is likely to be similar to the furlough process.  We do not know what details will be required, and whether these will be a company total or per employee.  There may well be a threshold again, above which individual employee details will be required.

We have successfully registered ourselves as an essential service provider, which will enable faster access to COVID testing.

7.10.2020

A few people have contacted us about the Job Support Scheme launching on 1st November but we still don’t have enough details to know how this is going to work.  The basic set up is that the employee must work at least a third of their normal hours but can work more, the difference between their normal wages and the wages worked is then divided by three.  The government will reimburse a third, the employer pays a third and the employee loses a third.  There is a cap for the government support but it is unclear how this will work at the moment.

We anticipate yet another spreadsheet to assist people where they wish to make use of the scheme.  The amount paid to the employees will need to be reported via RTI, but again there will be nothing specific within the RTI submission to differentiate between hours worked and hours topped up.

1.10.2020

This is the final month of the furlough scheme, with the employee still receiving the 80% of the wages up to the cap but the Government only reimbursing 60%.  There is the new Job Support Scheme but this looks very different from furlough; further details will follow when we have worked out the best way this might be reflected in the payroll.

7.9.2020

For workers still furloughed this month the amount available to claim from the government is reducing from 80% to 70%, but the employee still receives the 80% with the employer making up the shortfall.  We have an amended spreadsheet to assist with the claim should it be helpful, as you still need to show the 80% paid to the employee and the reduced claim is calculated outside of the payroll.

20.8.2020

Furlough pay claims are being reduced from this month, and we have had some questions regarding September and October.  For payroll purposes everything remains the same, the employee will be paid the 80% furlough payment as previously and have National Insurance and pension contributions calculated normally.  The difference is the total amount that can be claimed, and we have some further notes here.

September claim = Total Furlough Pay / 8  x 7
October claim = Total Furlough Pay / 8 x 6

We have also had some questions regarding Employment Allowance, as some companies are considering making the claim later in the tax year, our understanding is that this is not compliant, and we have some further notes here.

4.8.2020

The spreadsheet to help with claims for furlough for the month of July has an error, we have taken the sheet down and will be uploading a revised version shortly.  We also need to amend the csv sent with your payroll reports, we aim to have this work completed by the end of today. Now complete – see here for the new version.

This month has less working days, meaning payroll processing will be compressed, please send your instruction early where possible and allow for extra processing time.

27.7.2020

A reminder that all furlough claims for June and earlier must have been completed by this Friday, 31st July.  July is a unique month for furlough and claims cannot span either side, so it is likely that it will not be possible to combine August with July for claims either.  From August it will no longer be possible to claim for employer’s National Insurance or pension contributions.

6.7.2020

We have uploaded a spreadsheet to help check furlough claims made for the month of July, you are welcome to download a copy here

30.6.2020

We have updated the flexible furlough spreadsheet to fix and error with the formula in column H.  You can find a copy here.  The hours in the work pattern is causing some confusion, as it is the number of hours worked in each cycle, which includes days off.  This means if you work a 40 hour week, it is 40 hours every 7 days not 5 days.

16.6.2020

There are several changes anticipated on the 1st July with the CJRS, and further details were announced on Friday.  We have highlighted in more detail a few of the changes here, but some key points:

  • July is to be treated separately and claims cannot cross this month
  • Flexible furlough arrives, with workers allowed to remain furloughed whilst working reduced hours
  • Workers must have been furloughed for a period of at least 3 weeks prior to 1st July to qualify for furlough payments from this point
  • There are changes to the amount of employers NI that can be claimed where there is additional pay
  • From 1st August no employers NI or pension can be claimed
  • From 1st September the employer will be expected to contribute to furlough pay

9.6.2020

We have updated the furlough pay spreadsheet to add a check for the 13.8% of grant NI cap.  There is a lot of information coming out at the moment but all is subject to change, so we will hold on publishing anything further on the developments with furlough pay until next week

3.6.2020

We have received a notification that there has been another small change in the CJRS calculation for employers National Insurance.  This will not affect many people but there will now be a cap of 13.8% of the gross pay grant for the NI element of the CJRS.  This will be on the HMRC calculator and we will update our spreadsheet as well.

If you are preparing a file with over 100 employees for a CJRS grant, HMRC have provided an example template where they have simplified the data requirements slightly.

The details on the calculation for part time + furlough, to be introduced from 1st July, are due to be announced on the 12th.  Past experience of CJRS suggests it would be unwise to speculate what these will be, and even the announcement on the 12th is unlikely to hold the same information and instruction and what will be used in July.  We will be sending another email once more information is available together with some of the other items to be aware of this tax year.

22.5.2020

The online portal for companies with fewer than 250 employee to reclaim COVID-19 related SSP will be open from 26th May.  There are few additional details at the moment, just a reminder to hold onto the evidence and have it available when the claim is made – https://www.gov.uk/employers-sick-pay/help-with-sick-pay

Due to the latest changes in the furlough pay guidance, from this point on we are switching to calendar days for mid-pay period furlough dates.  Although HMRC have said they will accept the fairer system of using working days for workers with an annual salary, there have been issues where a worker is only furloughed for a day or two of the pay period immediately followed by a claim.  This will not affect those workers furloughed for the whole pay period.

21.5.2020

We have had a few questions regarding RTI and furlough pay and some of the HMRC guidance has been a little ambiguous.  There is nothing in the RTI that differentiates furlough payments, they are reported in the same as any other payment.  A payment is report via RTI, and this should be recorded in your records that it was related to furlough pay.

There has been some clarification in the guidance about payments that can be used in the reference pay for the furlough pay calculation.  Non-discretionary payments can be considered – https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme#ndp

The changes in the way that NI and pension payments were to be apportioned where there was a mix of furlough and non-furlough payments in the same pay period, meant that we withdrew the reports we were preparing.  We have a csv now available on request, which can be dropped into this excel document.

This is an aid to calculating the totals where you have a mix of payment types, but you may need to add extra details depending on the complexity of your payroll.  You do not need the specific csv, you can also use the payroll csv but this is a little less convenient.

If you have a salary sacrifice scheme you should already have spoken to your pensions provider.  This is a far more complex arrangement for furlough pay, and other salary sacrifice arrangements should also be taken into account.  Our calculations would not work directly if there are salary sacrifice schemes in place.

6.5.2020

There have been some further updates and clarification within the furlough pay guidance, as well as a note of caution if the calculator is to be used for employees with an annual salary.  The examples of how to calculate the NI and pension where an employee is furloughed for the whole period are in line with the original guidance, but we would still recommend just using the totals as outlined in our reports.  There have also been updates for company directors and employees receiving maternity allowance, although we imagine company directors will be featured in further updates.

If you are making a claim and you are also claiming Employment Allowance (now £4000 from April) then you need to ensure you do not claim too much employers National Insurance. ie don’t claim if you were not going to pay anyway.

We have update our guidance on NI and Pension calculations as some people have been making this more complex

Employers NI contributions

Employers Pension contributions

29.4.2020

We have differing reports of how straightforward the CJRS grant application has been.  The pattern seems to be where employees are furlough for the whole pay period, and the pension is based on qualifying earnings the application is far easier.  We have been seeking some clarification and reassurance from HMRC this morning and they have confirmed that the calculations below can be used for monthly workers as they are based on the average monthly salary.  However they also said “HMRC is aware in some instances that the calculator figure is not always matching up with figures calculated manually and they are looking into it”.

One thing we were told to watch for was the start date of the furlough period, so this must be a common issue in the first round of applications.  It is the date the furlough starts not the start of the pay period that is required.

We have also had it pointed out that there is no evidence of the calculation when the HMRC calculator is used, so it would be a struggle in a future audit to show what values were entered and how the results were calculated.  Again, please make sure you keep good records especially if this is your preferred method.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/881314/PPN02_20-Contingent-Workers-Impacted-by-Covid-19-April__1_.pdf

This is some information about a specific sector, but was one of the first available government sources so we expected the principles to be carried across even if some of the logic is not quite there.  They talk about working days used to calculate furlough pay, and for monthly paid workers, but then it gets complicated when it is capped at 20 days, so four weeks = 1 month.  It is not really surprising there is a certain amount of confusion.

We expect further guidance to be forthcoming about the NI and pension pro rata.  The original guidance indicated that a relatively simple calculation would work deducting a lower threshold and then a percentage of the remainder but this was changed last week  (as previously mentioned!).  The report we had developed was unfortunately withdrawn, as once it was no longer possible to consistently provide indicative pension and NI values it lost its value.  For clarification we are not able to hold the furlough dates in payroll, and there is no furlough indicator in the RTI that is returned to HMRC.

24.4.2020

We have been extremely busy and it seems likely over 80% of our clients have at least some furloughed employees.  We are very stretched but we are turning around your payrolls and have nearly completed the month.

There have been more updates to the Government CJRS guidance, some helpful and some less so.  Some of their calculation examples are poor, and will be pulled down, so if you are reading and it is not making sense do not panic.  The way the furlough pay is calculated and pro rata calculations made is not industry standard for salaried monthly employees, and so some caution needs to be used if you are not used to pro rata calculations.  You have three choices:

  1. Use our calculations, based on 260 working days per year for a five day worker
  2. Use your calculations (there are other standard methods accepted by HMRC)
  3. Use HMRC calculations based on the number of days in the month

The important thing is to be consistent, and remember to keep good records.  For your information the standard daily rate calculation we use for a monthly salaried worker, working 5 days per week, is as follows:

Monthly Salary x 12 / 260

If you use our calculations then submit to our totals, pro rata the pension and NI if necessary, and do not use the HMRC calculator.  If you use the HMRC calculator be careful and keep good records as potentially you will introduce error with varying pay each month for salaried workers.  If they are furloughed for a full month 80% of the normal monthly salary would seem more sensible and more robust against challenge.

The guidance on pension calculation has also changed, and now the lower level for qualifying earnings can be prorated where only a part of the period is furloughed.  Furlough pay is becoming more complex.

In the guidance on qualification there is some clarification on the join date for an employee to qualify, they need to have joined and been reported on an RTI submission by 19th March.  If you have a monthly payroll and your pay date is after the 20th March then the employee should be on the February payroll to qualify, the start date does not matter if they were not reported in the February payroll.  We report to HMRC either the day before pay day or on pay day, or the reporting is late.

We also have a small number of clients who report that HMRC claim they do not exist.  We do not know the cause of the issue and so far it has not been resolved, but we will post the solution if we find one that is useful.

https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme

20.4.2020

There is a step by step guide now available – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/880099/Coronavirus_Job_Retention_Scheme_step_by_step_guide_for_employers.pdf – which gives examples of what HMRC expects.  This is the first time they have released anything like this and should be read before submitting a claim.  The period referenced is for March where there was some salary and some furlough, and the pro-rata method HMRC has used will not necessarily work in all scenarios and it should be noted HMRC are using slightly different methods for the pension and the national insurance.

There is now a calculator HMRC have released to help calculate the 80% furlough pay – https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme

17.4.2020

The CJRS portal has been promised to be open on Monday, but there are still further updates to the guidance.  If you are planning to make a claim on Monday there may be some manual calculations you will need to make, or you may be able to take values directly from your payroll reports.  We have some notes on National Insurance and Auto-enrolment Pensions to help but it is possible the requirements will change again.  If you have more than 100 furloughed employees you will need to construct a file to upload, but the file requirements are really quite vague at the moment and are another thing changed today.  Remember, you need to keep records for 5 years.

14.4.2020

The lockdown has not ended but given the short weeks we will be continuing but rotating staff as necessary.  Please send your payroll information early and allow us extra time to turn it around.  At the moment we are planning to close on Thursday 30th April and Friday 1st May, and will remain open otherwise.

HMRC have sent out a slightly ambiguous email regarding the Coronavirus Job Retention Scheme, and we have had a number of enquiries.  There have been no confirmed details released yet, but it is clear HMRC are preparing even if everything is subject to change.  There are a few items to give you for now:

  • We are an RTI filing agent only, we do not interact with HMRC on your behalf for other services
  • It is now confirmed that the claim will be made outside of payroll, and you must keep good records.
  • We expect to produce reports and/or data to aid with the claim, but we do not know what will be required or how much we will be able to provide.

6.4.2020

Welcome to the new tax year!  We have all payrolls in the 20/21 tax year now and we are available on Monday to Wednesday this week, but plan to close on Thursday.  There have been more updates to the furlough information, and record keeping is mentioned so please make sure you follow the guidance.  There has also been an update on how the claims may work for SSP for those organisations with less than 250 employees, and record keeping is mention again: https://www.gov.uk/guidance/claim-back-statutory-sick-pay-paid-to-employees-due-to-coronavirus-covid-19

1.4.2020

We shall be closed tomorrow and Friday and will re-open on Monday 6th April.  The last few payrolls of this tax year will be completed shortly.  There are more updates becoming available regard the Coronavirus Job Retention Scheme and furloughed workers, and we have some updates here.

27.3.2020

We are monitoring the BACS submissions this morning, but HMRC have sent further details regarding furloughed workers: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

You will need to read through yourself but a few key points:

  1. You pay the employee the 80% or £2500 cap, and claim this from the government.
  2. You can choose to top this up if you wish
  3. Vulnerable workers that have to self isolate can be classed as furloughed workers
  4. The scheme should be up and running by the end of April

26.3.2020

There is now an FAQ available answering a few questions regarding the funding available for business – https://www.businesssupport.gov.uk/faqs/

We shall be closing shortly and we shall be available again on Monday 30th March.

25.3.2020

We have published a few notes on Furloughed Workers as there seems a lot of confusion with the limited amount of information available.  Please see here

24.3.2020

We are in the office and are very busy finishing payrolls, but we need to look at reducing our contact hours, and increasing our staff’s ability to stay at home. We are going to close for the day on Friday 27th March.

For the weeks commencing 30th March and 6th April we shall be open and operating as normal Monday to Wednesday but closing for Thursday and Friday. We will return to full open hours on Tuesday 14th April following Easter. This is the plan for the three weeks of the increased lock down, but we may need to extend or amend our hours.

If we make BACS payments on your behalf these will continue as normal, but you will need to make sure you still have staff that can monitor and interact with your company’s BACS portal.

We also continue to request that payroll information comes to us early, and changes are kept to a minimum. Our turnaround time is likely to be slower than usual.

23.3.2020

“HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.”

We are getting a lot of enquiries already this morning, but we do not have any details either.  It appears this will be claimed separately to PAYE via an online application, probably in a similar or the same portal as SSP.

Small and medium sized businesses will be able to reclaim SSP for sickness absence due to COVID-19.  There are some more details coming through on the eligibility but still no details of the claims process.  We will be able to pay SSP and determine an employee has earned above the lower earnings limit, but we currently have no way of differentiating when the SSP was coronavirus related.  Employers need to make sure they maintain good records as the claims process is unlikely to involve PAYE.

The are further details on the provisions the Chancellor has announced available here:  https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

19.3.2020

All services and deadlines are operating as normal.  Some contingencies have been activated to cover staff absence due to self-isolation, but there is still adequate staff levels.  We have asked all our clients to send payroll information to us as soon as possible and avoid late changes.  We are concerned with what is approaching over the coming few weeks.

 

Payroll Planning advice

The global coronavirus pandemic has produced a novel and unprecedented challenge.  We are in a strong position with two separate sites, and the ability to work on all payrolls from either without interruption.  With the uncertainty that exists with external factors, and the possibility we may all have reduced available staff, we have the following additional notes:

  1. Make sure we know your contacts that may be sending us payroll information
  2. Make sure your contacts know what is required, such as your payroll reference and the information that is sent for payroll each period
  3. Send final instructions as early as you can, and avoid subsequent changes as much as possible
  4. Send all your instructions together, use your payroll reference, and avoid multiple emails and subject lines such as “this month’s payroll”.
  5. If your payroll is very stable and you want us to process several weeks or months together then please let us know.
  6. We will send emails, use Twitter and update this page if there are any changes to our service
  7. The following changes may be introduced:
    1. Earlier hard deadlines: We may enforce an earlier deadline to send us the payroll information prior to pay day.  In this situation we may have a three-day turnaround, which may mean you miss pay day if you submit late.
    2. If you want to make changes these may have to wait until the following pay period, you should be prepared to make an approximate net payment yourself and report it to us for the following pay day
    3. We may move to a shift pattern, with reduced hours at each office. This may mean it would be less easy for you to speak to the team processing your payroll
  8. The following worst-case scenarios have been considered:
    1. If you have no one able to send us a payroll instruction you have the following options:
      1. Make net payments yourself based on the previous pay period. Report these to us with the gross pays when you are able.  You could make these payments multiple times if necessary, and we can catch up at a later date.  We would expect HMRC to be understanding in these circumstances and it is likely they will have offered guidance.
      2. If we make BACS payments on your behalf you could instruct us to repeat the prior month. This situation is less ideal as we would be creating a payroll and making RTI submissions which would need correcting at a later date.
    2. If the country is on compulsory home isolation, and we are unable to access either of our offices, we will not be able to process payrolls. In this situation you would need to make approximate payments to your employees and then report these to us together with payroll information.  If we make payments via BACS it would be possible to send us a file for us to make BACS payments, and again we would be able to report to HMRC at a later date.  You would be able to use the data in your payroll csv and a simple header file we would provide if this became necessary.  You should also make sure you are familiar with your banks bulk payment facility as this may be simpler.
    3. We cannot process payrolls and produce BACS files if we cannot get into an office, we can remotely send BACS payments if necessary. Email support will also be maintained remotely, as well as providing service updates.
  9. If you have no one able to provide us any information or access your prior payrolls, and we are unable to access the office, you will need to do whatever you have prepared for in that situation. As a rough guide if you know the gross amount and deduct a third that is a reasonable approximation of the net to pay the employee.  We have occasionally reported multiple tax periods for clients before, so this is perfectly possible.  If a large proportion of our clients are affected however, it would take a while to bring everyone up to date.  We would expect HMRC to be understanding in these circumstances, and they would probably have already offered guidance for this situation anyway.

 

National Minimum Wage April 2020

The National Minimum Wage April 2020

Although there is a chance there will be some changes announced on March 11th the National Minimum Wage rates have already been confirmed.  These rates apply to work after the 6th April and are an increase on the previous year of around 6%, although some age ranges are a little above and below this.

Minimum Wage Rates from 6th April 2020

Employee Age Range

Rate

Aged 25 and over (National Living Wage) £8.72
Aged 21 – 24 £8.20
Aged 18 – 20 £6.45
Under 18 £4.55
Apprentice Rate £4.15

 

The minimum wage applies to workers in the UK, and takes into account the basic pay or salary as well as other payments or deductions.  Salaried staff are also considered for the minimum wage, it is not just hourly paid workers.

National Minimum Wage calculations are not always straightforward, and there are some further notes available here.

To find out more information see here

Employment Allowance April 2020

Employment Allowance April 2020

The Employment Allowance is £3000 that can be offset against an employer’s NICs (National Insurance Contributions).  There are changes arriving this April and there are a few more details now available.

Eligibility for Employment Allowance

Eligibility is now a little more involved to determine; there is a company size threshold then other questions that need to be answered each tax year.

  1. Some exclusions remain the same, such as single director companies and public bodies.
  2. The employer’s (secondary) Class 1 NICS liability in the previous tax year must be less than £100 000. If greater the employment allowance cannot be claimed.  This £100 000 threshold is also applied to groups and connected PAYE schemes, so the combined total needs to be measured.
  3. If you have workers within IR35 you cannot offset their NI liability against Employment Allowance, but equally you do not need to count their NI towards the £100 000 threshold.
  4. If there are connected PAYE schemes, but the combined total is less than £100 000, then the Employment Allowance can still only be used against a single PAYE reference. It is up to the connected PAYEs to nominate the particular scheme.
  5. De minimis State aid rules: these rules will apply if the organisation is engaged in economic activity, so providing goods or services to the market, and most companies will fall into this bracket. You cannot claim Employment Allowance if this would mean exceeding the De minimis State aid thresholds for a particular business sector.

Claim the Employment Allowance each Tax Year

The majority of small business should be able to continue to claim the allowance, but there is now more work to do at the beginning of the new tax year.

At the start of the tax year, as well as determining eligibility, if the business is claiming the employment allowance you will need to declare the business sector, choosing from one of the following options

  1. State Aid Rules do not apply
  2. Primary Production of Agriculture Products
  3. Fisheries and Aquaculture Sector
  4. Road Freight Transport Sector
  5. Other, Industrial

For further guidance see here

Within IR35 Contractors April 2020

What is ‘Within IR35 Contractors’ and the changes in April 2020?

The IR35 legislation is aimed at ensuring contractors pay the same tax and National Insurance as an employee in an equivalent position.  New rules come in from April 2020 that will affect private companies classed as medium sized or larger.  The new rules will not be applied retrospectively.

The IR35 legislation places responsibility on the employer, not the contractor, for the reporting, collection and payment of tax and National Insurance.  The employer is also responsible for determining if the contractor falls within the IR35 rules.

Who does it apply to?

Small employers are exempt.  Small employers should meet two of the following conditions:

  • Have less than 50 employees
  • A turnover of less than £10.2million
  • A balance sheet total of less than £5.1million

There are additional rules where companies fall under the group rules, and simplified rules for certain other companies with a turnover of greater than £10.2million.

For medium and large enterprises the new rules will be applied.  The employer not the contractor decides if the work falls within IR35 rules, and is then responsible for reporting and paying the tax and National Insurance.

What contractors fall within IR35?

Employers must take reasonable care when determining the status of a worker, and there is a tool available from HMRC to assist with the test – CEST (Check Employment Status for Tax).  Employers should record the results of the CEST assessment as HMRC have said they will not hold records.

The CEST assessment is based upon a true agreement between parties, so if a contract or agreement is considered as contrived and not reflecting the true nature of work HMRC will disregard the CEST result.

Once a worker has been determined to be within IR35 they need to be reported via RTI.  This will mean through a payroll, but there is an important distinction between a PAYE employee and a contractor within IR35.

What do we need to do about contractors who fall within IR35?

How employers deal with IR35 will depend on individual circumstances.  For many a separate payroll with separate PAYE references will be simplest, but if there are only one or two temporary workers, including them within the normal payroll may be more straightforward.  Intermediary companies will also have to deal with IR35.

The RTI requirement is a reporting issue, as it is deemed employment that is reported and used for the tax and NI calculation.  This is unlikely to be the same as the invoiced amount from the contractor.  HMRC has guidance on how to calculate deemed earnings, but these are also changing in April.  Again it is important to understand the distinction between a contractor within IR35 and an employee, although both could potentially be reported through the same payroll.

There are some other differences between the contractor within IR35 and an employee on Pay as You Earn.  There are no student loan payments, holiday pay, statutory payments or auto-enrolment duties for instance.  Employment Allowance cannot be offset against NI from deemed employment, although Apprenticeship Levy is counted.  For these reasons a separate payroll to the PAYE payroll may be much easier to administer.

Further details will follow, but at the moment there is still a lot of uncertainty within companies of how exactly they will remain compliant with the new regulations.  There is further guidance available from here.

National Minimum Wage (NMW) Rates 2019

National Minimum Wage 2019

The National Minimum Wage (NMW) rates increase in April, and this year they are increasing by around 4% on average.

National Minimum Wage Rates 2019

Criteria

Rate

Aged 25 and Over (National Living Wage) £8.21
Aged 21 – 24 £7.70
Aged 18 – 20 £6.15
Under 18 £4.35
Apprentice Rate £3.90

 

These rates are proposed each year by the Low Pay Commission.  The government would then accept the proposals and add them to the budget for the next tax year, where HMRC then has the responsibility for enforcing the law.

There is also the voluntary organisation the Living Wage Foundation, who propose wage rates based upon the cost of living which are generally higher than the HMRC minimums.  The Living Wage Foundation also applies a weighting for living in London where costs are higher.

The minimum wage applies to workers in the UK, and takes into account the basic pay or salary as well as other payments or deductions.  Salaried staff are also considered for the minimum wage, it is not just hourly paid workers.

Examples for salaried staff

32 year old salaried worker, working 37 hours per week:  £1316.34 per month

37 x 52 = 1924 hours per year

Minimum salary would equal = 1924 x £8.21 = £15 796.04 pa

22 year old salaried worker, working 40 hours per week:  £1334.67 per month

40 x 52 = 2080 hours per year

Minimum salary would equal = 2080 x £7.70 = £16 016.00 pa

(These are minimums and care would still be need to make sure the NMW requirements were met in any 12 week period – see below)

National Minimum Wage Calculations

National minimum wage pay is not necessarily the same as gross pay, taxable pay or NICable pay however, and can get complicated where pay structures are not straightforward.

If workers receive bonuses or commissions then a 12 week average could be used to check the worker is receiving at least the correct hourly rate.  For this you would divide the total pay received by the total hours worked, which would then give an average hourly rate.

Care needs to be taken with salary sacrifice deductions, as these will reduce the pay for NMW calculations.  Common salary sacrifice arrangements include pensions, childcare vouchers and cycle to work schemes.  But there are other arrangements too.

Deductions for things like uniform can also be used to reduce the pay for NMW calculations, so employers do need to check they comply as the fines can be high if they fail in their obligations.  If a deduction can be shown to benefit the employer then it may well reduce the NMW, and advice should be taken.

If an employee feels they have been paid below the NMW their first course of action is to discuss this with their employer and see if they can find a solution.  ACAS offer an early conciliation service if a dispute between an employee and employer is not quickly resolved, and there is also the HMRC enforcement process.

Summary

In a simple pay structure it is very straightforward to check that the hourly rate is greater than the NMW rates, but where there may be deductions or variable hours it can get more complicated.  April is a good opportunity for employers to check the pay rates they have in place and adjust as needed.

Car and Fuel Benefits through Payroll

Car and Fuel Benefits through Payroll

If a company provides a car or fuel for private use then the employee is receiving a benefit, and this benefit needs to be reported to HMRC either through a P11D or via the payroll.  Reporting a car either through a P11D or via payroll is not completely straightforward and care does need to be taken.

Payroll the Car and Fuel Benefits

The advantage of processing the car and fuel benefits through payroll is that there are no P11Ds to complete and pro rata calculations are potentially more straightforward.

The employee tax code should increase, as the tax on account portion is removed, but this does not always happen straightaway.  There may also be an initial increase in tax on the payslips if an employee owes underpaid tax from a previous year.  For these reasons there can an increase in work for the HR and finance teams when a company first launched with benefits through the payroll.

Fuel benefit can be reduced or removed if an employee pays for their own private fuel.  The employee could just buy their own private fuel, but you would potentially need to be able to prove the employee has covered the full cost of their private miles

HMRC has published Advisory Fuel Rates that can be used, and where used properly there would be no benefit to report to HMRC.  Some care needs to be taken, and there are different rates for business miles in private vehicles and private miles in company cars where there is company fuel for instance.

Changes for April 2019

There is a supplement for diesel cars, but there is an exemption available for cars manufactured after September 2018.  Cars that meet the lower levels of Nitrogen Oxide (NOx) emissions permitted with the Euro standard 6d, will qualify for the exemption.

At the moment there are two categories of fuel, so diesel and other, but from April there will be the third – Diesel cars meeting Euro standard 6d.

 

If you do not currently process benefits through the payroll you need to register with HMRC in the tax year prior, so register now if you wish to start in April.  For help with P11Ds see here.

A Brief Overview of Pensions

An Overview of Pensions

Pensions seem to cause more issues and confusion within payroll than they should.  We will attempt to simplify and demystify their treatment by providing a brief overview of pensions, focusing on how they are managed within payroll as well as touching on auto-enrolment.

The Tax Treatment of Pensions

There are only three ways a pension can be dealt with for tax purposes:

  1. Tax Relief at Source. Here the pension is deducted from the net pay, with tax relief at basic rate reclaimed by the pension provider. The gross pay is not affected, and National Insurance Contributions are made as usual.
  2. Deducted under a net pay arrangement. This is an unhelpful term, but is referring to where the deductions are made before tax, and sometimes referred to as ‘gross for tax’ deductions. Again total gross pay is not affected, and NICs calculated as usual.
  3. Salary Sacrifice. The employee gives up part of their salary in exchange for a benefit, in this case a pension contribution. Gross pay and NICs will be reduced.

The impact of the tax treatment

  1. Tax Relief at Source. The employee will receive tax relief, so a top up to their net contribution, at the basic rate at the pension provider, even if they do not pay tax. This method is considered fairer to lower paid workers, but higher rate earners can still claim additional tax relief via their tax return.
    The other note with this method is that a contribution of 3% against the gross will actually be seen as a 2.4% contribution on the payslip, with the rest reclaimed as tax relief by the pension provider to bring the total back to the 3% (current basic rate tax at 20%).
  1. Deducted under a net pay arrangement. The employee receives full immediate tax relief on their contributions, and so higher rate tax payers do not need to make an additional claim via their tax return. The amount of taxable pay is also reduced, which higher paid employees may find useful if they are approaching thresholds. Employees paid below the tax threshold will not receive tax relief.
  1. Salary Sacrifice. These schemes have become more popular since the introduction of auto-enrolment pensions but they are the most complex. The employee gives up some of their salary, so now the whole contribution is from the employer.  For this reason salary sacrifice pensions do not even need to be processed through payroll, although it is more usual to do so.  Full tax relief is gained immediately on the contribution as well as reducing the employee and employer NICs.
    Care must be taken that the reduced gross pay does not fall below the National Minimum Wage rates, and there are also implications with statutory absence payments as well as other considerations.

The pension calculation basis

Pensions could also be divided in two, as to whether they are based on pensionable pay types or banded earnings.  Since the introduction of auto-enrolment Qualifying Earnings has become the most common form of banded earnings, and probably the most common basis for pension calculations.

  1. Pensionable Pay.  Individual elements of an employee’s gross pay may be subject to pension calculations, such as salary only.  Sometimes it is all pay, or total gross pay, but some care needs to be taken, as often the intention is all pay subject to National Insurance, so that payments such as business expenses or mileage would be excluded.
    For automatic enrolment it is possible to use pensionable pay but the basis needs to be self-certified, usually using one of the predefined sets from The Pensions Regulator.
  1. Banded Earnings.  Qualifying earnings is a band of earnings set by The Pensions Regulator, and is currently the band of earnings between the lower and upper earnings limits for National Insurance.  It is possible to have banding other than qualifying earnings, but this now rarely seen.

A brief overview of Pensions?

So three types of treatment for tax, and two for the basis of the contribution.  Five items to consider for a basic pension set up in payroll.

Accurate and On Time Reporting of Payroll Information

Accurate and on Time Reporting of Payroll Information

In the latest Employers Bulletin (August) published by HMRC there are several sections devoted to RTI submissions and including for new starters.  HMRC again stress the need for accurate and on time reporting of payroll information.

What is RTI?

RTI is possibly the most significant change ever made to Pay As You Earn (PAYE).  RTI, or Real Time Information, is a method of reporting payroll submissions to HMRC and is aiming to make this process more efficient and responsive.

RTI is made up of two parts, a full payment submission, or FPS, and an employer payment summary, or EPS.

The FPS submission contains information about payments and deductions to employees, and must be made to HMRC on or before pay day.  An EPS contains company information for items such as SMP, Employment Allowance or Apprenticeship Levy.  The EPS must arrive with HMRC by the 19th of the following month.

What has changed?

Within the bulletin there are no major changes announced for RTI submissions, but they do have some reminders and guidelines.  The payroll information must be reported accurately and on time, and your organisation faces penalties if you fail with this.

HMRC have said they will not automatically impose a penalty, but will be following a risk based approach for late filing penalties as for last tax year.  At the same time they have requested that people do not ignore the automatic warning messages sent out.

What is needed for new starters?

New starter information is determined to some extent by your particular organisation’s needs.  If you do not have an electronic payslip portal, then your payroll does not need an employee email address for instance.  Date of birth is probably essential, as so much within payroll can now be affected by this.

In this month’s bulletin the interesting highlight is regarding the employee postcode.  This must be accurate as this is one of the fields HMRC use to identify the employee.  If this is inaccurate as well as issues with HMRC, there can also be ramifications with the Department for Work and Pensions.

What is the significance?

There may be no changes, and these are all just timely reminders from HMRC to take care with your payroll.  But, there may be changes with the speed in which tax codes are issued, and faster changes in benefits, and inaccurate submissions will make errors far more likely.  Remember the announcement last summer of dynamic PAYE tax coding, and also the changes in treatment of transferred employees in April 2017 resulting in widespread Employee Duplication.

In Summary

A new employee should double check the information they provide, leaving fields blank is preferable to inaccurate information.  This, together with some care with the payroll process, should help ensure compliance with the HMRC request for accurate and on time payroll submissions.

Welsh Income Tax

Change is coming for tax payers residing in Wales

Tax payers resident in Wales will start paying Welsh Income Tax from April 2019.  They will have a proportion of their income tax paid directly to the Welsh Government, rather than just via the block grant.  The Welsh Government will also be able to set and vary rates of tax paid.

The Welsh income tax will be applied based upon residency, and so employees should make sure HMRC is holding their correct address.  If an employee needs to change their address they could be directed to their online personal tax account.  HMRC will remain responsible for collecting the taxes.

A New Tax Code Prefix

An employee subject to Welsh Income Tax will have a ‘C’ prefix to their tax code, so for instance their tax code could be C1185L.  This is similar to the Scottish Rate of Income Tax where ‘S’ is used as the prefix.

It is too early to say whether we expect very much to change, and in the first year of Scottish Income Tax the changes were minimal.  Initially it appears that there will only be changes with the rates, if any changes at all, and no introduction of new thresholds.  However, as can now be seen, Scotland have made their income tax scheme more complex, and there are marked differences from the main UK thresholds.

Acronyms and Abbreviations

On a positive note, although the acronym / abbreviation SRIT was frequently used for the Scottish Rate of Income tax, I have not spotted HMRC attempting WIT in this context.