Category

Payroll Outsourcing

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.

Payroll Changes for the April 2016 Tax Year Part 3

Payroll Changes for the April 2016 Tax Year part 3

Dispensations are to be replaced by Expenses Exemptions

The requirement for dispensations from HMRC for expenses are to be abolished. Under the original ruling, payments to employees for expenses should have been reported to HMRC on a P11D unless a dispensation was in place for that particular expense. From April 2016 all existing dispensations will no longer apply, and the concept of expense exemption is to be introduced.
A company will need to have systems in place to ensure employees are incurring and paying the expenses, and that a deduction would be allowed for these expenses. It is anticipated that examples of these systems will be produced by HMRC.
The company will need to be able to prove that these payments are only made to employees which would be eligible for a deduction, and that the employees are actually incurring an expense. More details will be produced, as there remains some complexity with scaled rates, benchmarks and bespoke rates.
There were some details available in the August 2015 Employer bulletin, and it is anticipated that more details will be produced as we move into the new tax year.

Benefits in Kind

The £8500 low income threshold for reporting benefits in kind has also been abolished, and the concept of trivial benefits introduced as part of the review of benefits and expenses. The benefits in kind that do not need to be reported are below £50 for an individual, and for directors and other office holders there is an annual cap of £300.
It is likely that further clarification and examples will be produced, but the aim is to reduce bureaucracy. For further details see here.

Employment Allowance

The £2000 employment allowance is expected to be raised to £3000 from April. Most private companies in the UK will qualify for this allowance and it is very simple to apply. It is likely that single director companies, where the director is the only employee, will no longer be eligible.

The Budget

The chancellor will be announcing the budget on Wednesday, which may bring fresh changes, so please take these posts as advanced warning of expected changes.

Payroll Changes for the April 2016 Tax Year Part 2

Payroll Changes for the April 2016 Tax Year Part 2

Although there may be surprises in the budget, HMRC are currently publishing thresholds, giving anticipated payroll changes for the April 2016 tax year among other things.

Basic tax free Allowance

This is expected to increase to £11 000 per year, not £10 800, which is £917 per month rather than the current £883.  The new tax code will be 1100L

Scottish Income Tax is also being introduced. The HMRC rate is decreased by 10%, and then the Scottish Rate of Income Tax will also be at 10% for this year. Employees subject to this tax will have an ‘S’ prefixed to the tax code, so the code may look like ‘S1100L’. See here for further details

The higher rate threshold will be on earnings from £32 001 to £150 000.

The National Insurance Thresholds

The National Insurance threshold changes are mixed for the next year. Some rates are changing and some remain the same. The rates at which employers start paying NICs for under 21s, and apprentices under 25, are also being increased slightly.

Lower Earnings Limit £486 per month
Primary Threshold
employees start NI contributions
£672 per Month
Secondary Threshold
employers start NI contributions
£676 per month
Upper Secondary Threshold £3583 per month (increased)
Apprentice Upper Secondary Threshold £3583 per month (increased)
Upper Earnings Limit £3583 per month (increased)

 

Contracted Out Pensions

Another change this year is contracted out rates for pensions are to be discontinued. This will affect employees with a National Insurance category D or N, and will mostly be those employed in the health, education or local government sectors.

This should not have a major impact, but there seems to be some variation with how employers are explaining the changes to their workforce.

 

These are the anticipated changes, please see later posts or our FAQs for the actual rates.  You can also see here for further details and updates.

Payroll Changes for the April 2016 Tax Year Part 1

Payroll Changes for the April 2016 Tax Year

There are several payroll changes for the April 2016 tax year that employers need to prepare for.  If you have workers on the minimum wage possibly the largest impact will be with the new National Living Wage.

The National Living Wage

The National Living wage is to come into force this April. This should not be confused with the “Living Wage” as published by the living wage foundation, see here for further details.   Employees that are 25 years of age or older, and not in an official apprenticeship scheme, will be entitled to a minimum of £7.20 per hour from April 2016.

Employees under the age of 25 are still entitled to at least the National Minimum Wage.

Guide to current 2015 Minimum Wage rates:

21 and over £6.70
18 – 20 £5.30
Under 18 £3.87
Apprentice
(aged 16 – 18, or the first year if 19 or over)
£3.30

The rates are usually updated every October.  For further details about the new National Living Wage see here or general minimum wage rates see here.

Beware if you have a salary sacrifice / exchange pension scheme.  The salary remaining after the pension exchange must still exceed the minimum wage rates.

 

Apprentice National Insurance Changes

From April 2016 there are changes to employer’s National Insurance Contributions for apprentices below the age of 25.

There will be no employer Class 1 National Insurance Contributions to pay on earning below the Apprentice Upper Secondary Threshold, which will be £43 000pa from April 2016.

Not all apprentice schemes will be eligible: the scheme must follow an approved UK government apprenticeship framework.

If the conditions are met then a new NI category H will be applied in most cases, and this is a development of the current positions for employees below the age of 21.  For foreign going mariners there will be NI category G.

The employee however, will continue to make National Insurance Contributions in the usual way.

For further guidance see here.

 

If you want to discuss any of these changes and how outsourcing to Payroll Options can help please contact us