HRD & Payroll Solutions Newsletter

The Agricultural Wages Board for Northern Ireland has confirmed changes to the minimum rates of wages for agricultural workers. The existing minimum rates for agricultural workers at Grade 2 and above are increased by 3.8%. The lowest wages pay band, known as the “Minimum Rate”, was increased in October 2007 to match the National Minimum Wage rates and is not being further increased.

	Below compulsory school leaving age	Age 16-17	Age 18-21	Age 22 and over
Grade 1 – Minimum Rate for the first 40 weeks cumulative employment	£2.76	£3.40	£4.60	£5.52
Grade 2 – Standard worker		£3.84	£5.03	£5.92
Grade 3 – Lead worker		£4.49	£5.89	£6.50
Grade 4 – Craft Grade		£4.54	£5.94	£6.98
Grade 5 – Supervisory Grade		£4.80	£6.29	£7.39
Grade 6 – Farm Management Grade		£5.18	£6.80	£7.99

Taxation of Employment Income

New HMRC guidance on various matters

Detailed technical guidance on the taxation of employment income is provided for HMRC inspectors in the Employment Income Manual. The information is published on HMRC’s website and is a valuable source of information on all aspects of PAYE taxation and P11D reporting.

New guidance has recently been published on a variety of different subjects and those areas that have not already been covered in this newsletter are summarised in the sections below.

Homeworkers – reimbursement of household expenses
Instead of calculating the costs of a homeworker’s exactly, employers may make a regular modest payment without having to justify the amount paid. From 6 April 2008, the rate that may be paid in this way is increased from £2 to £3 per week. Employers may, alternatively, reimburse the employee’s actual additional costs of working at home or agree a scale rate payment with HMRC. (http://www.hmrc.gov.uk/manuals/eimanual/EIM01476.htm)

Homeworkers – reimbursement of broadband internet costs
Employers may only reimburse additional household expenses if a tax charge is to be avoided. If an employee already pays for a broadband service before starting to work at home, the expense is not “additional” and is therefore taxable and NICable if reimbursed. If, however, a new broadband service is required when the employee becomes a homeworker, the cost is additional and may be reimbursed tax free. (http://www.hmrc.gov.uk/manuals/eimanual/EIM01475.htm)

Salary sacrifice – free or subsidised meals
Some commercially marketed schemes endeavour to use the tax exemption for “free and subsidised meals” in conjunction with a salary sacrifice. Schemes which provide an “account” for each employee, which is used to purchase food and drink in the workplace and is topped-up regularly by the employer, do not meet the statutory exemption because they place funds at the disposal of employees rather than providing “free or subsidised meals”. The money or value provided in this way is taxable and NICable and cannot, therefore, be used in conjunction with a salary sacrifice. (http://www.hmrc.gov.uk/manuals/eimanual/EIM21675.htm)

Salary sacrifice – nursery schemes
Some commercially marketed salary sacrifice schemes endeavour to take advantage of the workplace nursery exemption. Employers may provide nursery places without a tax charge where they combine with other employers to jointly finance and manage a nursery. HMRC’s view is that the additional monetary contribution made by employers to a nursery does not satisfy the “financing” requirement and the appointment of the scheme promoter to act as the company’s agent does not meet the “management” requirement. In such an arrangement, the salary sacrifice may be effective but the provision of the nursery place becomes a P11D reportable benefit and is subject to Class 1A NICs. (http://www.hmrc.gov.uk/manuals/eimanual/EIM21970.htm)

Car benefit charge – carbon offset charges
If the manufacturer or importer of a car shows its list price as inclusive of a carbon offset charge and there is an option for the customer to opt out of paying it, the inclusive price is still the list price for tax purposes. If the customer decides not to pay it, it is a discount and does not serve to reduce the list price. If, conversely, the carbon offset charge is not included in the list price and the customer chooses to pay it, it does not serve to increase the list price as it is not an accessory. (http://www.hmrc.gov.uk/manuals/eimanual/EIM23124.htm)

Petrol/electric hybrid cars
Company cars that are powered by a petrol engine and a battery electric traction system have a 3% reduction in the percentage used to calculate the car benefit charge. Although not currently available, cars that are powered by a diesel engine and an electric traction system would not enjoy the discount as the legislation refers specifically to “cars capable of being propelled by electricity and petrol”. (http://www.hmrc.gov.uk/manuals/eimanual/EIM23440.htm)

Further information:
Recent updates to the Employment Income Manual http://www.hmrc.gov.uk/manuals/eimanual/updates/eimupdate280308.htm

PAYE Procedures from 18 May 2008

Guidance on implementing Budget changes

HMRC’s P7X document provides guidance for the actions employers must take when applying tax code changes from the first payday after 17 May.

Professional Fees

Clarification of tax and NICs rules

In last week’s newsletter, we included an item about the availability of tax relief for professional membership fees paid by the employer, where the particular register of the professional body is listed in section 343 of the Income Tax (Earnings and Pensions) Act 2003. We mentioned in the item that employers must report the benefit on form P11D but Class 1A NICs can be avoided if the employer knows that the employee concerned is able to claim tax relief in full.

As payment by the employer is only one of the ways in which professional fees are likely to be paid, we are reproducing below, for clarification purposes, an additional Employer FAQ that explains the subject in full.

April 18 – (April 19 is a Saturday) – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 12 by employers who pay monthly, for tax months 10 to 12 by employers who pay quarterly, unless they make their payments electronically. This is also the latest date for paying any outstanding tax and NICs to the Accounts Office in respect of the 2007/08 tax year.

April 22 – For employers who pay their tax and NICs to the Accounts Office electronically, this is the deadline for electronic payments to be cleared into the HMRC bank account. Payments through BACS must be initiated by April 18 at the latest.

May 3 – This is the date by which any changes to the provision of company cars in the three months to April 5 must be reported using form P46(Car).

May 5 – This is the final day of tax month 1. Tax and NICs etc for payments made in the tax month to May 5 are due for payment to the Accounts Office by May 19, or by May 22 if paid electronically.

Payroll FAQ's

Subscriptions and Membership Fees

How should payment by the employer of employees’ professional subscriptions be reported on form P11D?

The payment of an employee’s professional subscription or membership fees is a benefit in kind that must be reported on form P11D. It is, however, possible for an employer to obtain a dispensation if certain conditions are met.

Where membership is obtained by the employer
If the membership is obtained by the employer (i.e. the employer is invoiced for the subscription, not the employee), the cost incurred by the employer is reported in Section M Other items, on the Class 1A NICs line. The employer must pay Class 1A NICs on the payment.

However, if the employer is aware that the employee is entitled to a fully matching deduction from earnings, i.e. can claim tax relief in full for the amount reported, (see below), the employer may reduce the liability for Class 1A NICs on the subscription payment by using the adjustment facility in section 4 of the P11D(b) Return of Class 1A NICs.

There is no reportable benefit for a lower-paid employee, i.e. an employee with an earnings rate of less than £8,500, including the value of benefits and expenses.

Where membership is personal to the employee
If the employee is personally invoiced for the subscription and the employer pays the bill direct to the professional body, the amount of the payment is reported on form P11D in Section B Payments made on behalf of the employee or, if relevant, on form P9D in Section A(2) Any other payments or benefits. Class 1 NICs are due on the payment and the employer must add the payment to the employee’s gross pay (for NICs only) in the earnings period in which the bill is paid.

If the employee pays the subscription, the employer reimburses the employee and the payment does not qualify for tax relief, the payment is not reported on form P11D but is taxed through the payroll. The employer must calculate the “grossed-up” value of the payment, i.e. the amount which, after deducting tax and NICs at the employees’ rates, gives the amount that was reimbursed. This grossed-up up value is added to gross pay for both PAYE and Class 1 NICs in the pay period in which the reimbursement is made.
If the employer reimburses the employee and, as explained below, the payment qualifies for a fully matching deduction from earnings, the payment should not be made through the payroll. It is treated as a normal business-related expenses payment and reported in section N Expenses payments made to, or on behalf of, the employee. There is no P9D reporting requirement in this situation and no Class 1 NICs liabilities to consider.

Claiming a deduction from earnings
If the benefit has been reported on form P11D, the employee may claim a deduction from earnings (i.e. claim tax relief against the amount reported) if

In the first situation, the legislation lists the many professions that may not be practiced unless the employee is registered, certified or licensed. Examples are doctors, solicitors, architects, teachers, air traffic controllers, drivers of heavy goods vehicles, etc.
In the second situation, many professional Institutes have been approved by HMRC. They include the Chartered Institute of Personnel and Development (CIPD) and the Institute of Payroll Professionals (IPP).

The names of all of the professional bodies covered by the two situations above are listed in List 3, available at www.hmrc.gov.uk/list3/list3.pdf.

Dispensation
An employer may be able to obtain a dispensation from the tax office if professional subscriptions are only ever paid in circumstances where the employee is able to claim a fully matching deduction from earnings. There is no reporting requirement if a dispensation applies. However, unless a dispensation for this purposes is held, the full reporting requirements, as described above for the various different situations, must be followed.

Employer FAQ – Directors’ National Insurance Contributions

How are NICs calculated for a director who is leaving the company mid-year?

The calculation of primary and secondary Class 1 NICs for company directors is the same as for employees in general, except that an annual earnings period is used. The effect on the director of applying an annual earnings period is that

For example, a director with monthly earnings of £5,400 would pay no NICs in month 1, would start paying NICs in month 2, would have paid the bulk of the NICs by month 8, and pay only the 1% NICs for the rest of the tax year.

If the director’s NICs have been calculated using an annual earnings period, nothing special need be done when a director leaves part way through a tax year.

However, if a director is paid using a regular earnings period, e.g. the annual salary is paid in equal monthly instalments, and has earnings of at least the lower earnings limit, the primary and secondary NICs may be calculated using a normal earnings period, e.g. monthly, as used for employees in general. This is achieved, in a computerised payroll, by removing the “director” indicator for the employee. The director must have agreed to this method of assessment. Even if this alternative method is used, the director continues, in principle, to have NICs liabilities based on an annual earning period. Consequently, by the end of the tax year, the total NICs for the year must be as much as if the annual earnings period had been used.

Therefore, if the alternative method is used, the NICs due on the final payment of earnings for November must be calculated using an annual earnings period. In a computerised payroll system, this is achieved by resetting the “director” indicator for the employee for that last payment. The result of this will be that the director pays, in one go, all of the NICs that would otherwise have been due if an annual earnings period had been used for the tax year to November.

If the director’s final payments are not enough to cover the primary NICs that are due, the remainder must be paid by the employer.

The following example, based on the situation of a director with monthly earnings of £5,400, illustrates the situation. NICs Table Letter A is used. The director is leaving at the end of November 2008.

	Director’s primary NICs using Annual Earnings Period	Director’s primary NICs using Monthly Earnings Period
Month 1	0.00	337.87
Month 2	590.15	337.87
Month 3	594.00	337.87
Month 4	594.00	337.87
Month 5	594.00	337.87
Month 6	594.00	337.87
Month 7	594.00	337.87
Month 8	278.00	*1473.06
Total for year	3838.15	3838.15

Northern Ireland Agricultural Wages

Wages Board confirms new minimum wage rates