News Items – at 10th October 2007

Pre-Budget Statement

Headline announcements

The Chancellor presented his 2007 Pre-Budget Report (PBR) to Parliament on 9 October 2007.  Most of the matters relevant to Payroll and HR were set out in supporting documents and press releases issued at the time.  However, as the date of the PBR preceded the publication of the September 2007 Retail Price Index (RPI), no announcement was made about the annual statutory increases to NICs thresholds, tax allowances and statutory payments.  The September RPI is due to be published on 16 October 2007.

Other payroll-related announcements, in brief, were as follows.

• From April 2009, contracted-out rebates will be be paid on earnings between the LEL and a new Upper Accrual Point (UAP), the first step towards the introduction of a flat rate State Second Pension.  This change will require a new band of earnings to be recorded for each earnings period.     
• The exemption from NICs of holiday pay paid via a third party is to be removed for all sectors outside the construction industry, and for the construction industry after five years.
• The Government has ruled out closer alignment of the PAYE and NICs by collecting NICs cumulatively.
• A consultation document will be issued in November 2007 on how best to introduce a system to tax benefits in kind and expenses through the payroll.
• The fixed figure on which the car fuel benefit is based will increase from £14,400 to £16,900 from April 2008.

A detailed reviews of these matters will be provided in next week's newsletter.  The Pre-Budget Statement and the associated documents are available on the Treasury and HMRC websites.

New Statutory Holiday Pay Entitlements

Acas publishes updated guidance

Acas has updated its advice leaflet Holidays and holiday pay and it now includes practical advice for employers on how to apply the increase in statutory entitlement that applies from 1 October 2007.  For example,

• the need to advise all affected workers of their new entitlements (note that this does not apply to workers whose entitlement is already 4.8 weeks or more)
• how to calculate holiday entitlements for workers who only work during term time
• how to calculate entitlements for holiday years that start before 1 October 2007
• handling part-day entitlements by
  • taking the part-day off a day's shift, e.g. by allowing the worker to leave early or come in late
  • rounding the time up to the nearest full day (but not down)
  • paying the worker for the part-day owed
  • allowing the part day to be carried over to the next leave year
  • paying in lieu of some or all of the additional days or part days introduced from 1 October 2007 (only permitted until 1 April 2009).

Further information:
Holidays and holiday pay  http://www.acas.org.uk/index.aspx?articleid=806

National Minimum Wage in the Hotel Sector

DBERR publishes guidance for both employers and workers

The Department for Business, Enterprise and Regulatory Reform (DBERR) has published separate guidance booklets explaining the application of the National Minimum Wage (NMW) rules for the benefit of employers and workers.  They include examples covering the provision of clothing, accommodation and meals, the payment of tips, and payment by output, e.g. by the number of rooms cleaned.  The booklets also provide a number of common scenarios in the hotel sector to help employers and workers determine whether the NMW rules apply.

Further information:
The national minimum wage and hotel sector: a guide for workers
http://www.berr.gov.uk/files/file41546.pdf
The national minimum wage and the hotel sector: a guide for employers
http://www.berr.gov.uk/files/file41467.pdf

2006/07 Payroll Year-End Returns

Some penalty notices issued in error

HMRC began to send out interim penalty notices to employers that have not yet filed their P14, P35 or CIS36 returns for 2007/08 on 24 September.  Appeals against penalties must be made within 30 days to the office shown on the notice.

Subsequently, HMRC apologised for issuing some penalty notices for late filing of payroll year-end returns P14 and P35 to some employers.  The situation is being investigated and a further announcement is to be made within a week.

Penalties are only due where HMRC's records show that returns were not received by 28 May 2007.  Employers and agents are advised not to contact HMRC at present if they know that their returns were filed before this date as it should be possible to identify the penalty notices that have been issued in error and cancel them.

Further information:
2006-07 Employer Annual Returns: Interim Penalties for outstanding Returns
http://www.hmrc.gov.uk/employers/interim-penalties.htm
PAYE: 2006-07 Penalties for Outstanding PAYE Returns  http://www.hmrc.gov.uk/employers/2006penalties.htm

Reporting Car and Fuel Benefits

Error identified in booklet CA33(2007)

There is an error in the paper and CD-ROM versions of booklet CA33(2007) National Insurance contributions on Car and Fuel Benefits.  The error has already been corrected in the Internet version of the booklet.

The ready reckoner on page 14 of the booklet provides car benefit percentage charges for cars first registered on or after 1 January 1998 depending on their CO2  emissions figures.  The entry for CO2  emissions of 170 g/km incorrectly gives 20% for tax years 2005/06 to 2007/08 and 21% for tax years 2008/09 onwards.  The entries should read 21% for 2005/06 to 2007/08 and 22% for 2008/09 onwards.

Employers who have used the incorrect table to prepare their P11D returns for 2006/07 in respect of cars with CO2 emissions of between 170 and 174 should write to their local tax office about the incorrect return and provide the correct car benefit and fuel benefit figures for the cars involved.

Further information:
Error in booklet CA33(2007) Class 1A National Insurance contributions on Car and Fuel Benefits  http://www.hmrc.gov.uk/news/error-ca33.htm

CIS Monthly Returns

Penalties to be imposed for late returns from October

Although the new Construction Industry Scheme was introduced on 6 April 2007, the penalty regime was deferred for 6 months to allow contractors to become familiar with the requirements of the new scheme, in particular, the need to submit returns on a monthly basis. To avoid becoming liable for a penalty, all returns due since April 2007 must be received by HMRC by 19 October.

From 19 October, HMRC will start to charge penalties for all CIS monthly returns not received by the due date, i.e. the 19th of every month.  This includes returns, including nil returns, that should have been filed between May and September 2007.  The late filing penalty is a fixed penalty of £100, plus £100 for every 50 subcontractors beyond the first 50.  For example:

The penalty is charged for each month that a return has not been received.  So, if the return due on 19 September 2007 is not received by 19 October 2007, penalties will be incurred for both September and October.

HMRC's statistics show that many contractors have either regularly been later in filing or not filed at all.  The following Table gives provisional figures as at 20 September 2007.

The New CIS Helpline telephone number is 0845 366 7899 and lines are open 8am to 8pm Monday to Sunday.

Further information:
HMRC warn of CIS penalties  https://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=319785&NewsAreaID=2

P11D and MARORS Returns for 2007/08

Magnetic media technical specification published

HMRC has published the EEC1 technical specification document for filing 2007/08 P11D and Mileage Allowance Optional Reporting Scheme (MARORS) returns by magnetic media.

Further information:
EEC1 Expenses and Benefits Returns on Magnetic Media  http://www.hmrc.gov.uk/pdfs/eec1.pdf

In-year Online Filing

HMRC provides further guidance

Although the online filing of in-year PAYE forms is not mandatory for employers with 50 or more employees until April 2009, HMRC's systems will be ready to accept forms online from early April 2008.  HMRC's current schedule is for the live system to be tested by volunteer developers and employers on 6-8 April, for limited live use from 9 April and for full use from 14 April.  HMRC is encouraging developers that introduce full online filing facilities during 2008/09 to retain the option of printing P45(1) forms as a sensible contingency arrangement, in case of problems with Internet access or the availability of HMRC's systems.

The timetable for the changes that are to be made to the paper and online versions of forms P45 and P46 and to the online form PENNOT during 2008 and 2009 has become clearer following the publication of the latest issue  of  Notes for Payroll Software Developers.  The following schedule combines information that has already appeared in this newsletter and the additional details provided by HMRC.

Of particular interest is the introduction of a plain paper version of form P45.  From October 2008, employers  whose payroll software has been enhanced to provide the facility and who submit their returns online will be able to print parts 1A, 2 and 3 on plain A4 paper instead of on HMRC's official pre-printed stationery.

However, HMRC does not want to introduce the potential for inaccuracies when one employer transfers pay and tax details from the previous employer.  There will not, therefore, be any options for customising the P45, so the plain paper version and the pre-printed stationery will be identical in appearance.  As a result, employers will be able choose what format to use, pre-printed, plain paper, or a mixture of both.  HMRC's own online system will support both options but payroll system developers can decide whether or not to include the facility in their products.

With regard to providing P45s to employees electronically for them to print on plain paper, HMRC states that it is exploring options but, at present, online distribution will not be permitted, as is the case with form P60.

Further information:
Online Services - Notes for Payroll Software Developers
http://www.hmrc.gov.uk/comp/notes-11-1.pdf

End-of-Year Online Filing

Errors in 2006/07 returns

HMRC has announced that there was a further reduction in the number of PAYE P35 and P14 returns that were rejected for not meeting the Quality Standard, down from 5% for 2005/06 to 1.4% for 2006/07.  The majority of errors were caused by incorrect characters in fields and incorrect recording of NICs.  Payroll developers have been sent details of how their software performed.  Most of the errors listed by HMRC in the latest issue of Notes for Payroll Software Developers are validation issues and are matters for the developers themselves to address.  However, employers should also give attention to the following common errors:

• an incorrect Scheme Contracted Out Number (SCON), incorrectly copied from the employer's contracting-out certificate
• an incorrect PAYE reference number, including the three-digit office number with the employer reference
• using a cancelled PAYE reference number
• entering valid but incorrect characters, such as ‘O’ instead of ‘0’, ‘S’ instead of ‘5’, ‘Z’ instead of ‘2’
• forgetting the submission password
• adding additional information to the employee surname, such as “staff” or “temp”.

Further information:
Online Services - Notes for Payroll Software Developers http://www.hmrc.gov.uk/comp/notes-11-1.pdf

P38(S) Student Employees

Relaxation in rules for obtaining information from students

It was in 2005 that form P38(S) ceased to be a year-end return and employers were permitted to simply keep the student employee's signed statement as part of the the auditable payroll records.  HMRC has now announced that, subject to proper controls, employers may stop using the official form altogether and accept information provided electronically instead.

The conditions are:

• the P38(S) arrangement may not be used for term-time working
• information provided electronically by a new student employee must be exactly the same information as is required on form P38(S)
• the employer's procedures must be such that it is possible to demonstrate that it was the student employee, and no one else, who provided the information
• the employer must maintain an adequate audit trail and be able to make it available to HMRC in the event of a query or compliance visit.

Further information:
Online Services - Notes for Payroll Software Developers http://www.hmrc.gov.uk/comp/notes-11-1.pdf

Filing Timetable for Forms P45 and P46

HMRC clarifies PAYE procedures for starters

In the July 2007 issue of Notes for Payroll Software Developers, HMRC published a chart that described the new starter procedures that should be followed in a variety of different situations, such as when new employees provide a P45 that was issued in a previous tax year, or provide a current P45 after the employer has submitted a P46, or after the employer has processed a P6 coding notice.  We used that chart at the time to compile an Employer FAQ Filing Timetable for Forms P45 and P46 and it appeared in a newsletter at the end of July.

At the same time we wrote to HMRC with a number of issues that were raised by the chart, including our observation that nowhere in HMRC's guidance are employers instructed to ignore previous employer pay and tax figures on a P45 that was issued in a previous tax year.

HMRC recently replied to our questions and, as a result, the original chart has been updated and reproduced in the latest issue of Notes for Payroll Software Developers.  We have accordingly updated our Employer FAQ and the revised version is included with this newsletter.

Further information:

Payroll deadlines during the next month

October 19 – This is the deadline for payment of tax and NICs to the Accounts Office, for tax month 6 by employers who pay monthly, for tax months 4 to 6 by employers who pay quarterly, unless they make their payments electronically.

October 19 – This is the deadline for payment of tax and Class 1B NICs to the Accounts Office in respect of PAYE Settlement Agreements for the 2006/07 tax year, unless they make their payments electronically.

October 21 – For employers who pay their tax and NICs, including Class 1B 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 October 18 at the latest.

November 2 – This is the date by which any changes to the provision of company cars in the three months to October 5 must be reported using form P46(Car).

November 5 – This is the final day of tax month 7.  Tax and NICs etc. for payments made in the tax month to November 5 are due for payment to the Accounts Office by November 19, or by November 22 if paid electronically.

Payroll FAQ's

Filing Timetable for Forms P45 and P46

How and when should forms P45 and P46 be applied?

The following summary of the PAYE rules for the handling of forms P45 and P46 is based on revised guidance published by HMRC in the October 2007 issue of Notes for Payroll Software Developers.

1. P45(1) leaver information
Send to HMRC on the day the employment ceases or, if that is not practicable, without unreasonable delay. Submission on the employee’s final payday would be viewed as being made ‘without unreasonable delay’.

2. P45(3) starter information
Send to HMRC on the day of commencement. If not available, the P46 procedure should be followed.  Submission on the first payday would be viewed as being made 'without unreasonable delay'.  Where

• the previous employment ended in the current tax year – use tax code from P45(3) and, if the code is applied cumulatively, the taxable pay to date and tax deducted to date from the previous employment
• the employment starts on or before 24 May and previous employment ended in previous tax year – increase the tax code from the P45(3) in accord with the latest P9X/P7X instructions and use it on a cumulative basis, and ignore the pay and tax  figures from the previous employment
• the employment starts after 24 May and previous employment ended in any earlier year – use the Emergency tax code on a non-cumulative basis and ignore the pay and tax figures from the previous employment.

3. P46 completed by employee
Allocate the tax code according to the employee’s selection of statement A, B or C

• statement A ticked – use the Emergency tax code on a cumulative basis
• statement B ticked – use the Emergency tax code on a non-cumulative basis
• statement C ticked – use tax code BR on a cumulative basis

The employee must sign the form.  Send to HMRC when the first payment is made.

4. P46 completed (in effect) by employer
Where the form is not completed properly by the employee, or the employee fails to complete a form, use tax code BR on a cumulative basis.  Send to HMRC when the first payment is made.

5. P46 followed by P45(3)
If P46 not yet sent to HMRC, i.e. because pay not yet calculated using the P46 tax code, follow the P45(3) procedures described at point 2 above from the first payday, and send P45(3) to HMRC.

If P46 already sent to HMRC, i.e. because pay already calculated using the P46 tax code, and no P6 has yet been received from HMRC, follow the P45(3) procedures described at point 2 above from the next payday, and send P45(3) to HMRC.

6. P46 followed by P6, followed by P45(3)
Where P46 procedures followed and form sent to HMRC, the employer then receives a P6 coding notice.  Apply the tax code and previous pay and tax details from the P6.  If the employee then provides a P45(3), retain it but do not apply it.

7. Employer completes P46, employee completes P46, employee provides P45(3)
Where the employer (in effect) completes the P46, applies tax code BR and sends it to HMRC, the employee then completes a P46.  If the tax code from the new P46 is

• cumulative, apply it retrospectively from the commencement date, and send the new P46 to HMRC
• non-cumulative, apply it from the next payday and send the P46 to HMRC.

If the employee then provides a P45(3) and no P6 has yet been received from HMRC, follow the P45(3) procedures described at point 2 above from the next payday, and send P45(3) to HMRC.

8. Employee provides more than one P45(3)
Use the P45(3) with the most recent date.  If the forms show similar dates for the same employment or the employee provides an additional P45(3) after the earlier P45(3) has been applied and sent to HMRC, contact the employer’s tax office for guidance.

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