News Items – at 11th September 2007

HMRC Podcasts

Two new interviews released

HMRC was one of the first Government departments to launch a podcast service.  The two previous podcasts covered employers' end-of-year PAYE filing and HMRC's new relationship with tax agents.

The latest podcasts to go live are

• an interview with HMRC Chairman, Paul Gray, commenting on HMRC’s online services and the improvements that are still needed, and
• an interview with Dave Hartnett, HMRC's Director General (Business), answering questions raised by tax agents on a wide range of subjects, including VAT registration delays, the restructuring of HMRC, and the difference between acceptable and unacceptable tax avoidance.

The new and earlier podcasts can be downloaded from HMRC's podcast page.  Also available is a free podcast feed which delivers new podcasts to subscribers’ computers when they are online.

Further information:
New HMRC Podcasts go live today  https://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=311847&NewsAreaID=2

Payroll deadlines during the next month

September 19 – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.

September 21 – (September 22 is a Saturday) – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account.  Payments through BACS must be initiated by September 19 at the latest.

October 5 – This is the final day of tax month 6.  Tax and NICs etc for payments made in the tax month to October 5, or in the tax quarter to October 5, are due for payment to the Accounts Office by October 19, or by October 22 if paid electronically.

Payroll FAQ's

Applying the P45 Tax Code

How do we decide which tax code to use from form P45?

One of the basic principles of PAYE is that, when an employee moves from one employer to another, the tax code used by the previous employer is also used by the new employer.  However, that is not always possible.

Form P45 is a four-part document that is completed by an employer when an employee leaves.  The version of the form that is designed to be completed manually is only partially carbonised, in order to transfer only relevant details to the different parts.  Part 1 is sent by the former employer to that employer’s tax office.  The remaining three parts are given to the employee.

Part 1A is for the employee to keep and use, if necessary, for completing a tax return.
The employee gives Parts 2 and 3 to the new employer.  Part 2 is kept as part of the new employer’s records and Part 3 is completed by the new employer and sent to that employer’s tax office.

When a new employee provides Parts 2 and 3 of a P45, the new employer has to decide which tax code to use.  Unless one of the situations described below applies, the new employer should simply use the tax code that the previous employer has entered on the P45 at item 6.  If the P45 shows an ‘X’ against the tax code, the new employer must apply the tax code on a W1/M1 basis.

There are two situations where the new employer has to use a different tax code to that used in the previous employment:

1. where the P45 was issued by the previous employer in a tax year prior to the current tax year, or
2. where changes have to be made to tax codes as a result of Budget announcements in March or April.

P45 issued in an earlier tax year

Increases to tax codes, to reflect the annual increase in tax allowances, normally take effect from 6 April each year.  In the case of tax codes ending in ‘L’, the increase to the tax code is applied by the employer, following instructions provided in advance by HMRC on form P9X  and in Helpbook E12 (found on the Employer CD-ROM issued to employers in February each year).  For example, from 6 April 2007, all ‘L’ tax codes were increased by 19 points, e.g. from 503L to 522L, 339L to 358L, etc.  Tax codes ending in a letter other than ‘L’ are changed individually by HMRC by sending P9 coding notices to the employer.

With that understanding in mind,

• if an employee starts on or after 6 April and presents a P45 for a tax year earlier than the previous year (e.g. the current tax year is 2007/08 and the leaving date on the P45 is before 6 April 2006), the Emergency code (522L for 2007/08) must be used, on a W1/M1 basis.
• if an employee starts up to 24 May and presents a P45 for the previous year (e.g. the current tax year is 2007/08 and the leaving date on the P45 falls within the 2006/07 tax year), the code shown may be used, after applying the adjustment described above if it is an ‘L’ tax code.  Any W1/M1 indicator should be ignored.
• if an employee starts after 24 May and presents a P45 for the previous year, the Emergency code (522L for 2007/08) must be used, on a W1/M1 basis.

Tax code changes caused by Budget announcements

In some years, further adjustments to tax codes may be required as a result of Budget announcements.  This would, as a result, affect any P45s issued by the previous employer between the start of the tax year and the date on which the Budget changes are implemented, generally the first payday on or after 18 May.  If this situation arises, full directions of the special procedures to be followed are provided by HMRC on form P7X and in any reissued Helpbook E12 (found on the Employer CD-ROM issued to employers after the annual Budget).

GUERNSEY

Benefit and Contribution Rates for 2008

Large contribution increases for high earners and employers

Pensions and other contributory benefits will be increasing by 6% from next January if the States of Guernsey approves the Social Security Department’s recommendations. Supplementary benefit, family allowances and other taxation-funded benefits will go up by 4.7%, which is the most recent RPI figure.

Single pensioners will get an extra £9.25 per week, with a full rate pension increasing from £151.50 to £160.75.  Pensioner couples will get an extra £13.75 per week, increasing their joint pensions to £241.25.

Family allowances will increase from £13.20 per week per child to £13.85, and prescription charges will increase by 10p, to £2.70 per item from 1 January 2008.
High earners and their employers will see big increases in their Social Security contributions from January, as a key part of the zero-10 Fiscal and Economic Strategy takes effect.

Social Security are recommending that the upper earnings cap for contributions should go up from £53,664 per year to £64,896 per year.  That will mean self-employed people with earnings of £65,000 or more paying an extra £1,179 in contributions.  An employed person earning £65,000 or more will pay an extra £680 per year.  A non-employed person under 65 with income over £65,000 will pay an extra £1,112 in contributions and a non-employed person over 65 will pay up to £292 per year more in contributions.

There are bigger increases in store for employers.  Their contribution rate will increase from 5.5% to 6.5% of employees’ earnings and the upper earnings limit for employers will increase from £53,664 to £108,108.  So the maximum amount payable by an employer will increase from £2,952 per year in 2007 to £7,027 per year in 2008.

Further information:

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