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Last Minute Special Offers
Below are some reduced price courses only available to our newsletter readers:
Date |
Course Title |
Venue |
Normal Price** |
Last Minute Price* |
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19 Feb |
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GATWICK |
£377 |
£277 |
£100 |
20 Feb |
|
GATWICK |
£377 |
£277 |
£100 |
21 Feb |
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GATWICK |
£377 |
£277 |
£100 |
26 Feb |
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BIRMINGHAM |
£377 |
£277 |
£100 |
27 Feb |
|
BIRMINGHAM |
£377 |
£277 |
£100 |
28 Feb |
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BIRMINGHAM |
£377 |
£277 |
£100 |
*Please call the office on 01295 225500 to book these courses.
** Normal online price. |
| Annual HR & Payroll Conference 2007 - Tenerife |
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HRD & Payroll Solutions are proud to present their 13th Annual HR and Payroll Conference 2007, a range of high quality Payroll and HR modules all designed to impart the maximum amount of skill and knowledge in a relaxed and friendly environment.
Conference Dates - Fri 2nd March - Tue 6th March 2007 - £1497
Hurry as there are still a few places availabe - For more information click here. |
News Items – at 13th February 2007
Following the introduction of new advisory fuel rates from 1 February 2007, as reported in last week’s newsletter, HMRC has announced that employers may continue to use the previous rates until the end of February if they have practical difficulties implementing the new lower rates in time.
As a result, employers do not have to take account of the income tax, NICs and VAT implications of paying allowances at the previous higher rates. The concession also applies to employers with dispensations for fuel rates that are linked, usually by a formula, to advisory fuel rates. The new lower rates may, however, be used from 1 February in the reverse situation, where employees with fuel cards reimburse their employers for private fuel bought with a company fuel card.
According to an announcement by the Chartered Institute of Taxation (CIOT), this adjustment was introduced in response to representations from the CIOT and the Institute of Payroll Professionals (IPP). The CIOT’s announcement also indicates that HMRC intends to consult with representative bodies regarding how future changes in rates will be introduced. It has been suggested that rates be adjusted in line with fuel costs on fixed dates each year, such as 1 February and 1 August each year, to coincide with the usual months of stable oil prices. However, HMRC would be willing to discuss alternative dates as part of the consultation process.
Further information:
Company Cars - Advisory Fuel Rates for Company Cars from 1 February 2007 http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
Change in Advisory Fuel Rates: continuance of old rates in February 2007 http://www.tax.org.uk/showarticle.pl?id=5229
In its decision in the case Forest Mere Lodges v Watt and Cameron, given on 6 February 2007, the London Employment Appeal Tribunal (EAT) rejected an appeal against the findings of an employment tribunal that two labourers were employees, and therefore entitled to make a claim for unfair dismissal.
The contractor, Forest Mere Lodges, had treated the labourers as self-employed. They both held CIS4 subcontractor certificates and, following normal construction industry rules, 18% tax on account was deducted from payments made to them. Despite this, the employment tribunal decided that Mr. Watt and Mr. Cameron were employees. In so doing, the tribunal had applied the principles set out in the case Hall (Inspector of Taxes) v. Lorimer. According to that 1994 decision of the Court of Appeal, the approach that should be taken in deciding whether an individual is an employee or self-employed is one of “picture painting”, namely standing back and looking at the overall effect of the evidence rather than mechanically applying a checklist.
The tribunal had considered a number of factors, some of which indicated employment, some of which indicated self-employment. The EAT’s decision was that the employment tribunal had given “clear and cogent reasons why they reached the decision they did” and had properly weighed up the factors on either side of the argument.
Although relevant to all employers that make use of contract labour, this decision should be reviewed carefully by contractors preparing for the introduction of the new construction industry scheme from April 2007. The new monthly return requires contractors to confirm that they have checked the employment status of all of their workers. The EAT decision highlights many of the key issues that are involved in checking employment status.
The EAT also gave approval to one particular point made in the employment tribunal’s decision, namely that employment rights such as whether or not a worker has been issued with a statement of employment particulars or given holiday pay are not relevant to the employment status decision. Once the decision has been made that a worker is an employee, using all of the different factors relating to the job, the employer must provide all of the necessary employment rights. But the fact that those rights are not provided does not indicate that a worker is self-employed.
Further information:
Forest Mere Lodges Ltd v Watt and Camerson http://www.bailii.org/uk/cases/UKEAT/2007/0426_06_0602.html
It is not compulsory for employers, when filing year-end returns by paper, to complete columns 1a to 1c for NICs table letters B and C, or to complete column 1e for table letter C. However, when e-filing, all columns have to be completed.
From April 2007, even though it will still not be compulsory for paper returns, the NICs tables will reflect the e-filing position and instruct employers to complete all NICs columns for all table letters on forms P11 and P14. HMRC’s intention is to provide a single instruction so that year-end returns can be filed successfully, whatever medium is used for filing.
Further information:
NIC tables – changes to category B and category C tables from April 2007 http://www.hmrc.gov.uk/employers/nic-tables.htm
From April 2007, managed service companies (MSCs), i.e. composite companies and managed personal service companies, will no longer fall within the IR35 legislation but will be required to operate PAYE and NICs on payments made to workers, as if they were the employer.
Among the issues raised in HMRC’s document Tackling Managed Service Companies was the ability of MSCs to avoid paying assessments of tax and NICs by closing down the company and moving the workers to a new MSC. In a new document, Managed Service Companies – Transfer of Pay as You Earn and national insurance contributions debts, HMRC illustrates the problem of collecting tax and NICs debts with an example drawn from its compliance activity.
“Several composite companies, administered by an MSC scheme provider, were reviewed by HMRC. The review raised concerns about the application of the Intermediaries legislation and established that further tax and NICs were due. The MSC scheme provider set up a new set of composite companies. The composite companies under review ceased to trade on a Friday, the new composite companies took on the workers the following Monday, and the workers continued as if nothing had happened. Because of their lack of assets, HMRC was unable to collect the tax and NICs due from the old composite companies. Composite companies are separate legal entities making it impossible for the liability of the company to be transferred to the MSC scheme provider or the workers.”
HMRC’s new document describes the operation of new draft legislation that, where HMRC makes an assessment of tax and NICs that should have been deducted by the MSC from payments made to an individual, will allow the debt to be collected from a third party. Such third parties are defined as
- a director or other office-holder, or an associate, of the MSC,
- the scheme provider,
- a person who (directly or indirectly) has encouraged, facilitated or otherwise been involved in the provision by the MSC of the services of the individual, and
- a director or other office-holder, or an associate, of a person within paragraph (b) or (c).
The wording at point (c) would bring into the scope of the legislation:
- an employment agency that advises workers approaching it for work to incorporate and tells them to use a particular scheme provider, but not an agency that simply provides a worker to an end client and that did not know and could reasonably not be expected to know the worker was operating through an MSC.
- an end client who told workers that they had no choice but to incorporate through an MSC or offered higher rates of pay to encourage workers to move to an MSC, but not an end client who used workers from an employment agency without knowing whether the workers were operating through MSCs.
- workers in an MSC who are aware that they are providing their services through the MSC.
However, professional advisers, such as accountants and lawyers, are excluded from the scope of the legislation.
Only if the debt cannot be recovered from the MSC will HMRC move to issue a Transfer Notice against a third party – initially those listed at point (a) or (b) above. Only if it is either impossible or impracticable to recover from those parties will the debt be transferred to those at point (c). The legislation sets time limits for transfers and provides an appeal procedure.
Interested parties are invited to comment on the draft legislation.
Further information:
Managed Service Companies – Transfer Of Pay As You Earn And NICs Debts http://www.hmtreasury.gov.uk/media/A10/65/managedservice
companies080207_pu185.pdf
The latest issue of HMRC’s Notes for Payroll Software Developers announces changes that are to be made to forms P45, P46 and pension notifications and to related procedures in advance of the start of compulsory electronic filing in April 2008.
In these notes:
- form P45(1) is the first page of the P45 set that an employer completes when an employee leaves
- form P45(3) is the third page of the P45 set that an employer completes for a new employee.
P46 procedures
A new version of form P46 Employee Without a Form P45 came into use from April 2006. Some issues with the procedures for using the new form have been identified and a change will be introduced from April 2008.
When a form P45(3) is not provided, the new employee will not necessarily have to complete form P46. Employers who file online may use their own stationery or obtain the information online. It will be up to employers to decide how to obtain, by whatever suitable means, the relevant information required by the P46 and, if needed for their own purposes, the employee’s signature.
For example, the details could be obtained during recruitment. Many employers, when offering an individual a job, ask the employee to provide information such as bank details, NI number and date of birth. It will be acceptable, from April 2008, for employers to ask for the additional information that would otherwise be provided on form P46, i.e. the employee’s “present circumstances” and whether or not a student loan is being repaid.
It will also be acceptable for the information to be sent electronically from the new employee direct to the payroll office as long as there is an adequate audit trail, i.e.
evidence that the email originated from the employee’s personal email account, or
a secure password-protected access to the employer’s intranet.
Alternatively, the local manager could obtain and transmit the information by email to the payroll office, with records kept to demonstrate that the employee initially provided the details and an audit trail recorded for the email.
Default tax code
When a new employee fails to provide the necessary P46 information, tax code BR (cumulative) must be operated. With the introduction of compulsory in-year filing, it will still be a requirement for employers to submit the P46 details when the employee is paid for the first time. If, at that time, the employee has not provided the P46 details, the employer will nevertheless
- complete both sections 1 and 2 of the P46 online
- in section 1, provide the employee’s name, NI number, date of birth, gender and address
- in section 1, tick box C in the “present circumstances” section
- in section 2, any other employee information that is available
- in section 2, indicate that tax code BR is being used.
Pension notifications
It was expected that the existing electronic PENNOT document would be used for all pension notifications from April 2008. However, when an individual, irrespective of age, starts to receive a pension, the pension provider or employer will be required to file either a P45(3), if that is available, or a new form P46(Pen). This new form will replace the existing pension notification forms P46, P160 and PENNOT. A paper version of the form will be available for the use of small pension providers/employers.
Date of birth
Although a default date of birth, in the format 01011901, is acceptable on form P14, it will not be accepted on forms P45(1), P45(3), P46 and P46(Pen). Its use would indicate that the employee is over state pension age and that no employee NICs are to be deducted.
It will be necessary, therefore, to obtain the date of birth of a new employee or pensioner in every case and procedures should be in place before April 2008 to ensure that the information is available at the right time.
There should be no age discrimination issues as a result of requesting and recording dates of birth for statutory purposes, although HMRC recommends that, where relevant, employees are informed that their pay is being processed by a particular agent or bureau.
Student loan indicator
Only the electronic versions of forms P45(3) and P46 currently include the student loan indicator. From April 2008, the indicator will also appear on the electronic version of form P45(1).
Validations
HMRC has asked software developers to consider making changes to the way code NI is used for tax purposes and code X is used for NICs purposes.
Code NI is not a valid tax code and, if it appears on electronic forms P45(1), P45(3) or P46, the whole batch of data will be rejected. Although HMRC is not concerned if ‘NI’ is used internally, developers are asked to agree with their clients alternative ways of identifying employees for whom only NICs are calculated, in order to avoid future data rejection problems. Form P45(1) should not be issued for employees for whom only NICs are being deducted.
For NICs purposes, table letter X is acceptable on all electronic forms. However, as the table letter is carried forward from one tax year to the next, developers have been asked to amend their software so that employers check each year whether it still applies.
Other changes
- Current PAYE procedures require the employer to apply the information from a P45(3) received after a P46 has been submitted (unless a P6 has been received in the meantime) and then to destroy the P45(3). From April 2008, large or medium-sized employers will be required to submit the P45(3) as well, with the effect that the employer will have sent two sets of starter information for the same employee.
- Forms filed electronically from 6 April 2008 will have to be in the new 2008/09 format even if the starter/leaver dates fall in the 2007/08 tax year. For example, the details for an employee starting during March 2008 would have to meet the 2008/09 validations if filed on or after 6 April 2008.
- Two fields that currently appear only on the paper forms will be added to the electronic versions:
- P45(3) – item 12 ‘Enter code in use if different to code at item 6’ – used if the employer uses a tax code different to that entered by the previous employer
- P46 – section 2 ‘Tax code used’ – used if the employer uses a tax code different that indicated by boxes A, B or C.
- The electronic versions of forms do not allow “free-hand” messages to be sent. However, no guidance has yet been provided as to how supporting information should be sent.
- Currently, as permitted by PAYE rules, an employer is not required to submit a P46 for employees who tick box A or B on the P46 and whose earnings are below the Earnings Threshold until, in a particular earnings period, the threshold is exceeded. From April 2008, an employer will be required to submit a P46 when the employee’s earnings first exceed the Lower Earnings Limit in a particular earnings period. (Note that most employers with computerised payroll systems ignore this procedure and submit every completed P46.)
- All of the changes to the electronic versions of form P45 will be reflected in the paper versions. As a result, an updated P45 will come into use from April 2008 and will require employers to provide the employee’s date of birth and gender.
Further information:
Notes for Payroll Software Developers – Supplementary Edition http://www.hmrc.gov.uk/comp/notes-10-33.pdf
For the 2007/08 tax year, employers will be required to enter the employee’s date of birth and gender on form P11D if the employee’s NI number is not known. The 2006/07 version of the form also asks for this information but completing it is not mandatory. As the inclusion of date of birth and gender on the 2006/07 form was a late change of design, some developers were unable to include the fields on their substitute forms. HMRC is approving substitute forms without the fields and will accept returns that do not provide the information.
Further information:
Notes for Payroll Software Developers – Supplementary Edition http://www.hmrc.gov.uk/comp/notes-10-33.pdf
From April 2008, the 42-day lead time for the application of a student loan SL1 start notice and SL2 stop notice will be removed. Instead, the start or stop date will be the date of issue as printed on the notice and employers will be required to start or stop deductions on the first payday after that date. As the payroll for the next payday may be closed when a start or stop notice is received, it will be acceptable for it to be applied from the next available payday.
Further information:
Notes for Payroll Software Developers – Supplementary Edition http://www.hmrc.gov.uk/comp/notes-10-33.pdf
Payroll deadlines during the next month
February 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.
February 22 – 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 February 20 at the latest.
March 5 – This is the final day of tax month 11. Tax and NICs etc. for payments made in the tax month to March 5 are due for payment to the Accounts Office by March 19, or by March 22 if paid electronically.
Payroll Tip
Determining the employment status of individuals is problematic for employers. Confusingly, there are three distinct situations, each with its own set of rules.
- Who is an “employee” for employment income (including PAYE) purposes? The Income Tax (Earnings and Pensions) Act 2003 (s.4) states that “employment” includes employment under a contract of service, under a contract of apprenticeship, and in the service of the Crown. Office-holders, agency workers and workers supplied by intermediaries, despite not working under contracts of service, are treated as being in employment for this purpose (s.5 and ss.44-61). An “employee” is a person in such employment.
There is no statutory definition of “contract of service”. According to case law, the existence of a contract of service depends on whether two critical factors are present in the relationship between an individual and an employer, namely:
- “mutuality of obligation”, i.e. under the terms of the contract the individual is required to perform work and the employer is required to pay for that work, and
- the “degree of control” exercised by the employer over the individual’s work.
In practice, those factors are very difficult to apply in specific cases. According to the Court of Appeal in the case Hall (Inspector of Taxes) v. Lorimer (1994), “an approach which suits the facts and arguments of one case may be unhelpful in another. This is not a mechanical exercise of running through items on a checklist to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole”. This “picture-painting” approach is difficult for employers to take, particularly when evaluating the employment status of contractors, i.e. should they be treated for PAYE purposes as employees or as self-employed?
- Who is an “employee” for employment rights purposes? The definition of “employee” for rights such as a written statement of employment particulars, an itemised payslip, guarantee payments, maternity/paternity/adoption/parental leave, notice of termination, dismissal and redundancy, is provided in the Employment Rights Act 1996 (s.230).
An “employee” in this situation is “an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment”. A “contract of employment” is further defined as “a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing”, creating an overlap with the Situation 1, above.
Agency workers, who do not by definition work under a contract of service because the mutuality and control requirements are not both met by either the employer or the agency, are not employees for these employment rights. However, a minority of agency workers have contracts of employment with the agency that supplies them and, as a result, are entitled to these rights.
- Who is a “worker” for employment rights purposes? Rights such as protection of wages, statutory holiday pay, national minimum wage and flexible working are available to “workers”, not just to “employees”. The definition of “worker” is set out in the Employment Rights Act 1996 (s.230) and in various other related Acts that govern these rights.
A “worker” is
- an “employee” as explained in Situation 2, above, or
- an individual who works under “any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”.
This rather convoluted definition means, firstly, that an individual who runs a business and does work for customers and clients of that business, i.e. a self-employed person with an established business, is not a “worker”. Secondly, it means that an individual who works for an employer but is not set up as a business, i.e. a self-employed contractor, is a “worker” and entitled to all of the relevant employment rights. For example, many employment tribunals have recently awarded unpaid holiday pay to self-employed contractors who have extended contracts with employers.
Agency workers, although they do not normally meet the definitions of a “worker” are nevertheless specifically brought into the scope of some of these rights, in particular, those set out in the Working Time Regulations 1998 and the National Minimum Wage Act 1998.
These three different situations that govern tax liabilities and employment rights can create serious difficulties for employers. Although many employees fall into all three situations, some individuals fall into only one or two situations. For example:
- An individual who genuinely runs a self-employed business is not a worker (Situation 3) but may need to be treated by an employer as an employee for Situations 1 and 2 where the working relationship under a particular contract indicates that it is a contract of service.
- Agency workers are paid under PAYE (Situation 1) but are not normally entitled to the rights under Situation 2. They are, however, entitled to some of the key rights under Situation 3.
- Self-employed contractors who work under a single contract may or may not be employees for Situations 1 and 2, depending on whether the working relationship under a particular contract indicates that it is a contract of service. Even if they are treated as self-employed for Situations 1 and 2, they are nevertheless likely to be workers under Situation 3 and thus entitled to holiday pay and some other benefits.
At a news conference on 11 February, Micheál Martin, the Minister for Enterprise, Trade and Employment, confirmed that Labour Inspectors are to be placed in regional centres across the country in an effort to ensure the rights of workers are protected in every region. Inspectors will be based in Dublin, Cork, Shannon and Sligo as well as the new head office for the Employment Rights Authority in Carlow. The number of inspectors in the process of being increased by 200% to 90.
Details of the first Bill to give effect to the Government’s employment rights commitment, the Protection of Employment (Exceptional Collective Redundancies) Bill have also been outlined. The Bill provides for the establishment of a Redundancy Panel, drawn from the social partners, which can request the Minister to refer cases of dismissals to the Labour Court for an opinion as to whether or not they are genuine redundancies. Based on that opinion the Minister may refuse to pay a redundancy rebate. There are also other provisions in the Bill, including abolishing the upper age limit of 66 for qualifying for statutory redundancy.
Further information:
New Era for Workers Rights http://www.entemp.ie/press/2007/20070211.htm
Readers Newsletter Forum
If you have any HR or payroll related questions that you think other people who receive this newsletter will be able to answer, please email us and we will add your question to our newsletter.
An area dedicated to readers of the newsletter to enable you to:
- share your comments or views on anything in the newsletter
- to ask a question of other readers, or the tutor team
- to relate a humorous event or story related to HR or payroll
- to provide a useful tip, or seek advice on a software problem
- or maybe to simply provide recruitment information
contact: daniel.ruffle@hrdps.co.uk or reg@hrdps.co.uk
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