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News Items – at 16th April 2008
HMRC has asked employers not to send any PENNOTs (new starter pension information) via the Internet because they cannot currently be processed. The problem does not affect EDI submissions. It is expected that the problem will be resolved by the end of April. In the meantime, the equivalent paper versions can be sent, as follows:
- where a new pensioner moves from employment to pension with the same employer, send paper form P160
- otherwise, where the new pensioner starts receiving a pension, the pension provider should send a paper P45 or P46 as appropriate.
Further information:
Employers: what to do if you need to send us a PENNOT http://www.hmrc.gov.uk/inyear/index.htm
HMRC provides packs of test data to enable payroll system developers to check that their software works accurately. Developers whose systems are accredited under either the Payroll Standard or the Pensioner Payroll Standard also use the tests to ensure that they continue to comply with the relevant Standard.
However, as employers - not developers - are responsible in law for the accuracy of their tax, NICs and statutory payment calculations, HMRC's test data is also a useful tool for employers to use to check, especially at the start of each new tax year, that their payroll system update for the new tax year continues to give accurate results across a range of different payment situations.
All four volumes of HMRC's test data for the 2008/09 tax year have now been published.
Further information:
Online Services: Payroll Test Data http://www.hmrc.gov.uk/ebu/testdata.htm
The Employer CD-ROM for 2008/09 provides facilities for setting up an employee database, calculating and saving tax and NICs figures throughout the year, and filing up to nine P14s and the P35 at the year end.
The guidance included on the CD-ROM on how to use the calculator has been updated and, in addition to a number of textual improvements, the document explains how to us the “in-year save” facility for downloading the P11, P32 and P14 details to a spreadsheet during the tax year.
Further information:
Employer CD ROM How to use the P11 Calculator http://www.hmrc.gov.uk/employers/cdrom/how-use-p11-calc.pdf
This week’s News On Line, published by the Institute of Payroll Professionals (IPP), includes the following item:
“CWG2 error
An IPP member has pointed out a possible error in the CWG2 booklet in respect of payments made to an employee who has died. To clarify the rules HMRC has provided us with the following information. HMRC will be reviewing the CWG2 and will make the necessary amendments to the paper copy when next printed.
The questions that were asked were:
Question
Should a payment after the death of the employee be made to the personal representative or to the employee?
Answer
Regulation 38 does not require an employer to provide information about the personal representative(s). Therefore a payment can be made to the “employee”, without requiring an employer to take on the extra burden of obtaining the personal representative’s details.
Question
What should employers do as regards final salary payments and P45 issue?
Answer
Regulation 38(1) and (2) provide for the employer to complete a P45 (and send all the P45 to the Revenue) indicating on Part 1 that the employee has died. The P45 should be submitted as soon as possible after the employer learns of the death (without unreasonable delay). However Regulation 38(3) states: “The employer must, on making a relevant payment after learning of the employee's death but before completing Form P45, deduct or repay tax as if the deceased employee were still alive and employed by the employer at the date of the payment.”
HMRC recognises that in practice the P45 may not be issued immediately upon the employer becoming aware of the death, and that payments (such as the final monthly/salary payment) may be made after that date, but before the P45 is prepared. This is acceptable as long as there’s no “unreasonable delay”. Any payment made after the P45 has been issued must be taxed using code BR.”
A new schedule of financial loss allowances for magistrates (Justices of the Peace) takes effect from 1 May 2008.
The rates payable to self-employed magistrates increase from £52.96 to £56.63 for a half-day (up to 4 hours) and £105.92 to £113.26 for a full-day (over 4 hours). For employed magistrates, the rates increase from £42.37 to £45.30 for a half-day sitting and from £84.74 to £90.61 for a full day sitting.
Further information:
Allowances for Magistrates http://www.magistrates-
association.org.uk/documents/hmcs/magistrates-allowances/magistrates-
allowances-1.5.08.pdf
Payroll deadlines during the next month
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
Is the taxable value of a benefit for a tax year the amount incurred by the employer in that year or in the tax year the cost was incurred?
In general, unless more specific calculation rules apply, the Benefits Code states that the taxable value of a benefit provided to an employee is the cost incurred by the employer in providing it.
Section 203 of the Income Tax (Earnings and Pensions) Act 2003 states, in part:
- The cash equivalent of an employment-related benefit is to be treated as earnings from the employment for the tax year in which it is provided.
- The cash equivalent of an employment-related benefit is the cost of the benefit less any part of that cost made good by the employee to the persons providing the benefit.
No reference is made to when the “cost of the benefit” is incurred. In contrast, the timing of the tax charge is specifically the tax year in which the benefit is provided. Therefore, where an employer meets the cost of a benefit in one tax year but that cost covers benefits that are to be enjoyed in a future year, only that proportion of the cost that is attributable to the provision of the benefit in the current tax year is taxable for that year. The remainder of the cost is taxable in the future year.
Other than for cars, vans and loans, the Benefits Code is not specific about how the costs incurred by the employer should be apportioned over time. It is most accurately done on a daily basis, but other methods are acceptable if the results are realistic.
Although this is the procedure specified in the legislation, HMRC is willing to accept a simplified approach in the case on ongoing benefits.
The provision of private medical insurance well illustrates this principle. The employer in the following examples provides private medical insurance for employees during the 2007/08 tax year and reports the benefit on forms P11D for each of them.
Example 1: The employer pays premiums annually on 6 April 2007, in respect of the benefit provided in the tax year. No apportionment is necessary. The premium paid is the amount paid to provide the benefit in the tax year.
Example 2: The employer pays premiums monthly, on the first day of the month during which the benefit is provided. The employer must add together
- 25/30ths of the April 2007 payment, the proportion attributable to the benefit from 6 April 2005,
- all of the payments made from May 2007 to March 2008, and
- 5/30ths of the April 2008 payment, the proportion attributable to the benefit to 5 April 2008.
Example 3: An employer pays annual premiums under a private medical insurance policy on 1 September each year. In September 2006, the premium per employee is £500; in September 2007, the premium is £550. Rather than apportioning the premiums on a daily basis, the employer decides to use a monthly calculation. The amount reported is the sum of
- 5/12ths of £500, for the period April to August 2007, and
- 7/12ths of £550, for the period September 2007 to March 2008.
Apportionment, especially if calculated on a daily basis, can be complicated and, where a benefit is provided continuously over a number of years, it does not result in employees paying any more tax than if a more simple approach is taken. HMRC may be prepared to accept, in this situation, for the amount paid by the employer in the tax year to be reported. The employer should seek approval from the tax office if the simple approach is used.
If the simple approach were followed in the examples above, the employer would report
- in Example 2, the total of the twelve premiums paid between 1 May and 1 April inclusive
- in Example 3, £500 for the 2006/07 tax year, and £550 for the 2007/08 tax year.
There are two related matters that also require consideration.
Earnings rate used for identifying lower-paid employees
Employees with an earnings rate of less than £8,500 are not subject to the P11D reporting requirements. Instead, any liabilities for benefits are reported on form P9D. To determine an employee’s earnings rate for the current tax year, an amount paid by the employer in the previous tax year to provide a benefit in the current tax year should be included if the benefit is calculated by apportionment.
Amounts made good by the employee
The amount reported on form P11D is reduced by any amount paid by an employee towards the provision of the benefit. If the employer reports in the current tax year a proportion of the costs incurred in the previous tax year, the amount reported should be reduced by the same proportion of any contribution made by the employee in the previous tax year.
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