News Items – at 18th April 2007

Northern Ireland Agricultural Wages

New minimum wages rates from 2 April 2007

At a meeting of the Northern Ireland Agricultural Wages Board on Monday 26 March 2007, the Board announced the new grading system with new age bands, an additional Accommodation Offset and revised minimum rates of wages for agricultural workers. The operative date for these changes is 2 April 2007.

Workers entering the agricultural industry on or after 2 April 2007 start at the new “Minimum Rate”; those currently working within the industry move to the rate set out at Grade 2 “Standard Worker”.  No current agricultural worker should have their pay reduced by the change. The new rates are as follows:

To advance to the next grade, a worker has to attain additional experience or qualifications.

The Board also introduced an additional ‘Accommodation Offset’ for agricultural workers on a contract of less than 52 weeks  These workers are defined as “Temporary and Harvest Employees”.  The Accommodation Offset for “Temporary and Harvest Employees” is £29.05 per week.

The Agricultural Wages Board is constituted under the Agricultural Wages (Regulation) (Northern Ireland) Order 1977 and meets each year to consider changes to the rates of pay and related conditions for agricultural workers.  The Board comprises six members of the Amalgamated Transport and General Workers' Union, six members of the Ulster Farmers' Union, and three members appointed by the Department of Agriculture and Rural Development.

Further information:
The Agricultural Wages Board has confirmed new Minimum Wage arrangements and rates  http://www.nics.gov.uk/news/news-dard/news-dard-060407-change-to-the.htm
New Grading System for agricultural minimum wage  www.dardni.gov.uk/new-grading-system-for-agricultural-minimum-wage.htm.

Claiming a Tax Repayment

Form R40 redesigned

Form R40 Tax Repayment Form has been updated and reissued.  It is used by individuals to support a claim for repayment of income tax paid in the five tax years preceding the last 31 January.  For example, a claim for 2001/02 must be made by 31 January 2008.

It would be useful to keep a number of the forms in the payroll office, to issue to employees who have ended a tax year on a tax code that they believe is not representative of their tax status.

Further information:
R40 Tax Repayment Form  http://www.hmrc.gov.uk/forms/r40.pdf
Notes for Tax Repayment Form  http://www.hmrc.gov.uk/forms/r40notes.pdf

Electronic Filing on In-year Forms

Changes to P45 and P46 forms and processes

The following item first appeared in one of our February newsletters but is reissued here to reflect the implications of recently announced changes, principally the decision to put back the implementation dates for the mandatory electronic filing of in-year payroll forms to April 2009 for large and medium-sized employers, and to April 2011 for small employers.  As a result, the dates from which changes are being made to forms P45, P46 and pension notifications, and to related procedures, have also been revised.

The February 2007 issue of HMRC’s Notes for Payroll Software Developers announced 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 2009.

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
From April 2008, tax code BR (cumulative) must be operated  in all cases where a new employee fails to provide the necessary P46 information.  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
• 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 2009.  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 2009 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 2009, 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

1. 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 2009, 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.
2. 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.  (Note: HMRC is still giving consideration to delaying this until April 2009)
3. From April 2008, two fields that currently appear only on the paper forms will be added to the electronic versions.  (Note: HMRC is still giving consideration to delaying this until April 2009)
   • 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 to that indicated by boxes A, B or C.  (not clear)
4. 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.
5. 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.)
6. 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 2009 and will require employers to provide the employee’s date of birth and gender.

Further information:

Payroll deadlines during the next month

April 19 – 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 2006/07 tax year.

April 20 – (April 22 is a Sunday) – 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

Living Accommodation

Can a payment by an employee towards buying or improving living accommodation be used to reduce its reportable value?

The rather complex reporting requirements for the provision of living accommodation are set out in sections 97 to 113 of the Income Tax (Earnings and Pensions) Act 2003. The cash equivalent of the benefit consists of a “basic benefit” charge and, if the cost of providing the accommodation exceeds £75,000, an “additional yearly rent” charge.

The basic benefit charge, defined in section 105, is based on the actual or notional rental value of the property and the charge may only be reduced by payments made by the employee towards the rental costs. As a result, a payment towards the cost of buying or improving the property is not relevant to the basic benefit charge.

However, where the cost of providing the accommodation exceeds £75,000, there are specific provisions in sections 104 and 107 for reducing the “additional yearly rent” charge – a charge that is based, where the property is owned by the person providing it, on the cost of buying and improving it. There are two different methods of calculating this charge, as follows.

The normal calculation
The normal way of determining the cost of the accommodation is to find the total of

• the expenditure incurred in acquiring the property, and
• the expenditure incurred on improvements to the property.

The total of this expenditure may then be reduced by the amount of any payments made by the employee that represents

• the reimbursement of expenditure incurred in acquiring or improving the property, and
• consideration for the grant to the employee of a tenancy or sub-tenancy of the property.

Example: If it costs £100,000 to acquire the property, plus £40,000 for improvements, and the employee paid £20,000 towards the cost of an extension, the cost of providing the accommodation would be £120,000.

The special calculation
However, this normal method of working out the cost of the accommodation does not apply if, at the time the employee first occupies the property, the employer has owned it for more than six years. A special rule applies in this situation. The cost of the accommodation is the total of

• the market value of the property on the date the employee first occupied the property, and
• the expenditure incurred on improvements to the property after that date.

Again, this total may be reduced by the amount of any payments made by the employee that represents

• reimbursement of expenditure incurred in acquiring the property, up to the maximum of the market value,
• reimbursement of expenditure incurred in improving the property, and
• consideration for the grant to the employee of a tenancy or sub-tenancy of the property.

Example: If the employer had owned the property in the example above for more than six years at the time the employee first occupied the property and the market value at the time was £200,000, the cost of providing the accommodation would be £220,000, i.e. £200,000, plus £40,000 for the improvements, less £20,000 from the employee.

HMRC provides P11D Working Sheet 1 to help employers perform these special calculations.

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