The Compact Payroll Reference Book 2008 - 2009

News Items – at 20th May 2008

Introduction

There is nothing this week to match the significant tax changes announced last week.  It will be interesting to see if HMRC is able to meet September deadlines set by the Chancellor.  In the meantime, we have a little more information on the plans to extend flexible working to parents of older children and another useful Special Commissioner decision on employment status issues.

Our FAQ this week looks at all of the dates associated with determining entitlement to maternity leave and SMP.  They are not as complex to understand as you might think – get your calendar out and follow it through!

Right to Request Flexible Working

Working party recommends extension to parents of 16-year olds

A Working Group, led by Imelda Walsh, HR Director of Sainsbury, has published its Report into the options for extending the existing right to request flexible working to parents of children up to the age of 16.  As mentioned in a news item last week, the Government has already announced its intention to amend the existing legislation in this way.

The Report recommends that:

• the right should be extended from parents of children under 6 to parents of children aged 16 or under
• the extension should not be introduced in stages
• the existing 6-months qualifying service should be retained.

The Government intends to consult on the details of the implementation shortly.

Further information:
Independent review of right to request flexible working published  http://www.berr.gov.uk/files/file46092.pdf

Employment Status of Contractors

Special Commissioner considers the “notional contract”

In a decision given on 2 May 2008 in the case MKM Computing Ltd v Revenue & Customs, the Special Commissioner upheld an HMRC decision that Mr. Ellwood, sole director of MKM Computing (MKM), would have been an employee of London General Holdings (LGH) if his contract had been made directly with LGH.

The case fell within the “IR35” provisions of the Income Tax (Earnings and Pensions) Act 2003.  Mr. Ellwood was supplied his company MKM to provide IT services to LGH under a contract between MKM and LGH, not between Mr. Ellwood personally and LGH.  The “IR35” legislation provides that Mr. Ellwood would be liable for PAYE tax and NICs if the terms of the contract were such that, if he had contracted directly with LGH, LGH would have been obliged to treat him, for tax and NICs purposes, as an employee instead of an agency contractor.

HMRC had decided that Mr. Ellwood would have been an employee is this specific situation and assessed him for over £27,000 in tax and NICs.  Mr. Ellwood appealed to the Special Commissioner.

The Special Commissioner upheld HMRC’s assessment after reviewing in some detail the various factors that must be considered in deciding whether the nature of the working relationship between a contractor and the business for which the contractor’s services are provided constitutes “employment”.  Readers who are interested in these issues will find it helpful to read through the decision in detail.
However, an interesting feature of the decision was the way in which the Special Commissioner approached his examination of Mr. Ellwood’s working relationship with LGH.  The tax legislation provides that the “IR35” rules apply if “the circumstances are such that, if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client”.  It then states that such circumstances “include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided."  As a result, in his decision, the Special Commissioner constructed a hypothetical or notional contract, deriving its terms and conditions from the actual way in which Mr. Ellwood’s work was performed, and then “standing back and looking at the whole picture”.  On balance, the Special Commissioner decided that, if the notional contract had actually existed, Mr. Ellwood would be been an employee of LGH.

Further information:
MKM Computing Ltd v Revenue & Customs  http://www.bailii.org/uk/cases/UKSC/2008/SPC00653.html

Payroll deadlines during the next month

May 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.

May 19 – This is the deadline date for filing, in paper form or electronically,

• form P14 End of Year Summary
• form P35 Employer Annual Return
• form P38A Supplementary Return

May 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 May 20 at the latest.

May 26 – The date after which non-receipt by the HMRC of year-end returns P14s, P35 and P38A will automatically result in late-filing penalties.

May 31 – This is the deadline for issuing P60s to qualifying employees.

June 5 – This is the final day of tax month 2.  Tax and NICs etc for payments made in the tax month to June 5 are due for payment to the Accounts Office by June 19, or by June 22 if paid electronically.

June 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.

June 20 - (June 22 is a Sunday) – 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 June 18 at the latest.

Payroll FAQ's

Statutory Maternity Leave and Pay

There are five related dates that are involved in determining entitlement to maternity leave and SMP and in ensuring that certain actions are taken at the right time.  There is a clear connection between them but, if they seem to be too complicated, HMRC’s Employer’s Help Book E15 Pay and time off work for parents includes a useful set of tables.

The five dates are:

• the week in which the baby is expected, the “expected week of childbirth”
• the qualifying week, the week in which the woman’s entitlement to SMP is determined
• the latest date by which the woman must have been employed in order to meet the length of service requirement
• the earliest date by which the woman may start her maternity leave
• the date from which a woman must start her maternity leave if she is absent from work due to pregnancy or confinement.

These same five dates are also relevant for paternity leave and SPP in connection with a birth.

How these dates relate to each other is explained using the following calendar.  For entitlement purposes, a week starting on a Sunday is always used.  The dates that are used in the example are highlighted.  The calendar does not related to a particular year.

Date 1 – Expected week of childbirth (EWC): The Sunday to Saturday week during which the doctor or midwife estimates the baby will be born, as indicated on the MAT B1 Maternity Certificate.  All of the other dates used for SMP purposes are derived from the date on which the baby is expected, not the date on which the baby is actually born.

In our example, a MAT B1 Certificate shows that the baby is due on 15 November.  The EWC is the week starting 12 November and ending 18 November.

Date 2 – Qualifying week (QW): The Sunday to Saturday week that falls fifteen weeks before the EWC.  More precisely, it is the week that starts on the Sunday that falls fifteen weeks earlier than the Sunday of the EWC.  It is the woman’s circumstances in the qualifying week that determine whether or not she is entitled to SMP.

In our example, the QW is the fifteenth week before the EWC, the week that starts on 30 July.

Date 3 – Latest employment start date: To qualify for additional maternity leave and SMP, the woman must have been continuously employed for not less than 26 weeks, up to and including the QW.  To have 26 weeks’ continuous employment, she must have been employed with her current employer 

• for at least one day in the qualifying week,
• during the 24 weeks before that, and
• for at least one day in the week before that.

Therefore, in date terms, she must have been employed at some time in the week that started on the Sunday that falls 25 weeks earlier than the Sunday of the QW, by the Saturday of that week at the latest.

The 25th week before the QW is the same as the 40th week before the EWC.  The whole date structure of the SMP scheme is based on the presumption that the woman was already in the employment at the time or just before the baby was conceived.
In our example, the latest date by which her employment must have started is the Saturday of the week that started on 5 February.  Provided the employee was employed by the Saturday of that week, 11 February, she meets the continuous employment condition.

Date 4 – Earliest date to start maternity leave: The woman may choose to start her maternity leave not earlier than the start of the eleventh week before the EWC, i.e. the Sunday that falls eleven weeks earlier than the Sunday at the start of the EWC.
In our example, the earliest date from which the woman may start her leave is 27 August, i.e. the start of the eleventh week before the EWC.

Date 5 – Compulsory start of maternity leave: The woman must start her leave if she is “absent from work wholly or partly because of pregnancy or confinement” on or after the Sunday of the fourth week before her EWC.  More precisely, this is the Sunday that falls four weeks earlier than the Sunday at the start of the EWC.

In our example, if the woman is absent from work wholly or partly because of pregnancy on 15 October, she must start her leave during that week.

Using a calendar to find the dates
All of the five dates can be found using a calendar once the date on which the baby is due is known.  The procedure is straightforward:

• Find the day on which the baby is due and find the Sunday at the start of that week.  If the date the baby is due is a Sunday, that is the Sunday to use.  All of the other dates are identified by counting backwards from this Sunday.
• Count back 4 Sundays.  This is the earliest date from which maternity leave must start if the woman is absent from work wholly or partly because of pregnancy or confinement.
• Count back 7 more Sundays, to the 11th Sunday.  This is the earliest date on which maternity leave may start.
• Count back 4 more Sundays, to the 15th Sunday.  This is the Sunday at the start of the Qualifying Week.
• Count back 25 more Sundays, to the 40th Sunday and find the date of the following Saturday.  This is the latest employment start date.

Why not practice using your own calendar and then compare the results with dates given in the E15 Help Book?  A calendar that shows weeks starting on Sundays is most useful.  A useful calendar for this purpose is available at http://www.ampsoft.net.

Click Here if you wish to unsubscribe