News Items – at 31st March 2008

2007/08 Year End Returns

Online filing restrictions over the tax year end

HMRC has adjusted the period over the tax year end during which it will not be possible to send forms P45, P46 and pension notifications over the Internet using third party software or HMRC’s own filing facilities.  The restricted period is now 2 pm on 3 April to 9 am on 9 April.

Further information:
Sending PAYE forms P45 and P46 online in April 2008  http://www.hmrc.gov.uk/inyear/index.htm

Professional Fees

Social care workers added to the list of health professionals

Payment by an employer of an employee’s professional membership fees is an employment-related benefit that is taxable under the Benefits Code.  If an employee’s membership fees are paid for by the employer, the costs must be reported on form P11D at the year end and are subject to Class 1A NICs.  Under the provisions of section 343 of the Income Tax (Earnings and Pensions) Act 2003, the employees concerned may claim tax relief if

• the duties of the employment involve the practice of the profession to which the fee relates, and
• the registration, certification, licensing or other matter in respect of which the fee is payable is a condition, or one of alternative conditions, which must be met if that profession is to be practised in the performance of those duties.

By means of the Income Tax (Professional Fees) Order 2008, fees payable when social care workers in England, Wales, Scotland and Northern Ireland, apply to be included on registers maintained by the General Social Care Council, the Care Council for Wales, the Scottish Social Services Council and the Northern Ireland Social Care Council are added to the list of health professionals who may be entitled to claim tax relief.

Similarly, fees payable when a person applies for inclusion of a register maintained by the Animal Medicines Training Regulatory Authority is added to the list of animal health professionals.

An employer does not have to pay Class 1A NICs on the payment of professional fees if it is clear that the employee will be able to claim full tax relief.  However, if an employer only ever pays the professional fees of their employees in circumstances where they always qualify for full tax relief, HMRC may issue a dispensation, thereby avoiding the need for the employer to report the benefit in the first place and for the employee to subsequently claim tax relief.

Further information:
The Income Tax (Professional Fees) Order 2008  http://www.hmrc.gov.uk/si/2008-0836.pdf

Payroll deadlines during the next month

April 5 – This is the final day of tax month 12 and of the tax year.  Tax and NICs etc. for payments made in the tax month to April 5, and any outstanding tax and NICs etc. for the tax year, are due for payment to the Accounts Office by April 19, or by April 22 if paid electronically.

April 6 – This is the first day of the new tax year.

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.

Payroll FAQ's

Directors’ National Insurance Contributions

How are NICs calculated for a director who is joining the company mid-year?

The calculation of primary and secondary Class 1 NICs for company directors is the same as for employees in general, except that an annual earnings period is used.  The effect on the director of applying an annual earnings period is that

• no primary NICs are due until the director’s earnings in the year to date reach the annual earnings threshold (£5,435 for 2008/09),
• primary NICs are then due at the appropriate rate on all earnings up to the annual upper earnings limits (£40,040 for 2008/09), and
• primary NICs are then due at 1% on earnings above the upper earnings limit.

The same kind of calculation is used where

• an employee is appointed as a director for the same company during a tax year, or
• a new director takes office in a company during a tax year.

However, instead of using an annual earnings period, a “pro-rata” annual earnings period is used to calculate NICs for the remainder of the tax year.  This involves recalculating the annual values of the LEL and the UEL so that they relate to the number of tax weeks between the date on which the directorship starts and the end of the tax year.

When determining the number of tax weeks in the pro-rata period to the end of the tax year, the tax week in which the directorship began is counted as one of those weeks.  If there are 53 weeks in a tax year, only 52 weeks are taken into account unless the director starts in week 53, in which case there is one week in the pro-rata period.  (So if a director starts in week 52 or week 53, there is one week in the pro-rata period in each case.)   A “ready-reckoner” is provided at the back of HMRC’s booklet CA44 National Insurance for Company Directors.

If an employee becomes a director with the same employer mid-year, the NICs that have been calculated before appointment to director are not included with the earnings paid subsequently.  Only earnings paid after appointment are assessed under the pro-rata annual earnings period.  Of course, the earlier NICs are merged with the NICs as a director when they are reported on the director’s P14 Summary at the year end.

Example:  If the directorship begins on 8 September, in tax week 23, there are 30 tax weeks remaining in the year including the tax week in which 8 September falls.  The ET is converted to a pro-rata annual amount by dividing the annual rate by 52, multiplying it by 30, and , if necessary, rounding up the next whole pound (i.e. £5,435 for 52 weeks becomes £3,136 for 30 weeks).  The UEL is converted to a pro-rata annual amount by multiplying the weekly rate by 30 (i.e. £770 per week becomes £23,100 for 30 weeks).  Therefore, this director will start to pay main primary NICs when total earnings since appointment as a director reach £3,136 and will stop when they reach £23,100.  Additional primary NICs continue to be paid on earnings above £23,100.

There is no reason why the concessionary arrangement of calculating NICs using a weekly or monthly earnings period should not be used instead of the pro-rata annual earnings period if

• the director has consented to the employer using this method, and
• by the end of the year, the NICs collected are as least as much as they would have been if the pro-rata annual earnings period had been used. 

Note, however, that using the concessionary arrangement can result in too much NICs being deducted by month 11, necessitating an NICs refund in month 12.

The following Table compares the pro-rata annual earnings period method and the alternative method, showing the NICs payable for a director who is paid £3,000 per month for the first four months of the tax year, and £5,000 per month from month 5.  The appointment to director was from 1 August.  As that date falls in tax week 17, that week and the following weeks give a pro-rata annual earnings period of 36 weeks.  (The calculations use NI category A, the NI rates for 2008/09, and the exact method of calculating NICs)

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