REAL TIME PAYE INFORMATION

Updated 30/3/13. This information updates s.30.4.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
From their first payday after 6 April 2013 nearly all employers must provide online real time information (RTI) to HMRC about tax, national insurance contributions and other deductions from wages. "Real time" means a full payroll report for every worker must be provided before or at the time each payment is made to them, instead of waiting and submitting details for the entire year after the end of the tax year on forms P14 and P35.

However, HMRC has recognised that some small employers who process their main payroll monthly, but pay some workers weekly or at other times during the month, may need longer to adapt to real time reporting. It therefore announced on 19 March 2013 that employers with fewer than 50 employees who find it difficult to report every payment at the time it is made, may send this information to HMRC on or before the date of their monthly pay run. This cannot be later than the end of the tax month (5th). This is a temporary relaxation until 5 October 2013, and from 6 October 2013 all employers will need to be sending HMRC details of all payments on or before the date the employee is paid, without waiting to include them with the report for the monthly pay run. Information about this relaxation of reporting is at www.hmrc.gov.uk/news/relax-small-business.htm.

Under reg.27 in the Income Tax (Pay As You Earn)(Amendment) Regulations 2012 there are only two exceptions to the obligation to operate RTI. The first is where the employer is an individual who is a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications, or where the employer is a partnership where this applies to all partners or a company where it applies to all directors and the company secretary. The second exception is a care and support employer, defined as an individual who employs a person to provide domestic or personal services at or from the employer's home, where the services are provided to the employer or a member of the employer's family; the recipient of the services has a physical or mental disability or is elderly or infirm; and it the employer who delivers the PAYE return to HMRC (and not some other person on the employer's behalf). These regulations are at www.legislation.gov.uk/uksi/2012/822/made.

The move to RTI is a huge change. Some of the significant changes are:

• Unless they have nine or fewer employees, employers are required to use RTI-compliant commercial payroll software which will send payroll reports electronically to HMRC as part of their normal payroll process. Employers with nine or fewer employees can, if they wish, use HMRC's basic PAYE tools package to send their reports rather than using payroll software. Organisations which use payroll software and have not updated it, or do not use payroll software, should get this sorted out. Organisations whose payroll is handled by a payroll bureau, accountant or other agent should confirm immediately that they will be RTI-compliant.


• Access to the RTI system is via PAYE Online through the Government Gateway, a centralised online service for access to various services (www.gateway.gov.uk).


• The payroll report for each employee must be submitted on a full payment submission (FPS). This must include the employee's full name, address, date of birth, national insurance number, start date for an employee for whom this is their first payment, leaving date for an employee for whom this is their final payment, pay date, gross pay for that pay date and for the year, tax, national insurance, other deductions, net pay, and the number of hours the employee typically works.
  
  For current employees the employer must obtain all of the personal details needed for the payroll report before the first RTI pay date. For new employees the details must be obtained before their first pay date. The HMRC website has a starter checklist (similar to a P46) which can be used to collect this information, but the form is for the employer's use and must not be sent to HMRC if the employer is on RTI.


• A payroll report must be submitted for everyone who is paid, even if they are below the national insurance lower earnings limit (LEL), or even if it is not necessary to prepare a deductions working sheet (P11) for them, or even if they are paid only once or very occasionally.


• HMRC recommends that the organisation has contingency plans in case of computer and/or other failures or problems, such as a loss of the internet connection. Payroll reports cannot be submitted via email, or by filling in a form on a webpage. HMRC suggests that they are submitted before the actual payday.


• If a person is paid irregularly or is taking a period of unpaid leave, it will be important to set the irregular payment indicator so HMRC does not assume the person has ceased to be employed simply because they have not worked for a while. I assume the guidance says somewhere what period must elapse before HMRC assumes the person has left. (I confess I have not waded through all the guidance. If you have workers who have a significant gap between payments so you need to know when HMRC will treat them as no longer employed, contact the HMRC employer helpline on 08457 143 143. Then let me know what HMRC says so I can add it here.)


• Although the payroll report must normally be submitted on or before the date the person is paid (or the date the payment is credited to their bank account, if they are paid by bank transfer), there are some situations where the employer can submit the payroll report up to seven days after the payment date. These are where payments are made to employees for whom the employer does not have to maintain a P11; and situations where payment is made on the day of work and varies with the amount of work done and it would be impractical to report in real time. HMRC gives as examples a crop picker paid in cash at the end of the day based on how much they have picked, or a casual worker in a pub paid at the end of the day. There are also special arrangements for payments of benefits and expenses subject to class 1 national insurance contributions but not taxed under PAYE.
  
  Employers with fewer than 50 employers who normally pay employees monthly but also make payments at other times can, until 5 October 2013, wait and send information about the non-monthly payments at the same time as the monthly payroll [see above].


• From 6 April 2013 it is no longer necessary to submit a P45 or P46 to HMRC for new employees, or end of year forms P14, P35 and P38A. However, leavers must still be given a P45 or other approved leaver statement; employees still employed at the end of each tax year must be given a P60; and end of year expenses and benefits forms P9D, P11D and P11D(b) must, if required, be completed and submitted.

PAYE TOOLS FOR 2014-15

Added 29/3/14. This information updates s.30.4.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
For employers who use HMRC's basic PAYE tools, the new version for the 2014-15 tax year will be available from 3 April 2014. This will allow users to produce P60s for 2013-14, start the 2014-15 tax year, and claim the new national insurance contributions employment allowance of up to £2,000.

This new version of the tools will be provided as an update to the existing version rather than a separate download, so existing users do not need to go to the HMEC website to get the update. Employers will be automatically advised when the update is available if they have automatic updates switched on and their computer is connected to the internet when they open PAYE tools.

HMRC recommends that employers do not take the update until they have paid employees for the last time in 2013-14, completed the final submission for the tax year (declaration and the answers to the supplementary questions), and sent all this information to HMRC. This should be done using version 13.2.13232 of the tools, released in October 2013.

Links to HMRC's helpsheet on making the final submission for 2013-14 and preparing for 2014-15, and a step-by-step guide to making the final submission, are at tinyurl.com/kcdgguh.

HMRC RECOVERY THROUGH TAX CODES

Added 7/2/15. This information updates s.30.4.4 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
From 6 April 2015 HMRC is increasing the maximum amount that can be recovered through an employee's PAYE tax code each year. HMRC refers to this as 'coding out'.

This will be done by introducing a graduated income-based scale, which will apply if an employee has a main source of PAYE income of £30,000 or more. There will be no change to the £3,000 limit for earnings less than £30,000.

If changes are made to an employee's tax code, HMRC will include an explanation of these adjustments in their P2 annual coding notice.

To ensure a consistent approach, and to safeguard employees from excessive deductions from their pay, HMRC is extending the "legislative 50% overriding limit" to include all tax codes, and not just K codes. This limits any deductions to a maximum of 50% of an employee's relevant pay.

Employers should ensure that payroll software is updated to accommodate the overriding 50% restriction for all tax codes from 6 April 2015.

Information about this change is in the HMRC employer bulletin for December 2014, at tinyurl.com/ogbdl4t.
Information about tax codes is on the Gov.uk website via tinyurl.com/l9o5j26.

NATIONAL INSURANCE EMPLOYMENT ALLOWANCE

Updated 1/10/15. This information updates s.30.4.6 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
When the employment allowance, which offsets employer's national insurance contributions (NICs) to a maximum of £2,000 in each tax year, was introduced on 6 April 2014, employers who employ staff for purposes connected with their personal, family or household affairs were excluded.

This has been changed from 6 April 2015, to allow employers, including individuals, who employ care and support workers to claim the allowance. To be eligible, all of the worker's duties must be performed for a person who needs those duties because of old age, mental or physical disability, or past or present illness, mental disorder or dependence on alcohol or drugs. Information about this change is at tinyurl.com/lndth8v.

Under s.1(1) of the National Insurance Contributions Act 2014, the employment allowance is available to any employer who is liable for secondary class 1 national insurance contributions (employer's NICs), unless the employer falls within one of the exceptions. However, all guidance on the Gov.uk website says that only businesses, charities and community amateur sport clubs are eligible — thus giving the erroneous impression that the allowance is not available to non-charitable not-for-profit organisations. If your organisation is not a charity and has employees for whom it pays employer's NICs, don't be put off by the misleading guidance!

When introducing the allowance, the government estimated that employer's NICs would be reduced by an average of 80% for employers with fewer than 10 employees, and many small employers would have to pay no employer's NICs.

The allowance is administered through the PAYE real time information system without involving additional administration for the employer.

Chancellor George Osborne announced in the summer budget on 8 July 2015 that the employment allowance would increase from £2,000 to £3,000 in April 2016.

Basic guidance about the allowance, including how to claim it and who is excluded from being able to claim is on the Gov.uk website at tinyurl.com/mvfp522. From here there is a link to a few pages of more detailed guidance, including rules for organisations with more than one PAYE scheme (they can only claim on one) and rather complicated rules on organisations that are connected with each other.

The National Insurance Contributions Act 2014 is at www.legislation.gov.uk/ukpga/2014/7/contents/enacted.
The Employment Allowance (Care and Support Workers) Regulations 2015 are at www.legislation.gov.uk/uksi/2015/578/made.

NATIONAL INSURANCE HOLIDAY ENDS

Updated 9/9/13. This information updates s.30.4.6 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The holiday on employer's national insurance contributions for some new businesses set up outside Greater London, the South East and the East of England ended on 5 September 2013. New businesses set up outside these areas since 22 June 2010 have been entitled to a 52-week NICs holiday, to a maximum of £5,000 per employee, for the first 10 employees hired during the business's first year of operation.

The right to the holiday is not carried over past 5 September 2013, so does not apply past that date for employees hired since September 2013. even though the employer has not had the full 52 weeks' holiday on employer's NICs.

Charities which sold goods or charged for some of their activities or services (rather than being fully funded by grants or donations) could participate in the scheme.

Information for employers who have been in the scheme during the 2013-14 tax year is at www.hmrc.gov.uk/news/end-emp-nics.htm.

TAX AND NATIONAL INSURANCE ON BENEFITS IN KIND AND EXPENSES

Added 20/4/15. This information updates s.30.4.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Significant changes in how employee benefits in kind (BiKs) and expenses will be treated for tax and national insurance have followed on from an Office of Tax Simplification (OTS) review from December 2012 until mid-2014, and consultations by HM Revenue & Customs from 18 June to 9 September 2014.

The rules apply not only to employees but also to office holders, such as company directors. In the article below, 'employees' includes office holders.

The OTS's reports and recommendations (an interim report in August 2013, second report in January 2014 and final report in July 2014) are on Gov.uk via htinyurl.com/lu8nrho. The first two reports led to four consultations and the proposed changes below. The third report's recommendations are primarily about taxation of accommodation and termination payments, and have not yet been taken further (at least not publicly, as far as I'm aware). A press release about the third report is at tinyurl.com/qyuosx9.

Abolition of the £8,500 threshold
From 6 April 2016, the £8,500 threshold that determines whether employees pay income tax on all of their benefits in kind will be abolished. Employers will no longer have to report certain BiKs and taxable expenses on form P9D for employees earning under the threshold; instead they will either collect tax on all of their employees' BiKs and taxable expenses through the payroll [see Voluntary payrolling, below], or submit a P11D for each employee at the end of the tax year, listing BiKs and taxable expenses.

Following concerns about the disproportionate effect abolition of the threshold would have on certain groups, the government decided that:

• ministers of religion earning less than £8,500 per year will remain exempt from income tax on certain BiKs and expenses, there will be a corresponding disregard for employers' class 1A NICs, and BiKs and expenses which are not exempt will have to be reported on a P11D;
• the benefit that arises when a 'care and support' employee caring for an individual in the individual's home is provided with board and lodging will be exempt from income tax, and a corresponding exemption from class 1A NICs on the board and lodging will be introduced; these exemptions will apply both to employees engaged directly by the 'care and support’ employer and those supplied through an agency.

ABOLITION OF CYCLE TO WORK DAY BREAKFASTS AND OTHER TAX RELIEFS

Updated 30/3/13. This information updates s.30.4.9 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Following a consultation from May to August 2011, the Finance Act 2012 includes provisions to abolish a number of tax reliefs that are obsolete or considered unnecessary. Those which could affect voluntary sector employees and employers include the following.

• From 6 April 2012, repeal of the exemption from class 1 national insurance contributions (NICs) for some students and apprentices who are not from the EEA or certain non-EEA countries. Information about this is at www.hmrc.gov.uk/tiin/tiin851.pdf.


• From 6 April 2013, the first 15p of the value of luncheon vouchers is no longer exempt from tax and class 1A NICs, so tax and NICs have to be paid on the full amount. Information about this is at www.hmrc.gov.uk/tiin/tiin824.pdf.


• From 6 April 2013, employees taking part in a cycle to work day organised by their employer are no longer entitled to a tax-free breakfast or other meal supplied by the employer, a provision introduced in the "green budget" in 2002 which sought to encourage cycling. Information about this is at www.hmrc.gov.uk/tiin/tiin823.pdf.


• From 6 April 2015, repeal of tax relief (maximum £12.50 per year) on life assurance premiums paid by an employer under an employer-financed retirement benefit scheme (EFRBS) on a policy issued on or before 13 March 1984, in respect of an individual employed before that date who continues to be employed by the same employer. Information about this is at www.hmrc.gov.uk/tiin/tiin814.pdf.

REIMBURSEMENT OF OVERSEAS EXPENSES

Added 30/1/11. This information updates s.30.4.9 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Travel and subsistence expenses incurred by employees within the UK can be reimbursed without deduction of tax either on the basis of receipts provided by the employee, or by using a scale rate agreed by HM Revenue & Customs. Such reimbursements must be reported to HMRC at the end of the tax year on form P11D unless the employer has a dispensation from filing this.

Because most employers do not have many employees who travel abroad, the sampling techniques that are used to establish scale rates for UK travel are usually not appropriate for overseas travel. To overcome this, HMRC published benchmark rates for overseas travel in October 2010, and intends to update them annually.

Details and the benchmark rates are at www.hmrc.gov.uk/employers/emp-income-scale-rates.htm.

TAX & NICs ON MILEAGE REIMBURSEMENT

Added 22/4/12. This information updates s.30.4.10 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Employees' and volunteers' use of their private vehicles to carry out an organisation's work is called business use, even if the organisation is not a business. The approved mileage allowance payment (AMAP) is the maximum which can be reimbursed for employees' use of their own vehicles free of tax and national insurance and without having to be included on end of year forms P11D or P9D for employees and others paid under the PAYE system, or on self-assessment for workers not on PAYE.

Having been kept at the same rate since 2002, the AMAPs for cars and vans finally went up, from 6 April 2011, from 40p to 45p per mile for the first 10,000 miles of reimbursed business use. The AMAP remains 25p for each additional business mile. It also remains at the 2002 rate for motorcycles (24p per mile) and for bicycles (20p per mile). Reimbursement at above the AMAP rates is subject to tax and class 1 national insurance.

An organisation can pay less than the AMAP, or nothing at all. In these situations the employee or volunteer may then be able to claim tax relief, called mileage allowance relief (MAR), on the amount which has not been reimbursed.

Until 5 April 2011, an organisation which reimbursed employees for business use of their cars could choose to pay the driver an additional 5p per mile passenger payment for each employee of the same employer who travelled as a passenger in the car on a business journey. This additional amount is paid to the driver and is free of tax and national insurance.

From 6 April 2011, this passenger payment allowance was extended to volunteers. HMRC guidance on volunteer drivers says this can be claimed for all passengers driven in the course of volunteering, so presumably this applies regardless of whether the passenger is another volunteer, an employee or a service user/client/member of the organisation. The HMRC guidance is at www.hmrc.gov.uk/mileage/volunteer-drivers.htm.

Other HMRC guidance on passenger payments, at www.hmrc.gov.uk/guidance/480_chapter16.pdf and www.hmrc.gov.uk/paye/exb/a-z/m/mileage-expenses.htm, still refers only to employees being able to claim passenger payments.

In a tax tribunal decision in August 2011, it was held that lump sum mileage reimbursements are "relevant motoring expenditure" for the purposes of national insurance contributions only to the extent that the lump sums cover actual expenditure on business motoring. Any organisation which pays lump sums to cover motoring expenses should take advice about how it is affected by the decision in Total People Limited v HM Revenue and Customs is at www.bailii.org/uk/cases/UKFTT/TC/2010/TC00661.html.

For summaries and articles about cases, do a Google search on key words in the case name or content.

TAX TREATMENT OF EMPLOYER-SUPPORTED CHILDCARE AND VOUCHERS

Updated 18/1/12. This information updates s.30.4.12 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
From 6 April 2011 there are changes to the tax treatment of childcare vouchers and directly contracted childcare provided by employers. Any employer who provides such benefits should consult the HM Revenue & Customs guidance to determine when an employee "joins" the scheme, and when a basic earnings assessment has to be carried out for the employee.

The changes were intended to ensure all employees, regardless of whether they are on basic, higher or additional rate tax, receive the same amount of tax relief. Employees who were in an employer-supported childcare scheme on or before 5 April 2011 are not affected by the changes, so higher and additional rate taxpayers already in a scheme on that date continue to receive proportionately more tax relief than basic rate taxpayers.

HMRC guidance for employers and for employees/parents is at www.hmrc.gov.uk/thelibrary/employer-qa.htm.
A summary of the rules for employers, updated in September 2011, is at www.hmrc.gov.uk/helpsheets/e18.pdf.

Details and the benchmark rates are at www.hmrc.gov.uk/employers/emp-income-scale-rates.htm.

CONTRACTING OUT OF ADDITIONAL STATE PENSION

Added 24/1/12. This information updates s.30.5.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
From 6 April 2012, some employees who are a members of an employer's defined contribution (money purchase) occupational pension scheme or have a stakeholder pension or personal pension, and have "contracted out" of the additional state pension are no longer able to remain contracted out. Employees to whom this applies have from that date been automatically brought back into the additional state pension and will begin to build up this pension. The additional state pension is also called state second pension (S2P).

Directgov has a good summary on contracting out and the changes which can be accessed via tinyurl.com/77hdw8w. A more detailed six-page briefing from HM Revenue & Customs and the Department for Work and Pensions is at tinyurl.com/6qafjv9. TLT solicitors have a briefing for employers with defined contribution schemes at tinyurl.com/87wxvv7.

OCCUPATIONAL PENSIONS

Updated 2/4/10. This information updates s.30.6 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
From 6 April 2010, the minimum age at which a person can receive an occupational or personal pension goes up from 50 to 55, although this increase does not apply to early retirement due to ill health, or to pension scheme members who have a protected pension age. Organisations which run their own pension schemes should ensure the scheme rules are amended, if necessary, to reflect this change, and should ensure they do not make unauthorised payments to scheme members aged under 55.

TLT solicitors has a useful short briefing for pension scheme trustees and employers, via tinyurl.com/ya3xac3.