Client has asked us to show them how to input pension contributions in HMRC's Basic Tools software. We did a dummy run before they came, but it seems to be calculating the tax incorrectly or I am an idiot.
Example we used is employee paying a net pension contribution of £80 to NEST which is under net pay arrangement (relief at source). The NEST website says this is how their scheme works. The Basic Tools deducted the £80 from the taxable pay, reducing the employees tax by £16.00.
If we enter it in the "not net pay box" it taxes the full salary which we think is correct.
Has anyone else looked at this?
Yes we are using the latest version
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Basic Tools fine
Misconception is in the terminology.
Net pay arrangement is where the premium is paid gross and tax relief achieved by taxing the pay after payment of the premium. The premium would be !00 paid.and any higher rate relief is automatically achieved.
Premiums not paid under a net pay arrangement are paid net of basic rate relief, out of the net pay so £80 is deducted after tax has been calculated on the full salary. If any higher rate relief is due you will need to ask for a coding adjustment
NEST terminology
Yes NEST terminology is confusing, they refer to net pay arrangement which most people assume to mean deduct from gross salary, but this is not how NEST works. NEST does work by the amount after basic rate relief being deducted from NET salary.
So yes you need to in BASIC PAYE TOOLS enter the not net pay box.
Basic tools
I did not realise we could do auto enrolment using the basic tools. I am using the version that came out in February 2015. I have not been notified any updates after that.
Not got to that stage yet
I did not realise we could do auto enrolment using the basic tools. I am using the version that came out in February 2015. I have not been notified any updates after that.
Now, that really would be a nonsense if the Government's official software couldn't deal with its own legislation.
Depends on what you mean by 'deal with its own legislation'
... BPT (basic payroll tool) is just what it says - a simple payroll that doesn't claim to cope with every aspect of PAYE regs. It can perform basic Tax/NI calcs (if you enter data in the correct places - often after having to pre-process that data) and generates the files required for submission under RTI.
Full AE compliance requires a lot more than just correctly processing pension contributions in terms of PAYE. You need to perform (and keep a record of) Assessments ... perform the actions required depending on each assessment ... Issue letters to employees ... Submit files to Pension schemes ... Pay contributions to those schemes ... and more.
It's not that any of this is particularly arduous for the 'average' employer (although there are an increasing number of complex scenarios) ... but it is a fact that HMRC (who provide BPT - not 'the Government') have said they have no intention of extending BPT to handle any of those aspects that might be called AE Administration.
The Pensions Regulator (TPR) have made available a simple and free spreadsheet intended to help BPT users determine their AE liabilities ... but it doesn't attempt to do everything or to directly integrate with BPT.
So ... there is no government-funded free software designed to fully administer an employer's AE liabilities (let alone properly integrate with payroll processing). Your choices are to do it mostly 'by hand' (on paper or in spreadsheets) and then feed values into BPT ... or to pay for a solution (whether software or service based)!
"Not Net Pay" Pension Contributions in BPT
I just used BPT for the first time to enter pension contributions under a "not net pay" arrangement. This seems to work correctly in that taxable pay and pay for NIC purposes are not affected, so PAYE and NICs are calculated correctly. However, "Net Pay" is not affected either, so even in the simplest cases the "Net Pay" does not correspond to take-home pay.
So, why are pension contributions under a "not net pay" arrangement required if they are ignored by BPT completely?