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Pension scheme taken over mid year

Nest scheme but not BRT at source

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I have taken on a new payroll client from Month 2 and have entered all the figures in Moneysoft. 

On the payslips there is a figure for "Total Gross Pay" and "Gross for Tax".  The difference is the employee pension contribution.

The only way I can get to the figures on the payslip is to tick the box that the pension scheme is a Net pay arrangement.  It is a Nest scheme which does not allow this having done a quick search.

Is anyone else aware of why the pension scheme would be set up this way or why there would be these two figures on the payslip?

Thanks

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By kathyk0410
20th May 2021 16:36

I would guess that the person setting it up just did it incorrectly. TBF the "net pay arrangement" is confusing in that it is deducted from gross and the "relief at source" is deducted from net pay. Also in the past inherited a pension scheme that was the wrong way around. How did they enter the details on NEST as API would not have worked? NEST does allow sacrifice so that may also be an option?

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By Matrix
20th May 2021 16:43

Thanks so much Kathy. I will go into Nest tomorrow and have a look.

I don't understand how it can be wrong as they paid this London accountant thousands.

Do you know whether an AE scheme can be salary sacrifice?

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Replying to Matrix:
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By kathyk0410
20th May 2021 16:51

I don't have any salary sacrifice on NEST but it is an option on the website - so
must be possible on a NEST AE scheme.

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By Matrix
20th May 2021 17:22

Thanks. I logged into Nest but it just says 3% and 5%, qualifying earnings etc. It doesn't say whether relief at source etc. Is this just assumed?

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By Hugo Fair
20th May 2021 18:21

NEST will be the only arbiters of what is/isn't meant (or indeed allowed) ... in terms of whether the scheme is NPA or RAS type (as these are a core part of the T&Cs of each scheme).

Some pension providers only supply one or other type of scheme, and some allow a choice of scheme types (via different schemes). In other words the employer can choose a specific scheme (subject to its terms), but cannot vary the type once scheme is chosen or offer different types to different employees.

Conversely Sal Sac should be a matter entirely between employer and employee - as only the ER contribution rate is specified as a min %age under AE. The EE can pay less than their min rate, so long as the combined ER+EE rate is at least the (current) 3%+5% rate.

The only known wrinkle with some pension providers (used to include NEST but they may have fixed this?) was that their systems wouldn't accept a contribution report showing an EE with £0.00 contrib - so payroll had to enforce a 1p contrib just to get a Sal Sac report accepted by the scheme!

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By Hugo Fair
20th May 2021 18:30

UPDATE:

According to https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/calcu... ... NEST only offers the RAS type of scheme - which is explained at this link.

For this type of scheme, you should be deducted any EE contribs from their net pay (so not reducing their taxable pay) - leaving NEST to collect the tax relief from HMRC (and apply it to the member's fund in the scheme).

As far as I can see this militates against use of Sal Sac (as NEST will only be able to get tax relief on EE contribs - of 0p or 1p as per previous post).

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By Matrix
20th May 2021 19:12

Thanks Hugo. I have advised the employer and think I will take the payments out of net pay correctly this month.

Do you know what the implications are for the employees if the scheme was incorrect?

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Replying to Matrix:
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By Hugo Fair
20th May 2021 19:35

Not sure what you mean by "if the scheme was incorrect"?

If you mean the presumption of scheme type was incorrect and, as a result, in previous months the employee's contribution was used to reduce taxable pay (i.e. taken from gross not net pay) ... then the impact for employee is that he/she paid too little tax AND also probably paid too high a pension contrib.

The impact for ER is corrective RTI filings would be needed (possibly crossing a tax year?) - not just in terms of the amended tax but affecting multiple figures, including the different data item under which the pension contribs should have been reported.
That last bit is important as otherwise, in more than a year's time when the pension scheme makes its returns to HMRC, there will be an anomaly that can cause HMRC to refuse to pay over (to the scheme) all the tax relief being claimed by the scheme!

Finally (and my area of least experience) it would be worth checking how the contribs were reported to NEST - in case those also need re-allocating or even re-calculating (hopefully not)!

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Replying to Hugo Fair:
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By Matrix
20th May 2021 19:40

Thanks I also think the tax would be too low and that Nest may recover BRT which has not been deducted.

I can’t see the set up or any previous uploads in Nest but we will ask them. I don’t fancy going back. I think the previous accountant needs to address it.

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By Hugo Fair
20th May 2021 19:49

Whilst I agree that previous accountant is responsible for sorting things out (and should do the hard yards in terms of calculating the RTI figures for 'correction') ... the fact is that PAYE is a YTD-driven system so:
a) you'll need to know those corrected YTD figures before next filing an FPS; and
b) you'll need those fairly (or even very) promptly depending on whether payroll frequency is monthly or weekly ... unless of course ex-accountant is prepared to take back Payroll until it's sorted (and you then take over a clean system) - but I guess that's an unlikely scenario?

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Replying to Hugo Fair:
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By kathyk0410
21st May 2021 09:54

Just had to check what militate meant - not part of my vocabulary. However, NEST does allow salary sacrifice, though as I said earlier I have never had to upload any.
https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/makin...

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By Hugo Fair
21st May 2021 12:46

Thanks for the link - it's good to get up-to-date again. However it's really a 'how to' rather than a 'whether or not to' page, so a couple of points/thoughts:

* As hinted earlier, you can't just change into or out of Sal Sac for an EE unless you notify NEST in advance ... by changing that EE's membership to be a non-salary sacrifice or a salary sacrifice Nest Group (as appropriate);
but it's good to know that you no longer have to use a dummy 1p for EE contribs.

* NEST only offers the RAS type of scheme, which is the better option for low-paid EEs (who may be paying very little or no tax in the first place) as their pot gets the 20% 'uplift' anyway. But such EEs won't benefit as much from tax relief under Sal Sac (as the uplift is applied to zero contribs)!

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By Matrix
21st May 2021 20:52

Nest have confirmed the scheme is RAS and no possibility of changing prior submissions. I will correct going forward.

Client has asked me to contact previous accountant. I wish I had just corrected going forward and not said anything.

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By Hugo Fair
21st May 2021 22:49

OK'ish (in that if that's what NEST wants then that's their choice - but if I was the client, or previous accountant, I'd still try to get that in writing so that there's no comeback when they potentially hit a reconciliation problem for the scheme with HMRC after year-end).

What it doesn't resolve is the PAYE situation - where the employee has wrongly had her/his taxable pay reduced even though the contribs were for a RAS scheme.
I guess if you can get it right for May then you might get away with thinking of the YTD errors caused by April as being 'minor' (or just "someone else's problem"), but the PAYE figures will remain incorrect all year unless April is corrected.

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By Matrix
22nd May 2021 05:26

Actually I think I have corrected the tax for April. I used the gross pay rather than the taxable pay in the P11s for the mid-year start so cumulative tax will be right.

I wish I had just agreed to draft an email for my client to send to their previous accountant to sort out directly.

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By Hugo Fair
22nd May 2021 11:30

Sorry ... you probably know this (although a surprising number of people don't) but the tax elements of PAYE are ALL based on YTD values. So for instance your software won't simply calculate 'this period' tax due (and as an aside add this to the previous period's YTD value to report as the new YTD value) ... it calculates the YTD tax due and then deducts the previous period's YTD value to generate the tax due for 'this period'.

And the entirety of HMRC's PAYE systems still work like this (which is why a new 'corrective' FPS really only matters in terms of all the corrected YTD values).

So, when you say that you "used the gross pay rather than the taxable pay in the P11s for the mid-year start", did you also adjust/over-ride the month 1 YTD values for everything else affected?
An FPS contains a YTD data item for Taxable pay - but also for Total tax, Total SL, Total PGL, various Statutory pay types, BiKs via payroll, all the NIC components ... as well as highly specific ones (for things like termination awards), and most importantly for EE pension contribs (with a different data item depending on whether the deduction was taken under NPA or RAS - items 150 or 151)!

This is why I said that technically the payroll need to be re-run (at least for any pay periods already processed/submitted in this tax year) AND the FPS corrected before you process the next pay period.
But also why I said that if NEST don't want to play ball (and the amount at stake might be quite small?) you may be prepared to risk it.

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By Matrix
22nd May 2021 11:39

The tax looked cumulative to me.

I haven’t been instructed to rerun April. If I am instructed in the next few days then I can take a look. It is entered as a mid year start so I don’t think I could rerun anyway.

Thanks for all your comments. I would prefer not to get involved in the history.

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Replying to Matrix:
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By Hugo Fair
22nd May 2021 11:46

Fully understood ... enjoy the weekend!

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By kathyk0410
20th May 2021 16:53

duplicate

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