Payroll Director Armstrong Watson
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Automatic enrolment for micro entities

12th Jan 2015
Payroll Director Armstrong Watson
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Well it has taken some time but are we finally nearing the end of a long and painful journey finding out how micro entities and close companies are expected to deal with automatic enrolment, says the CIPP’s Karen Thomson.

Recently the TPR’s office made an announcement that a business is exempt from AE where it has no “workers” or “employees” in the normal sense of the word.

But is this enough and will it actually work for micro entities?

Workers

Examine the employer guidance on the TPR website, and we can see numerous references to “staff”. This is a bit misleading as the legislation uses the term “workers” and most commentators refer to “employees”.

The terms actually have different meanings as anyone running a PAYE scheme will know. However, in terms of AE compliance we can assume they all mean the same.

Representative bodies have been pressing TPR for clarification regarding the position of a business which has a PAYE scheme, and hence will have been given a “staging date” for the purposes of AE, but whose only participants in the payroll are the business owners themselves.

They have payroll entries to ensure they can draw funds from the business on a regular basis and protect their state retirement pension position but have no other relationship with the business except as owners and probably directors.

Where there is up to five of such owners, referred to as “members” the business is called a “close company”.

The question is whether these “members” are employees, workers or staff for the purposes of AE. At the CIPP we have always believed they are not and we know that this view is supported by all the professional bodies. We have not been able to convince TPR that special rules are needed to deal with such unique businesses, until now that is.

AE for close companies

Recently TPR confirmed that as long as the business has no one on its payroll except for its owners it has no obligations under AE. Since none of the members are “staff” the AE process does not have to apply to them.

It will be up to the owners to determine if they wish to enrol themselves in an eligible pension scheme and it is for this reason the process which has been decided is a little less than satisfactory.

TPR writes to each and every business about 12 months prior to the staging date providing key information and guidance about the need to prepare for the enrolment of its staff. It is unlikely that close companies will receive anything different to other businesses and hence it will be down to the business owners to understand that they have no requirement to enrol anyone.

The AE process

We know the process for complying with AE is fairly straightforward. Firstly, create an eligible scheme ready for the staging date. If the business decides to postpone the actual enrolment it is critical that the scheme is in place and ready by the staging date.

This is because even during the postponement period workers have a right to ask to be admitted, in advance of the mass enrolment.

As with the old stakeholder arrangements the business needs to ensure it creates a suitable scheme and does not just select anything going. Workers will want to be assured that they are receiving the best return for the contributions being made and unless the business does the job properly it may find itself being criticised, and possibly held liable, for shortfalls in pension provision due to poor choice of provider.

Choosing one of the trust schemes, like NEST, will minimise such risks, but it emphasises the need for care even at this stage.

Second, assess the workers and determine which are eligible, non-eligible and entitled. Since it is for a very small workforce this is unlikely to be a difficult task but it still needs to be treated with respect. Once done each person has to be informed clearly and unambiguously of their status and what that means for them. They also need to be able to challenge that decision.

The key question is just how much of that process will the micro entity and close company have to go through before obtaining that all important exemption from the whole process?

TPR has advised that when a business receives its 12 month advice notice it ought to write back immediately to inform TPR that it has no “workers” and therefore is exempt from the AE process in full. There is an option to lodge this online, however the business has to quote the reference number which will appear on the notice, whether the exemption response is made in writing or online.

No doubt the business will then receive a further notice containing dire warnings of the consequences of getting this wrong and will probably have additional work to do to confirm their exemption.

Opinion

This does not sound good enough and one member of the CIPP who provides payroll services to micro entities and close companies tells us that he already knows all but one of his clients is exempt and ought to have nothing to do, even though the first staging date on record for his client base is late 2016.

What he would like is for HMRC and TPR to liaise and remove close companies from the list of staging dates. HMRC, he says, already knows which PAYE schemes have been set up for business owners so why is it not being sorted out automatically. Why must these business owners, many of whom are already suffering increasing compliance burdens, have anything to do when the information is already there?

Failing that, our member suggests that a simple tick box with the PAYE scheme number on the TPR website is actually all that is needed. Why a separate TPR reference number and why can't they do it now?

It is clear that while the micro entity has seen an enormous leap forward there is a way to go before the agent community is going to feel the arrangements work correctly. The CIPP and the professional bodies will be continuing to press for developments as they are needed.

AccountingWEB has launched the No-one gets left behind campaign to alert as many accountants as possible to the obligations implied by auto enrolment. Read our simple eight-point statement which sets out the auto enrolment facts you need to know.

Replies (9)

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By ireallyshouldknowthisbut
12th Jan 2015 14:55

.

Good to see some common sense creeping in on this issue. 

My "keep your head in the sand and assume the rules will change" strategy seems to be working.

We have had our first letter instructing a client to register for staging under the pain of death, but no mention of opt outs - which must be the most common outcome given the sheer volume of "director only" payrolls. 

I have ignored it for now.

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By scalesco
13th Jan 2015 11:32

Not quite sure how HMRC 'already knows which PAYE schemes have been set up for business owners'.

This information does not seem to be immediately obvious from the application process and could change at any time.

  

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By buttercup books
13th Jan 2015 22:12

Opening Par says "Recently

Opening Par says "Recently TPR confirmed that as long as the business has no one on its payroll except for its owners it has no obligations under AE. Since none of the members are “staff” the AE process does not have to apply to them."

 

is that "no one" on it's payroll except owners, or no-one eligible or entitled- eg if they have a cleaner on the payroll for £30 per week ????

Some of my clients will be culling small part-timers if that put them into the AE route.

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By girlofwight
16th Jan 2015 18:23

Link

Is it possible, Karen, to have a link to TPRs statement on this.  I for one would like to see the detail.

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By Joe10
23rd Jan 2015 14:54

Not what the pension regulator said!

Karen,

I have contacted TPR trying to find more information on the point as to whether a company with less than 5 “owners” and no staff/employees/workers needs an AE compliant pension scheme. I even sent them the article highlighting the comment under “AE for close companies” and this was their response

“The Regulator cannot comment on articles that have been published by other bodies. As advised, where a company consists of one person, they are automatically exempt from the requirements under the Pensions Act 2008. If a company has workers that are not within a PAYE scheme, this does not mean that they are exempt from the duties under the Pensions Act 2008 on the basis that the owners are the only people within the PAYE scheme. Where there are multiple directors/owners, this does not mean that they are automatically exempt. It is the company’s responsibility to identify if they employ any workers under a contract of employment or a contract of service. This is the same irrespective of the number of directors in the company or within the PAYE scheme. Please note that under the terms of the legislation, a worker is defined as an individual who has entered into or works under a contract of employment or a contract of service. Contracts do not necessarily have to be written; they can be verbal and the terms can be implied. Detailed guidance one has further information on indentifying a worker. Where a company consisting of multiple directors/owners have examined the contractual relationship and determined that none of the individuals are workers for the purposes of automatic enrolment, they should notify us so that we are able to update our records.”

It seems TPR are unaware of the close company exemption. Can you please provide a link to the statement please.

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By Clarke_Co
25th Jan 2015 20:17

Pension Regulator and HMRC PAYE scheme

 Not sure Pensions Regulator is communicating with HMRC to obtain correct PAYE scheme details as I operate my self-employed accountant business from the same address as my husband's company. I do not have a PAYE scheme but my husband's business does. My accountant business details have no connection whatsoever to my husband's business and yet the Pensions Regulator wrote to me about my business's pension staging date and quoted my husband's company's PAYE reference in the letter!!!

When I rang the Customer Service dept at TPR they told me they could not explain why my business name had been attached to my husband's company's PAYE reference!

 

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By Clarke_Co
25th Jan 2015 20:26

I called TPR to enquire whether my husband's company had to set up AE when the only persons being paid via PAYE were him (director and shareholder) and myself (his wife). I was asked if I had a written contract of employment which I do not. The adviser at TPR then told me that as I did not have a written contract of employment and that my husband was the director/shareholder of the company there were no 'Workers' and therefore there was no obligation under AE.

This advice seems to go against TPR's own literature which states

'Please note that under the terms of the legislation, a worker is defined as an individual who has entered into or works under a contract of employment or a contract of service. Contracts do not necessarily have to be written; they can be verbal and the terms can be implied.'

I am totally confused now as to what advice to give my clients who employ their spouse without a written contract of employment.

 

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Euan's picture
By Euan MacLennan
28th Jan 2015 13:50

Why does the letter say nothing about this?

Karen Thomson wrote:

TPR has advised that when a business receives its 12 month advice notice it ought to write back immediately to inform TPR that it has no “workers” and therefore is exempt from the AE process in full. There is an option to lodge this online, however the business has to quote the reference number which will appear on the notice, whether the exemption response is made in writing or online.

There is no mention of this in the recent TPR letter to one of our clients whose staging date is 1 February 2016.  Apart from the dire warnings of new legal duties and "Act now", the letter just goes on about nominating an e-mail address for future communications.

TPR needs to get its act together.

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By monksview
02nd Feb 2015 11:10

TPR reply totally useless

I emailed TPR about exactly this issue, mentioning most of the points above.  Unfortunately all I got back today was an email quoting some of the stock information that can already be found on their website, nothing was addressed.  T'was a totally pointless exercise.  Now  unsure which way to advise my clients as a large amount of them are one director companies employing the director, and the partner on a small salary. 

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