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Employer Bulletin: Key messages

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1st Jan 2018
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Once again the information in the Employer Bulletin needs some clarification by payroll expert Kate Upcraft. Much of the space is taken up by hectoring employers about RTI mistakes. Is this the right way to change employer behaviour?

Repetitive content

The December 2017 edition of the Employer Bulletin has one quarter of its content devoted to best practice tips relating to RTI submissions. Similar content was included in both the August and October editions. Whilst I would expect the reporting of PAYE data to be a fundamental part of the Employer Bulletin, the frequency of repetition of this material indicates HMRC has very real concerns about the quality of RTI data it is receiving.

I reflect on this later, but what else did this Bulletin tell us?

Off-payroll

Some 18 years after the infamous IR35 press release was published, this was the year that we effectively went back to the future (but only in the public sector) by requiring end-users to assess IR35 status and initiate tax and NI withholding.

Employment status will continue to take centre stage for tax agents and employers in 2018. We expect to scrutinise all of the following in the new year:

  • draft bill on employment rights from the DWP and BEIS committees;
  • response from HMRC on the Taylor report; and
  • consultation on the possible extension of IR35 to the private sector.

I think that to monitor the effectiveness of the policy and to assist in segmenting deemed workers, HMRC needs to bring in a ‘deemed worker marker’ within the Full Payment Submission before any further rollout of IR35 is considered.

Employer-provided pensions advice

The Employer Bulletin highlights the increase to £500 per person per year from 6 April 2017, for the tax exemption in relation to employer-provided pensions advice, legislated for in

Finance (no 2) Act 2017. What the Bulletin doesn’t mention is that we haven’t yet seen the complementary national insurance regulations, so we currently have a benefit exempt from tax but not from NIC.

Previous employments

In the section on RTI best practice, HMRC urges employers not to include previous pay and tax in the ‘this period’ fields on the FPS. However, it may have been useful to remind employers that previous pay and tax figures, supplied on form P45 or P6, must be recorded in payroll software to inform future tax calculations.

Payrolling benefits

The example given on page four of the Bulletin that explains how to payroll a benefit in kind should make it clear that only a notional amount is added to taxable pay. Employees are not entitled to more money but are simply required to pay tax on an additional amount and equally that the NIC’able pay is not increased by the notional amount, as Class 1A NIC is still payable after year-end. That applies unless the benefit in kind happens to be subject to Class 1 NICs, as set out in sections B, C, E and M of the form P11D.

Using the wrong tax code

Employers are reminded that they are responsible for allocating the correct tax code to a new starter. It is correct that not all employees will have a P45 from a previous employment, but the Bulletin says that only those employees without a P45 should complete a starter checklist.

This advice neglects the student loan complications. Without the completion of the starter checklist, the new employer will have no idea whether deductions should be made for Plan 1 or Plan 2 loans, as the P45 will not make this clear. It is, therefore, good practice that the student loan part of the starter checklist is completed by all new employees, regardless of whether they have a P45.

It may be preferable for the student loan questions to be included in their entirety within an employer’s internal recruitment documentation, to ensure that this information is captured, but no other information is requested that is duplicated on the P45 or might overwrite the information provided on the P45 (such as the current tax code).

Form P46(car)

The Bulletin emphasises that replacement cars can only be reported via the online version of the P46(car), as the paper version doesn’t provide for this most obvious option. Sadly, the P46(car) online service has been notoriously unreliable this tax year, which has meant that many employers and fleet managers have had to send two paper forms, one to end the previous car and one to report the new car. It’s important to remember that the P46(car) should not be submitted at all if the employer is payrolling cars.

P11D and OpRA

The form P11D that will be submitted for 2017/18 is now available, as are the seven supporting worksheets. If you have any benefits in kind that are provided via an OpRA, it is vital that you understand which employees, if any, will be subject to the new reporting rules on the P11Ds which will be submitted in July 2018.

Where company cars are provided under a type A arrangement (traditional salary sacrifice) or type B (car allowance given up in favour of taking a company car), you may need to use worksheet 2B to reach the correct benefit in kind value, following tax law changes for 2017/18.

You may question the fact that the annual value of any capital contributions is used as part of the second step in calculating the ‘relevant amount’ and is not pro-rated to the days of unavailability - as it is if you use worksheet 2 for cars not provided via an OpRA or where the modified cash equivalent is higher than the salary given up. Be reassured this follows the legislation and the accompanying explanation in Booklet 480 on page 133. This is the same benefit in kind value that should be reported through the payroll if the employer has registered to payroll a company car that is provided via an OpRA.

Employees and agents are reporting that HMRC helpline staff are telling them that where an employee takes the cash allowance, they need to establish a hypothetical car in order to calculate the appropriate benefit in kind. This is incorrect. If the employee takes a cash car allowance, then the cash is simply taxed and no comparison to a benefit in kind, hypothetical or otherwise, needs to be made. I have also had reports that paper P11Ds are routinely being returned by HMRC saying that they have to be submitted online; they do not.

A new approach?

Given that the Employer Bulletin reaches no more than around 600,000 of the 1.8 million employers, is this the best communication channel for addressing PAYE data quality? Does the accelerated roll-out of Universal Credit, dynamic coding and the planned more frequent sharing of student loan data mean a new approach is necessary?

Perhaps it’s time, nearly five years since RTI’s inception, to consider some more radical approaches, such as rejecting data files that don’t meet basic data standards.

Equally, HMRC must be aware which payroll software products allow users to submit RTI data that doesn’t conform to their expectations. I’m not aware of discussions taking place within the software community, or the main employer stakeholder forums, (other than TDSF) to drive up data standards. We were told in the RTI implementation report that HMRC has made strides to reduce the creation of duplicate records, and yet these still account for 0.5% of records.

New Year resolution

I hope 2018 brings a more innovative approach to driving up PAYE data quality. In doing so it may free up space in the Employer Bulletin for all the other key announcements for employers and agents!

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