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Where’s my PAYE settlement agreement letter?

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What’s a PAYE settlement agreement?

PAYE settlement agreements (PSAs) are optional arrangements that allow employers to pay the tax and National Insurance contributions (NICs) for benefits-in-kind on behalf of their employees. They’re also useful when declaring benefits on P11D forms would be administratively burdensome.

PSAs have therefore proved popular with employers, even if they can be expensive; if you’re paying the tax and NICs on behalf of your employees, this is itself subject to tax and NIC.

However, this popularity is proving to be a headache for HMRC. Although it up to the employer (or their agent) to calculate that tax and NIC payable each year, PSAs are not strictly a self-assessment system. Each calculation needs to be approved by HMRC before the payment deadline of 19 October (22nd if paying electronically).

Processing delays

Over the past few years, HMRC have been getting further and further behind in approving PSA calculations sent to them by employers. For 2018/19 the situation has reached a new low. Less than two weeks before the payment deadline we have been informed by HMRC that they have not even started to process PSA calculations.

This means that employers won’t have a letter from HMRC confirming the amount to pay, where to pay it and, crucially, the payment reference to use. This reference is specific to each employer and tax year.

What to do

HMRC have told us that employers should not wait to receive confirmation of their PSA calculations. Instead, you should pay over the tax and NIC liability that you have calculated using the usual payment methods, detailed on HMRC’s website by the payment deadline above.

You must still use a payment reference, even though HMRC won’t have sent you a confirmation letter. Fortunately, a payment reference can be found in the letter from HMRC enclosing your countersigned P626 – the letter that put the agreement in place. Although it is not tax-year specific, it is unique to each employer and therefore HMRC have confirmed to us that it can be used in this situation. This is in the format XX0000123456789.

What next?

If you are in any doubt, we suggest that you contact the HMRC employer helpline on 0300 200 3200 to confirm your PSA payment reference as soon as possible, making sure that you have your PAYE reference number to hand.

What is the Apprenticeship Levy?

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With effect from 6 April 2017, the way that the Government funds apprenticeships is changing. Any UK Employer with a “pay bill” of more than £3m in a tax year will pay the new Apprenticeship Levy to assist in funding apprenticeships across the UK. Once Employers have registered and paid the levy, they will then be able to access funding of new apprentices through a digital apprenticeship service account. The Apprenticeship Levy applies to all employers operating in the UK and not just employers already employing apprentices or those who will be in the future.

There is no opt-out. UK Employers who meet the more than £3m annual “pay bill” must pay the levy regardless of number of employees, size of turnover or industry sector.
If you are connected to other companies or charities (see below), which in total have a “pay bill” of more than £3m then you are also liable.

What is the “pay bill”?

The pay bill is based on the total amount of earnings on which an employer is liable to pay Class 1 employer NIC and includes the following;
• Any remuneration including wages, bonuses and commissions
• Earnings of employees below the lower earnings threshold
• Earnings of employees under the age of 21 and apprentices under the age of 25.

How to calculate the “pay bill” amount?

At the start of each tax year, the Employer must determine its annual pay bill in the previous tax year (2016-17). If it was more than £3m then the Apprenticeship Levy is payable. If not, then the Employer must assess whether its pay bill for the current tax year is expected to exceed the limit. If the expectancy is that it will, then the levy is calculated each month from April 2017 in the same way that PAYE liabilities are reported and settled.

How much is the Apprenticeship Levy and is there an allowance?

The levy amounts to 0.5% of the Employer’s annual pay bill offset by a Levy Allowance. Employers not connected to another company or charity will have an annual levy allowance of £15,000. Hence, Employers with a pay bill of exactly £3m will have no liability as any charge will be wholly offset by the allowance.
Any payments made in respect of the Apprenticeship levy are deductible for the purposes of calculating the Employers tax liability.

Are there any restrictions?

If the Employer has more than one PAYE scheme, or where companies are connected, only a single £15,000 Levy Allowance will be available. The allowance can be shared across the schemes or companies in any manner, by notifying HMRC through the monthly payroll reporting procedure. However, you cannot change the allocation of the allowance during the tax year.
The connected company rules are the same as those used for the Employment Allowance.

How do I determine if my company is connected or not?

Basically two companies are deemed connected if;
• One company controls the other
• Both companies are controlled by the same person or persons.
The term “control” is described as where an individual has or is entitled to acquire the greater part of the share capital or voting rights in a company or the greater part of the income or assets in the event of a winding up.

If you have any questions regarding the Employment Allowance or your own payroll situation, please e-mail paye@goodmanjones.com

New tax year changes for employers and employees

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6 April is not only the start of the tax year but the commencement date for a number of new obligations on employers.

Apprenticeship Levy

Any employer with an annual wage bill of more than £3m must contribute 0.5% of their wage bill to a central training fund. The aim of the fund is to enable employers to access training for apprentices from registered providers. Although employers with a wage bill of less than £3m per annum are exempt from contributing to the fund, in due course they will be able to access apprenticeship training schemes. The levy has come out of the government’s belief that the UK lags behind other European countries in productivity and this may be due to a lack of skills in the workforce.
It is said that the contribution has been set at rates which ensure that large employers who provide considerable training can receive more benefit from the scheme than they contribute to it. This gives them an incentive to offer training. Small employers who do not have to contribute can find that almost all of their qualifying training will be paid for by this fund. Again this is an incentive for them to take on and train apprentices.
Although the levy is UK-wide there are separate arrangements for Scotland, Wales and Northern Ireland.
The levy will be managed via the PAYE system whilst the training credits are accessed through the government’s gov.uk website. Funds will have a finite life and this is an incentive for employers to provide continuous training.
This is not the first time that the PAYE system has been used for non-payroll matters. With the introduction of Real Time Information it is easier for HMRC to separate out the component parts of money transfers. The Construction Industry Scheme and reporting for auto-enrolment are other examples of the payroll process being used for non-payroll matters and I expect that it will be put to other uses in the future.

Gender Pay Gap Reporting

The apprenticeship levy is not the only change for larger employers this month. Any organisation that has 250 or more employees must publish and report specific figures about their gender pay gap. The report must be published on their website and the figures need to be provided to the government.
The gender pay gap is the difference between the average earnings of men and women expressed relative to the males’ earnings. The gov.uk website gives the example “men earn 15% more than women per hour”. Organisations that have fewer than 250 employees are not obliged to report this information. There is a hope that they will do so voluntarily.
The pay gap figures must be calculated using a specific reference date (called the snap shot date) which, depending on the reporting entity, will be either 31 March or 5 April. There are detailed regulations to determine how one calculates the numbers of employees and there are further regulations determine how one defines an employee.

Young apprentices

From next month there is a further change for employers as companies with fewer than 50 employees and which take on the youngest apprentices (or older apprentices with disabilities) can access specific government financing. This is a further incentive to recruit and train these employees.

Salary Sacrifice now OpRAs (Optional Remuneration Arrangements)

Employees also experience change from 6 April. The salary sacrifice legislation has been varied and this will reduce the extent that employees can exchange taxable salary for other benefits. There is a follow-on proposal that the P11d form will be redesigned to report any salary sacrifice undertaken by the employee.

Conclusion

Employer obligations have always been complex, whether they are regulatory, legislative or industry requirements. Those obligations have recently become more burdensome.

We support employers in a number of ways.  Our HR support service has assisted a number of organisations in managing their systems and processes to ensure that these requirements are met.  We can also help employers with payroll and tax.

Penalties: RTI (Real Time Information) for PAYE

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From 6 March 2015, HMRC’s late filing penalty regime extends to employers with fewer than 50 employees.  The penalty regime for large employers- those with more than 50 employees, was introduced back in October 2014.

Under Real Time Information (RTI) a Full Payment Submission (FPS) must be submitted to HMRC on or before an employee is paid.  An Employer Payment Summary) (EPS) is made each month to disclose any adjustments to amounts being paid to HMRC including statutory sick pay and statutory maternity pay.

Under the penalty regime, any second late filing of the FPS or EPS (one default is permitted in any tax year) will result in an automatic late filing penalty dependant on the number of employees as illustrated in the table below;

 

Number of Employees Amount of monthly filing penalty
1 to 9 £100
10 to 49 £200
50 to 249 £300
250 to more £400

 

If a filing is more than three months late HMRC may charge an additional penalty of 5% of the tax and national insurance that should have been reported.

Confusingly, HMRC have announced that all returns may be late by up to three days without incurring a penalty.  This consideration is not expected to be withdrawn any time soon.

HMRC have recognised that micro-employers – those with up to nine employees, require more assistance in dealing with the adaption to RTI and hence, they can continue to file their FPS on or before the last payday in the month until April 2016. After this date, they expected to comply fully with the RTI legislation.

Employers can appeal against RTI penalties subject to a 30 day time limit. HMRC have issued guidelines as to what constitutes a “reasonable excuse” and these include death/bereavement, ill health, IT difficulty and theft/crime.

If you need any assistance with RTI or are interested in Goodman Jones becoming your payroll provider, please contact our payroll team at paye@goodmanjones.com

Student Loans – Do you need a degree to understand the rules?

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With A-level results released over the summer in England, Wales and Northern Ireland, you may be one of the thousands of students who have recently headed off to university. It is likely that you will have received a loan from the Student Loan Company (SLC) to help finance your studies and associated living costs.
If you are taking out a loan in 2013, the loan repayment provisions will be a low priority until after graduation, but the rules are surprisingly complicated and it can be easy to get caught out.

Types of loan

The first thing to appreciate is that there is more than one type of student loan, and the repayment rules vary accordingly.

Income contingent loans are the most common type of loans but even then the repayment plan varies according to where and when you began your studies. From 1 September 2012, those studying in England and Wales will be on repayment plan 2; students in England and Wales with older loans, and all students in Northern Ireland and Scotland will be on repayment plan 1. The main difference between the two plans is the point at which the requirement to start repaying the loan begins: an individual on plan 1 will start repaying their student loan when they earn over £16,365 before tax in the year, the annual threshold for plan 2 is set slightly higher, at £21,000 before tax.

How does the repayment system work?

The requirement to repay a student loan starts from the April following the date you either graduate or decide to leave your course.

If you are employed, HM Revenue & Customs (HMRC) will notify your employer that you have an outstanding student loan and will confirm the repayment plan that applies. At the end of the tax year, your employer will notify HMRC of the total deductions they have made from your salary, who in turn will notify the SLC. The SLC will apply these repayments to your account.

What do I do if I have overpaid my student loan?

In most cases, loan repayments will be worked out by reference to a monthly earnings period. This means that if your monthly salary fluctuates, the amounts you repay will vary across the year, and you could end up repaying more of your loan than is required. In this situation you can request a repayment, but you may wish to do nothing. After all, the overpayment will mean your student loan is repaid more quickly and you pay less interest!

What do I do if I have nearly paid off my loan?

The SLC recognise the possibility that repayments will be made in excess of the original student loan. Accordingly, they write to all employees with outstanding loans where they believe the loan will be repaid in full within the next two years, offering them the opportunity to instead make monthly direct debits.

This option is only available to employees: if you are not employed, but are making student loan repayments you should monitor the outstanding balance on your student loan, and immediately request a repayment if you end up overpaying.

The SLC will only issue a repayment upon request, there is no facility for repayments to be issued automatically.

In conclusion, the repayment of your student loan is a two-step process: starting with establishing the type of plan you are on, and when your obligation to make repayments begins, followed by carefully monitoring the balance on your loan to ensure you do not overpay in error.

Are You Losing Child Benefit?

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With effect from 7th of January 2013, child benefit will be reduced for families where one partner’s annual income exceeds £50,000.

The benefit will be reduced for income between £50,000 and £60,000 and will be lost completely if income exceeds £60,000.

If this applies to you, you will be expected to make a declaration on your self-assessment tax return and if you do not already complete a self-assessment tax return you may now need to complete one.

Pension contributions and charitable donations paid under the gift aid scheme are taken into account when calculating income for this purpose. It is therefore possible to reduce your income and the loss of child benefit by making such payments.

Individuals paying tax under PAYE can also apply to adjust their tax code to claw back over paid child benefit and thereby avoid the need to submit a self-assessment tax return.

If you are unsure of what this means for you or you wish to consider your options, then please contact us.

HMRC to run the Nation’s Payrolls!

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The latest bit of blue-sky thinking from HMRC is how wonderful everything would be if it ran the payrolls of all the businesses in the land. No more coding notices, P45’s, P35’s, etc etc, PAYE and NIC liabilities settled by Direct Debit – a paradise of efficient tax management.

One has to wonder, what planet are they on? This is the organisation that, when it loses data, does it in spades, runs a bureaucracy where those within it don’t know what their colleagues are doing, whose Complaints Division writes letters stating “The Online Customer Service Team is committed to providing high-quality services” but then ignores the complaint itself, whose most senior official doesn’t acknowledge failings within his department identified by all and sundry – I could go on, but you get the drift.

Anyone in business in the real world knows just how crucial it is that employees are paid the right amount at the right time. Whatever else you do in business, you don’t play fast and loose with employees’ pay. If there’s an error, it’s today’s problem, not tomorrow’s. You don’t park it on a backburner in the corner, you prioritise it right now and get it sorted.

Picture the scenario – HMRC’s National Payroll Administration system goes live online. As the employer you register for it, and await with baited breath the arrival of the Activation Code. Why an Activation Code? – because that’s the tried and tested mechanism HMRC has adopted for VAT Online Services. Seven business days pass, no Activation Code – you call the Helpline. You hang on for 10 minutes listening to the latest completely irrelevant prerecorded message you can’t escape, then the message telling you about HMRC’s wonderful Online Services accessible at www.hmrc.gov.uk, and eventually, if you’re very lucky, you get to speak to a real person – who tells you to reapply – online. Seven more days – no code. Try the Helpline again, they don’t know what the problem is, they never do – this goes on for weeks. Eventually you find out that somewhere within the bowels of bureaucracy, someone has flagged your business as a “missing trader” – this occurs if a letter addressed to your business is returned to HMRC – AND NO-ONE AT HMRC HAS NOTICED THE FLAG!!

Let’s assume you eventually do get enrolled for the service. You then upload your data – staff details, gross pay, commissions due, Student Loan deduction, AVC’s, expenses reimbursement – where do you put expenses reimbursement? It isn’t there, HMRC didn’t think your payroll may do more than just take off tax and National Insurance. So you have to change your well-established structures to accommodate the limitations within HMRC’s so-called blanket coverage.

Eventually everything gets entered, the payroll gets processed – and a queue of aggrieved employees forms outside your door. One by one they troop in, show you their e-payslips – they’re wrong, wrong, wrong! But how can you deal with it? You can’t pop down to your payroll administrator / HR person and get an answer, because the error seems to have occurred within the system – HMRC’s system, not yours. It’s back to the Helpdesk – who advise you to write to their Complaints Team – who send you a letter saying “The Online Customer Service Team is committed to providing high-quality services” but ignore your complaint ……….

Remember those paintings by Hieronymous Bosch? The ones that look like Bedlam? He’d have a field day with this.

Construction Industry Scheme and Gross Payment Status

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Following on from Graeme’s post about the Time to Pay arrangements.

Are you in the Construction Industry? Have you got Gross Payment status? If you have, you’ll know how valuable that status is, and you’ll be well aware that losing that status could lead to a loss of up to 20% of cash inflow. And that would be terminal for many businesses.

In these difficult times of slowing customer payments and restricted funding from banks, it’s easy to allow PAYE and Corporation Tax payments to take a back seat to other creditors. But if you do you could be putting your Gross Payment status at risk.

Under its recently published “Time to Pay” scheme, the Inland Revenue has clarified that businesses entering into an arrangement under it will not lose their gross payment status.

But it’s vital the business agrees the Time to Pay arrangement before payment is due, not after. And whilst there is still a risk that the “computer” will send out automatic notices of revocation, the Inland Revenue has also confirmed these will be cancelled on immediate appeal.

So the message is – use the scheme or lose the status.

The Business Payment Support Service

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One announcement of the Pre-budget report of 25 November was a new service for businesses in temporary financial difficulty that were unable to pay their tax bills. They would be able to spread their bills over a timetable they could negotiate with the business support service of HMRC. This service would cover all taxes paid by the business, including Corporation Tax, VAT, PAYE, Income Tax and National Insurance Contributions. Although interest would be charged on late paid tax it is anticipated that this rate would be lower than that of bank borrowing.

A key requirement is that contact is made with the business payment support service’s helpline before the due date of payment of the tax. The helpline would only be able to deal with requests in advance of the tax being due. If approach is made after the due date then it would not be dealt with by the helpline, but rather by the local tax district dealing with the business’ tax affairs. The local district may be less sympathetic than the dedicated helpline.

Since November, HMRC have issued guidance on the operation of the service. The guidance is welcomed as it covers some very practical matters, such as mechanism where a partnership (or partner of a partnership) is experiencing cash flow problems.

Two particular matters within the guidance that caught my eye were the review of agreements and the interaction with the Construction Industry Scheme (CIS).
The guidance accepts that a payment agreement may be negotiated in good faith but the taxpayer then experiences unexpected, further, cash flow problems and who cannot meet the agreed payment profile. HMRC will consider such circumstances on a case by case basis. Again, the key is to notify HMRC of the further problems before a payment is due.

CIS allows certain contractors in the construction industry to receive payments gross of tax. There are very strict conditions to be able to qualify for gross payments. The guidance confirms that negotiation of a payment profile with HMRC will not deny “gross status”. This is a welcome confirmation as receipt of invoices net of tax can only exasperate a cash flow problem.
In the round the business support service is a welcome announcement and HMRC have issued some helpful guidance. Well done!