Archive for the 'Employee/Employer Issues' Category

Employment Allowance – £2,000 deduction from Employers Class 1 NIC’s

As you may now be aware, the Government has announced that from 6 April 2014 there will be an allowance for businesses who operate PAYE schemes that will reduce their employers Class 1 National Insurance Contributions liability by £2,000.

The allowance will be used against the first £2,000 of employers National Insurance that would otherwise be due to be paid to HMRC.

For a business which has a number of PAYE schemes, the allowance can only be used against one of these schemes.

As is usually the case with these sorts of allowances, there are various rules in place; and in this instance the main rules that we think that you need to know about are the rules that are in place relating to the claiming of the allowance where there are connected businesses. Many of these rules are based upon the connected persons rules which are used for corporation tax purposes.

Below is an explanation of some of the various rules and scenarios regarding the claiming of the £2,000 allowance:

Simple rules/scenarios

Where a company is part of a group of companies, only one company can claim the allowance. It is a personal choice which company should have the allowance, although we would suggest that you claim the allowance in the company which has the highest National Insurance liability.

If two or more companies are under the control of the same person(s), then they are only entitled to one allowance between the companies; and once again you have to specify which of the companies will claim the allowance (you can’t share it out between the companies, nor can unused allowances be transferred to other companies). Once again we would suggest that you claim the allowance in the company which has the highest National Insurance liability.

More complex rules/scenarios

The outcomes in these situations depend on the result of a test to determine what HMRC call ‘substantial commercial interdependence’. The connected persons/connected businesses rules only apply where the companies in question are deemed to be substantially commercially interdependent.

In simple terms, companies are connected where there is a reliance/link between the companies.

For companies to be substantially commercially interdependent (and therefore only entitled to one employment allowance between these companies), there needs to be a link between the companies which is either financial, economic, or organisational (you only need one of these links to be treated as being connected):

  • Financial interdependence – this is where one company gives financial support to another, or companies have a financial interest in the affairs of the same business.
  • Economic interdependence – this is achieved where the companies either seek to realise the same economic benefit, have activities which benefits one of the other companies, or where the companies have common customers.
  • Organisational interdependence – this occurs where the companies have common management/premises/equipment/employees.

Remember, if one of the above links is present then only one employment allowance can be claimed in one of the companies; the rest of the companies will not have an allowance for the year.

Differences for unincorporated businesses

The rules for unincorporated businesses (sole trades and partnerships) are the same as for companies, with one noteworthy exception.

If an unincorporated business which claims the employment allowance does not have a liability of £2,000 for employers National Insurance in the year, any remaining allowance not used can be transferred and used against the PAYE scheme of another unincorporated business controlled by the same person(s). This transfer of the remaining allowance will take place after the end of the tax year.

For example, if you claimed the employment allowance against a sole trade business which only had a liability for employers National Insurance throughout the year of £1,600, the remaining £400 not utilised could be transferred to reduce the employers National Insurance due in another sole trade business.

If you have any questions regarding the entitlement of your business/businesses to the allowance then please contact your client manager or our payroll team who will be happy to help you.

This article was compiled by Phil Auckland.

Problems With HMRC Basic PAYE Tools

THE FREE SOFTWARE provided to small businesses by HM Revenue & Customs is failing to file real-time PAYE submissions.

The Basic PAYE Tools (BPT) software package is available to employers with nine or fewer employees, and is designed to work out tax and national insurance contributions for each payroll cycle, and report it to the taxman in real time.

However, a software issue has seen an error message appear when employers attempt to make PAYE submissions, while taxpayers calling the RTI helpline were met with a recorded message acknowledging the fault and assuring them the issue was being investigated.

An element of Windows, known as a registry key, has been removed in a Windows update. The key is needed to enable full functionality of the software. Without its presence, the software is unable to successfully submit the information.

HMRC has published guidance advising users that although information about restoring the key is available from various sources online, HMRC itself cannot provide instruction on how to, as it is unsure why the key was removed.

The taxman will, however, release a software update at the end of May negating the need for the key. In the meantime, taxpayers are advised to continue running the payroll system as normal and submit the information once the update has been installed.

A spokesman for HMRC said: “The roll out of RTI is progressing well. Since 6 April over one million PAYE schemes have successfully started to report PAYE in real time. This includes over 140,000 BPT users successfully submitting returns.

This article has been provided by Ashley Barrowclough, Partner at Balance Accountants.

National Minimum Wage to Rise from October 2013

The Government has announced that the main rate of the National Minimum Wage (NMW) will rise by 12p to £6.31 an hour from 1 October 2013.

Announcing the change, the Business Secretary Vince Cable also revealed that the hourly rate for those aged 18 – 20 will increase from £4.98 to £5.03, while the rate for 16 and 17 year-olds will go up by 4p to £3.72 an hour.

The Government accepted the recommendations put forward by the Low Pay Commission (LPC), although it rejected the LPC’s proposal to freeze the minimum rate for apprentices.

Instead, Mr Cable announced that the apprentice rate, which applies to apprentices under 19, or those 19 and over in the first year of their apprenticeship, will rise from £2.65 to £2.68.

The decision has provoked a mixed response, with some business leaders describing the move as ‘illogical’ and ‘unwelcome’.

Mike Cherry, national policy chairman of the Federation of Small Businesses, said: ‘The increase in the national minimum wage is unwelcome in today’s economic climate. We understand the Government must strike a balance between boosting consumer spending and economic growth, however they must ensure the UK’s small businesses stay competitive at a time when the economy remains fragile.

‘There will be businesses that operate on thin margins, who will struggle with any increase to the minimum wage.’

His thoughts were echoed by Dr Adam Marshall from the British Chambers of Commerce (BCC), who warned that the scale of the increase would add significantly to the cost pressures on businesses.

Yet the TUC said it would have liked to have seen the Government do more to help those on lower incomes.

‘Boosting the incomes of the low-paid goes straight into the economy and wage-led growth must be part of the recovery, so we would have liked to have seen minimum wage rates go up further today, even if the Government has rightly rejected calls for a freeze,’ commented TUC general secretary Frances O’Grady.

This article was compiled by Ashley Barrowclough, Partner at Balance Accountants.

P11Ds (Benefits-in-Kind) – an outline

The P11D season is upon us once again…

The P11D is a statutory form required by HMRC from UK based employers detailing the cash equivalents of benefits and expenses that they have provided during the tax year to their directors, and employees earning more than £8,500 per year (including benefits).

Cash equivalent means the cash value an employee will pay tax on according to the type of benefit they have been provided by their employer.

The basic cash equivalent formula is: –

Cost to the Employer of providing the benefit (inc VAT)
Amount made good by the employee (Out of their net pay)
the Cash Equivalent

However there are some very complicated rules to calculate the cash equivalents for certain benefits such as company cars, beneficial loans, provision of living accommodation etc.

Here are some examples of what should be included on your P11D:

–        All expenses reimbursed to you by the company for business expenses incurred for you personally, whether or not you physically withdraw the cash or not.

–        All business expenses the company meets on your behalf. Common examples of the company paying for genuine business expenses for you personally would be entertaining, subsistence, etc.

–        All personal expenses the company meets on your behalf

–        Company car benefits must also go on your P11D, and these will attract a tax and Class1NIC liability. It is often better to keep your own car personally and charge the company mileage instead.

It is possible to apply for a P11D dispensation whereby you agree to adhere to certain rules, and, if accepted by HMRC, this precludes the need to do P11D’s from the date the dispensation is agreed. This is obviously a great time saver, and means that HMRC are made aware of the types of expenses you have in your business, and that these are for business only.

P11Ds (for the year to 5 April 2013) need to be completed and submitted to HMRC by 6 July 2013. Any Class 1A NICs due as a result of P11D benefits must be paid by 19 July (22 July if paid electronically).  By this date the employer must also provide current employees with details of the information contained on the P11D.

This article was compiled by Karen Ashton, Client Manager at Balance Accountants.

Employee Shareholder Contracts – Budget 20 March 2013

Chancellor George Osborne previously announced a radical new style of

employment contract which comes into force by 1 September 2013.

If taken up, new employees will forfeit their rights to redundancy, unfair

dismissal, time off for training, the right to flexible working patterns and return

from maternity leave will need to be notified 16 weeks in advance and not 8 as

is usual practice.

In exchange for this loss of rights, they will be issued with shares in the company

worth between £2,000 and £50,000. Should the employee leave or be dismissed,

the company will be able to buy back the shares and Capital Gains Tax will not be

payable on any profit.

The 2013 budget announced that the first £2,000 of share value that anyone

receives under the new status will be free from income tax and NICs. This will be

of particular benefit to anyone receiving the minimum amount of shares, as it

will ensure that no tax is due when they receive their shares. This will take effect

from 1 September 2013, when the new status comes into force.

Back to Main Page – Budget 20 March 2013

Employers’ Allowance – 20 March 2013

For our clients who are considering taking on more employees, the £2,000

Employment Allowance, a reduction in the amount of Employers National

Insurance (NIC), will be a significant boost. Every business will be able to employ

one worker on a salary of £22,400 or four employees working full time on the

adult National Minimum Wage, without paying any employer NICs at all.

The allowance will be claimed as part of the normal payroll process through Real

Time Information (RTI) which comes in for payments made after 6 April 2013.

Back to Main Page – Budget 20 March 2013

Personal Service Companies and the Employment Status Checker

It is possible for individuals to form a company and through that to provide their services for a fee, e.g. a freelance consultant.  The consultant, being a shareholder and director of the company, can pay a salary at whatever rate they choose as they are not subject to the National Minimum Wage rules. Some of the taxed profits of the company could be paid out in the form of a dividend and up to the limit of paying tax at basic rate, no further tax is payable and there is no National Insurance Contributions on dividends.

There are some consultants who are running their business through a limited company but are only contracting to one client and HMRC introduced specific intermediaries legislation, commonly referred to as IR35, to ensure a contractor is in fact a legitimate contractor and not an employee of the client they are contracting to.

If an individual supplies services to a client through an intermediary, more often than not this will be a company. If that company didn’t exist, the individual would be classed as an employee of the client and PAYE and NIC should be deducted as if the individual was an employee.

Of course this leaves the contractor uncertain about their status and whether they could fall foul of the IR35 and have to pay the further amounts over to HMRC.  Therefore, HMRC have recently put in place the “ Business Entity Tests”.

If you would like to test the status of your business then take a look at the ‘tests’ online at

This article was taken from our Pay Less Tax brochure 2012.

Universal Credit

Universal Credits is the flagship of the Welfare reform bill discussed in November 2010 – it is payable to individuals on low incomes and is designed to top up their earnings.  It will be rolled out in four areas next April – Tameside, Oldham, Wigan and Warrington – with the remainder of the country going live in October 2013.

The Universal Credit will be accessible through the Government Gateway website and all claims will be managed online with payments for one month being made on the basis of the earnings from the previous month – and for the employed this process does appear to be in line with the Governments objectives of making the system simpler.  Salaries will be recorded monthly through the PAYE scheme and HMRC will pass on the information to the individuals’ Universal Credit accounts.  In turn the individual will retain more of their earnings rather than have a deduction for tax.

But what about the self-employed? – the new start up businesses who want to take themselves out of unemployment, or potentially the entrepreneur who has a business idea he or she wishes to persue?  These individuals will have little or no earnings in the first few months or possibly a year.  It is likely that they will initially set up as a self employed soletrader with no salary/earnings and they will have no employer to pass on the Universal Credit payment to which they are due.

As the workings of the Universal Credit are finalised it is becoming clear that the lower earning self-employed worker will have more administrative burdens placed upon them.  The self-employed worker with need to report their monthly income from self-employment  to the Department of Work and Pensions (DWP) but will need to be in a different format to that required by HMRC’s new cash accounting basis, introduced in the last budget.  It will also need to be in a different format to that used for producing official accounts.  A third set of information will be required and there will be a window of only seven days to provide the information or the payments will stop.

There is also the uncertainty for workers who do not know if their earnings are reported through the system by those they do work for.  This would result in the potential loss of much needed support during the period of uncertainty.

It has been suggested that small businesses, where the family currently obtain Tax Credits, and new start up businesses may want to consider incorporating their businesses in order to have a salary paid on a monthly basis.  The salary can be operated through the PAYE system, removing the necessity to undertake the burden of monthly accounting to the DWP via HMRC.  Broadly, the overall administrative burden is less when a limited company is used and it may be worthwhile to review this option before the Universal Credit commences.  However, the additional costs incurred in incorporating a business and producing full accounts at a time when businesses are trying to keep overheads to a minimum, may outweigh these benefits.

It is also worthwhile having a transition plan in place if you have a Tax Credits overpayment which is being repaid to HMRC on a monthly basis.

We will be keeping an eye on how options develop for the self-employed, and will inform people accordingly.

This article was taken from our Pay Less Tax brochure Summer 2012.

Minimum Wage Increase from 1 October 2012

New national minimum wage rates come into force on 1 October 2012.

  • The adult rate will increase by 11p to £6.19 an hour.
  • The rate for apprentices will increase by 5p to £2.65 an hour.

Business secretary Vince Cable agreed with the Low Pay Commission’s recommendation that there would be no benefit in increasing the rate for 16 – 20 year olds as this would make it more difficult for young people to find emplyment, therefore, there has been no change in the following rates:

  • The rate for 18-20 year olds will remain at £4.98 an hour.
  • The rate for 16-17 year olds will remain at £3.68 an hour.

Extract taken from our 2012 Spring edition Tax newsletter – if you would like to subscribe please leave your details here.

What is Real Time Information (RTI)?

Real Time Information, or RTI, is a new system that is being introduced by HMRC to enhance the whole process of Pay as You Earn (PAYE).  PAYE information will be collected more frequently and more efficiently when employers submit their regular payroll submissions.

The PAYE system has remained more or less unchanged since it was first introduced in 1944.  It is the method used by employees to pay Income Tax and National Insurance Contributions (NIC).  Employers deduct payments from employees’ pay weekly, four weekly or monthly.

The reason it has remained unchanged over the last 68 years is that for most employers and employees it works.  However it is prone to fraud which can make it difficult for HMRC to spot errors and help employers and employees resolve problems quickly and efficiently.

Under the HMRC RTI system, employers will be required to send data about PAYE, NIC and student loans electronically, every time they pay their employees, rather than with their end-of-year tax return (P35).  HMRC hopes that RTI will help them to operate more efficiently and accurately.

Why is HMRC introducing Real Time Information?
The introduction of RTI will enable HMRC to respond more efficiently to errors and will increase the accuracy of PAYE, lowering the need to issue corrections for overpayment or underpayment and reduce the potential for fraud.

What does it mean for your business?
Rather than sending information once a year at Payroll Year End on a P35, employers will be required to submit information electronically to HMRC for PAYE, NIC and student loans etc. every time they pay their employees.

Trials for Real Time Information (RTI) are going to be happening from April 2012, and by October 2013 it’s going to be mandatory (**see footnote) for all businesses to process PAYE data using the new system.  You need to ensure that your business keeps up to date and is ready to stick to the upcoming changes in legislation.

At present there is no real need to change over to or upgrade existing payroll software this soon, unless you really want to.  Based on the current information it would make sense to do this in April 2013, at the start of the 2013-14 tax year; this way you should be ready to comply with mandatory filing requirements by October 2013.

There is no real guidance giving information on how this will all work next year, but it is reasonable to assume that it will be along the lines of how VAT is now reported online by all registered businesses, which has proved to be quite simple.  One main difference though is that VAT has to be reported quarterly, but PAYE will need to be reported monthly or weekly.  Using integrated  payroll software will most likely help you to report the required information with the click of a few buttons.  If you want the convenience of integrated software, but not the expense, then you could benefit from using the HMRC PAYE basic tools.

If all of this seems to turning your payroll admin into an unnecessary burden for you then you could always employ the services of a reputable Payroll Bureau.  Some people still use manual payroll stationery and may not want to adopt computerised systems at all; again, letting a Payroll Bureau deal with it for you might be worth the expense. We have a lovely Payroll Bureau here at Balance, by the way :0) with very reasonable costs.  You can have your payroll processed by us without having to be a client for our other services.

So, we’ll all be watching what happens in trials over the 2012-13 tax year and advising our clients accordingly.  Hopefully it will be all that HMRC say it will be.

** since this article was written this deadline has changed to April 2013.

This article was compiled by Richard Simpson and Deborah Bradley on behalf of The Balance Team.
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