Black Mountain quarterly newsletter December 2017 (UK)
DYNAMIC TAX CODING
From July 2017 HMRC made changes to the way they calculate ‘estimated annual earnings’, this determines the rate at which they collect tax on underpayments and restrictions.
Every time we pay employees we send HMRC a ‘Full Payment Submission (FPS)’ which details all payments, tax, NI, pensions etc for each employee. HMRC use this data, together with data they collect from other sources such as pension providers, banks etc to create a full picture of employee’s taxable income and tax paid.
They will then take account of any ‘In Year Trigger’ that could change a person’s estimated taxable income. The triggers could be a starter declaration, an employee reporting a benefit through their Personal Tax Account (PTA), a P11D or P46(Car) etc. When any of these are received HMRC will automatically recalculate the estimated annual income, calculate the tax that would be due for the full tax year and adjust the tax code so that the tax is collected in the current year, thus avoiding any potential underpayments at year end.
One problem that has recently arisen from this though is that some employee’s tax codes are being changed purely on the basis of their taxable pay to date. If an employee has a bonus in the first few months of the tax year HMRC will assume that the taxable pay to date in, say, month 6, is the level that it will be all year. This can potentially push the estimated annual earnings figure above the £100,000 mark where codes are restricted. This is, in some cases, leading to tax codes being issued that would collect excessive tax in the year.
Unfortunately we have to apply any tax codes changes HMRC send through. If any of your employees are issued with a tax code that they believe is incorrect they can contact HMRC by phone or through their PTA.
PAYROLLING BENEFITS - CHANGES FROM APRIL 2018
More and more employers are now taking advantage of the new way of dealing with taxing employee benefits. Since April 2016 you can ‘payroll’ all benefits in kind with the exception of accommodation and beneficial loans. This means the tax will be collected during the tax year and there will be no need to provide a P11D to employees or HMRC. A P11D(b) to report Class1A NIC will still be required.
From April 2018, if you payroll company car benefit the reporting will need to be added to the RTI returns that we currently send from payroll each pay period. This means that you will no longer have to submit P46(Car) to HMRC – just provide us with the data and we will report, calculate and tax the value of the benefit as part of the payroll process.
To take advantage of this you must register with HMRC ‘Payrolling employees taxable benefits and expenses service’ before the end of the tax year (as early as possible to avoid multiple tax codes being issued). You need to tell HMRC which benefits you want to payroll, they will then amend the tax codes for all employees in receipt of that benefit (unless you want to exclude any employees).
Contact the payroll team if you require any further information or look at HMRC guidance at https://gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll.
OPTIONAL RENUMERATION ARRANGEMENTS
We have told you about changes to Salary Sacrifice arrangements in previous newsletters there are two types of ‘arrangement’ that come under OpRA legialation.
Type A – employee exchanges salary for a benefit in kind (regarded as Salary Sacrifice)
Type B – employee chooses a benefit rather than a cash allowance, such as a car or living accommodation.
Under the new arrangements benefits provided under either type will be taxed at the higher value of either the cash or the benefit. However if an employee receives, say, a car allowance but there is no option to have a company car, the employee is taxed on the car allowance.
There are four specific exemptions where the rules haven’t changed; Pensions, Childcare, Cycle to Work, Ultra Low Emissions Vehicles.
As a BACS bureau we pay many clients payrolls directly through the BACS system which is a safe, secure and time efficient way of making payments. As agents though, we do not have access to the exception reports that may be generated as a result of us sending a payroll file. These reports (normally AWACS or ARACS reports) need to be checked by someone in your organisation on a regular basis and passed to us for action.
AUTO ENROLMENT - WHAT’S NEW?
Increased Contributions: April 2018 will see the first increase in the minimum amounts that need to be paid into pension schemes. From this date the minimum employer contribution will be 2% and the employee minimum will be 3%. There will be a further increase in April 2019 to employer 3% and employee 5%.
Re-Enrolment: Many employers are now approaching their ‘Re-enrolment Date’ which is around 3 years after their original Staging Date. Even if you don’t have any staff to re-enrol you will need to complete another declaration of compliance.
There have been some additions to the exemption categories that need to be considered for enrolment and re-enrolment, these are:
Ceased Active Membership – Employees who have opted out within the previous 12 months will automatically be exempt from re-enrolment. Employers can choose to exempt certain employees who left a scheme at their own request more than 12 months prior.
Within Notice Period – To be used if a worker has given or been given notice to end their employment.
Protected Pension Savings – To be used if the employer has reasonable grounds to believe that the worker has protected savings under HMRC rules.
Winding Up Lump Sum – To be used if the employee has been paid a winding up lump sum on termination and then been re-employed.
Original exemption categories are still valid; Expat not working in the UK; Non-Contractual Director or Office Holder; Volunteer; Member of Armed Forces/Cadet/ Training Forces.
New Companies: From October 2017 any new employer will start their automatic enrolment duties from the date they employ the first member of staff.
PERSONAL TAX ACCOUNT
Employees can access their ‘Personal Tax Account’ to view information about their tax affairs and tell HMRC online about changes that may affect the tax they pay. Amongst other things, they can check their tax code and inform HMRC of changes to their company car and address.
HMRC have loaded employees tax and NI history so they can see contributions and check for any missing years. Over time the facility will be extended to view tax calculations for previous years and make payments online.
Employees need to register at https://www.gov.uk/personal-tax-account, they will need their NI number and either a P60 or recent payslip.