Payroll

An independent review into the evidence on minimum wage rates has been published by the government. The review concludes that increases in the National Living Wage (NLW) have little effect on employment whilst significantly increasing the earnings of low paid workers. This was found to be the case even in countries who had the most ambitious policies for increasing minimum wage rates. The report also concluded that there was room for the UK to explore a more ambitious National Living Wage (NLW) remit resulting in increased wages in the range of 60% to two-thirds of median hourly earnings.

The NLW currently stands at £8.21 per hour, or 58.9% of median hourly earnings. In response to the report, the Chancellor has pledged a more ambitious increase in the NLW such that, on current projections, it is set to reach £10.50 per hour by 2024. This announcement had the caveat that the increase would be subject to favourable economic conditions.

The Chancellor has also committed to expand the living wage to more young people by bringing down the age threshold for the NLW to cover all workers over the age of 21. The government is expected to issue a fuller response to the review in due course. This is also part of the government’s commitment to do more to end low pay.

Whilst many low paid employees will be buoyed by this news, it is important that employers with a significant proportion of staff who are paid the minimum wage rates pay, consider their medium term planning options.

There are late filing penalties in place for employers that don’t report payroll information on time. The size of the late filing penalties depends on the number of employees within the PAYE scheme.

Number of employees	Monthly filing penalty per PAYE scheme
1 to 9	£100
10 to 49	£200
50 to 249	£300
250 or more	£400

Payments that are over 3 months late can be subject to an additional penalty of 5%.

HMRC has confirmed that having reviewed the effectiveness of the risk-based approach to late filing PAYE penalties, they have decided to continue with their same approach as for the 2019-20 tax year. This means that late filing penalties will continue to be reviewed on a risk-assessed basis, rather than being issued automatically. The first penalties for 2019-20 will be issued in September 2019.

This approach means, that penalties will not be charged automatically if Full Payment Submissions (FPSs) are filed late but within 3 days of the payment date and there is no pattern of persistent late-filing. This is not an extension to the statutory filing date, which remains unchanged, and HMRC has confirmed that employers who persistently file after the statutory filing date, but within three days thereof, will be monitored and may be charged a late filing penalty.

This move confirms that HMRC will continue to focus on penalising those who deliberately and persistently fail to meet statutory deadlines, rather than those who make occasional and genuine errors.

The Optional Remuneration Arrangements (OpRA) legislation was introduced with effect from 6 April 2017. The legislation counters the tax and NIC advantages of benefits where an employee gives up the right to an amount of earnings in return for a benefit. This includes flexible benefit packages with a cash option, cash allowances and salary sacrifice.

The taxable value is now the higher of the cash foregone or the taxable value under the normal BiK rules. A benefit is deemed to be provided under an OpRA if it is provided under an arrangement of either type A or type B.

Type A arrangement

Type A arrangements are arrangements under which the employee gives up the right, or the future right, to receive an amount of earnings which would be chargeable to tax in return for the benefit.

Type B arrangement

Type B arrangements can be defined as – other than type A arrangements – under which the employee agrees to be provided with a benefit rather than an amount of earnings.

A benefit does not include arrangements under which the employee reduces their working hours or becomes entitled to additional unpaid leave.

Whilst there is usually no tax relief for ordinary commuting – home to work – there are a number of exceptions. The term 'ordinary commuting' is defined to mean travel between a permanent workplace and home, or any other place that is not a workplace. Case law has established the principle that travelling between your home and a permanent workplace is not a travel expense related to the performance of your duties.

The rules are different for temporary workplaces where the expense is allowable. A workplace is defined as a temporary workplace if an employee only goes there to perform a task of limited duration or for a temporary purpose.

Other home to work travel that may be allowed includes:

• where the employee has a travelling appointment;
• where the employee’s home is a place of work and the place where the employee lives is dictated by the requirements of the job;
• where the duties of the employment are carried out wholly or partly outside the UK;
• where a non-domiciled employee is working in the UK;
• emergency call-outs.

There are also specific exemptions from tax for works bus services and subsidies paid to public bus services as well as for the provision by an employer of bicycles and cycling equipment in order to encourage environmentally friendly transport between home and work.

Loans schemes also known as disguised remuneration tax avoidance schemes have been used by some employers and individuals in order to try and avoid paying Income Tax and National Insurance Contributions (NICs). This is usually done by utilising a loan or other payment from a third-party which is unlikely to be repaid. HMRC has never approved these schemes and has always said they will not be effective for tax avoidance purposes.

A charge (known as the 2019 loan charge) applies to all loans made since 6 April 1999 if they remained outstanding on 5 April 2019. The loan charge policy package is expected to raise £3.2 billion and it has been estimated that 75% of this will come from employers, and 25% from individuals.

HMRC had strongly encouraged disguised remuneration scheme users to come forward and provide all the required information to enable them to settle their tax affairs by 5 April 2019. Anyone who provided all the information needed to HMRC by 5 April 2019, can still settle their tax affairs under the November 2017 terms. HMRC will work to agree settlement in these cases so these users will not have to report and pay the loan charge. However, the settlement must be agreed by the date set out in HMRC’s offer letter, if not the loan charge will be payable.

There are simplified payment arrangements in some cases. For example, HMRC will allow scheme users to spread their payments over 7 years if their current taxable income is less than £30,000 and over 5 years if their current taxable income is less than £50,000. This offer only applies if the taxpayer is no longer engaged in tax avoidance and took sufficient action before 5 April 2019.

The new National Minimum Wage (NMW) and National Living Wage (NLW) rates came into effect on 1 April 2019. The NLW first came into effect on 1 April 2016 and is the minimum hourly rate that must be paid to those aged 25 or over. The new rate for the NLW is £8.21 which is a 38p or almost 5% increase over the previous year.

The hourly rate of the NMW (for 21-24 year olds) increased to £7.70 (a rise of 32p). The rates for 18-20 year olds increased to £6.15 (a rise of 25p), and the rate for workers above the school leaving age but under 18 increased to £4.35 (a rise of 15p). The NMW rate for apprentices increased by 20p to £3.90.

Penalties may be levied if you get this wrong

It is important that you ensure that you have adopted the new rates as there are significant penalties for employers who are found to have paid workers less that they are entitled to by law. If you have underpaid an employee, you must pay any arrears immediately. There are penalties for non-payment of up to 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment can be up to £20,000 per employee and employers who fail to pay face a possible 15-year ban from being a company director as well as being publicly named and shamed.

We would like to remind employers that the deadline for submitting the 2018-19 forms P11D, P11D(b) and P9D is 6 July 2019. P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits.

This is known as payrolling and removes the requirement to complete a P11D for the selected benefits. However, a P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled. It is important to be aware that the deadline for paying class 1A NICs is 22 July 2019 (or 19 July if paying by cheque).

The Optional Remuneration Arrangements (OpRA) legislation was introduced with effect from 6 April 2017. The legislation means that the tax and NICs advantages of benefits where an employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn. This includes flexible benefit packages with a cash option, cash allowances and salary sacrifice. The taxable value is now the higher of the cash foregone or the taxable value under the normal BiK rules.

Don't ignore the forms…

Where no benefits have been provided from 6 April 2018 to 5 April 2019 and a form P11D(b) or P11D(b) reminder is received, employers can either submit a 'nil' return or notify HMRC online that no return is required. Employers should ensure that they complete their P11D accurately, including all the details of cars and loans provided. There are penalties of £100 per 50 employees for each month or part month a P11D(b) is late.  There are also penalties and interest if you are late paying HMRC.

Need assistance with the form filling?

Please call if you need help either completing the individual P11D forms, or any of the associated forms.

If you are an employee and use your own money to buy things that you need for your job, you may be able to claim tax relief for the associated costs. It is usually only possible to claim tax relief for the cost of items that are used solely for your work.

There is no tax relief available if your employer pays you back in full for an item you have bought for work. In addition, you cannot claim tax relief if your employer has provided you with a suitable item, but you want a different or upgraded model. For example, you are provided with a mobile phone for your work, but you want to buy a newer and more advanced model and pay for this yourself.

A claim for valid purchases can be made against receipts or as a 'flat rate deduction'. The flat rate deductions are set amounts that HMRC has agreed are typically spent each year by employees in different occupations. They range from £60 to £140 depending on listed occupations. If your occupation isn’t listed, you may still be able to claim a standard annual amount of £60 in tax relief. If you work in certain listed occupations, you could claim back even more.

Expenses where you may also be able to claim tax relief include:

• if you use your own vehicle for work,
• travel and overnight expenses,
• professional fees,
• costs associated with work from home and
• buying certain equipment to use as part of your employment.

The rules can be complex. If you pay out for costs that you feel you should be able to claim against your tax, but are unsure if you can make a claim, or how to do this, we can help. Please call.

The new National Minimum Wage (NMW) and National Living Wage (NLW) rates came into effect on 1 April 2019. The NLW was introduced on 1 April 2016 and is the minimum hourly rate that must be paid to those aged 25 or over. The NLW increase is the biggest single increase since the rate was introduced. The new rate is £8.21 which is a 38p or almost 5% increase. This means that some 1.8 million employees earning the NLW will see an extra £690 a year in their pay packet.

The hourly rate of the NMW (for 21-24 year olds) increased to £7.70 (a rise of 32p). The rates for 18-20 year olds increased to £6.15 (a rise of 25p) and the rate for workers above the school leaving age but under 18 increased to £4.35 (a rise of 15p). The NMW rate for apprentices increased by 20p to £3.90.

The new rates mirror the recommendations made by the Low Pay Commission (LPC) which were accepted in full by the Government. The independent Low Pay Commission (LPC) was established following the National Minimum Wage Act 1998 to advise the government on the NMW. It is made up of representatives from all sides of industry.

There are significant penalties for employers who are found to have paid workers less than they are entitled by the legislation.

The P9X form is used to notify employers of the tax codes to use for employees. The basic Personal Allowance for the tax year starting 6 April 2019 will be £12,500 and the tax code for emergency will be 1250L. The basic rate limit is £37,500 except for those defined as Scottish taxpayers who have a lower basic rate limit as well as an intermediate rate.

As a result of the increase in the basic Personal Allowance, there will be a general uplift of tax codes with suffix ‘L’ which have increased by 65. Employers should add 65 to any tax code ending in L, for example 1185L will become 1250L. The new form P9X is available online on GOV.UK to download or print.

The P9X (2019) form also includes information to help employers in the new tax year. The document also reminds employers that have new employees starting work between 6 April and 24 May 2019 and who provide a P45, to follow the instructions at www.gov.uk/new-employee. HMRC’s guidance has recently been updated.