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Real Time Information update

Posted by: edwinsmith on July 29th, 2011

HM Revenue & Customs (HMRC) has recently published a new page on their website called ‘Improving the operation of PAYE: Real Time Information (RTI)'. The page provides information on RTI and some FAQs from employers and software developers together with HMRC responses. HMRC will add to these over the coming months.

Also published is a page on technical information for software developers, which may be useful to some employers.

A pilot of the RTI service with volunteer software developers and employers will last for a year, starting in April 2012 to make sure it is thoroughly tested.

Our previous article on Real Time Information provides more detail about the system and the pilot.

HMRC’s plan is to ensure that all employers are using the RTI service by October 2013, with those who are not part of the pilot joining RTI in the period from April 2013 to October 2013.

Filed under: PAYE

Payments to Ex Employees

Posted by: edwinsmith on July 13th, 2011

What has changed?

Previously, payments made to an employee who has already received their form P45 should have been made with the basic rate of tax (20%) deducted.

Following a change made by HM Revenue & Customs (HMRC) effective from 6 April 2011 payments made to ex employees should now be made using the D0 tax code on a month 1 basis – which deducts the appropriate rate of tax (20% / 40% / 50%) depending on the amount of the payment.

For national insurance, if the payment is a regular sum such as a final payment of salary, you should calculate the national insurance using the employee’s usual contribution letter and applying the rates and limits for the usual earnings period (e.g. weekly/monthly etc).  If the payment is an irregular sum such as accrued holiday pay or an unexpected/backdated bonus you should calculate the national insurance using the employee’s usual contribution letter and applying the rates and limits for the weekly earnings period in which the payment was made.

The employee should not be issued with another form P45 after this payment has been made.  You should instead provide the employee with documentary confirmation of the payment showing the following details:

  • the date of the payment(s)
  • the gross amount of each payment
  • the amount of PAYE deducted from each payment
  • confirmation that the payment is a post leaving payment.

 

This can be provided in the form of a letter or a payslip.

The additional payment will need to be reported to HMRC at the end of the payroll year via forms P14 and P35.

The effect of the change:

The change in tax code used to make payments to ex employees effectively means that for any payments over £12,500 the excess will be taxed at 50%, and could lead to overpayments of PAYE for those employees that receive a large payment in the month but did not breach the 50% tax bracket for the overall year.  Any under/overpayments of PAYE will be dealt with at the end of the tax year either via self assessment or by the employee contacting HMRC directly.

To avoid under/overpayments, the employer may wish to consider staggering the payments across more than one month, or ensuring that all payments due to the employee are made before the issue of form P45.

For more advice on this area or to discuss other payroll matters please contact us.

Filed under: PAYE

Reminder – P11D forms and Class 1A National Insurance

Posted by: edwinsmith on June 30th, 2011

Expenses and benefits paid to employees during the year to 5 April 2011 are required to be entered on forms P11D and P11D(b).  These forms are due to HM Revenue & Customs (HMRC) by 6 July.

The resulting Class 1A National Insurance payment is due to HMRC by 19 July if paying by cheque or due into HMRC’s bank account by 22 July if paying electronically. Please note that HMRC do not operate Faster Payment so the payment will take approximately 3 working days to clear.

Penalties for late filing of the P11D and P11D(b) forms start at £100 for each month that the forms are late.  Penalties and interest pay also be charged if you are late paying the Class 1A National Insurance.

Please contact us if you require any assistance with your forms or payment.

Filed under: PAYE

Mileage Allowance Payments (MAPs)

Posted by: edwinsmith on June 29th, 2011

The approved mileage allowance payment (AMAP) for tax and National Insurance purposes for cars and vans increased from 6 April 2011 from 40p per business mile to 45p per business mile with a restriction for the first 10,000 business miles for tax purposes only.

The current tax rates per business mile are:

Kind of vehicle Rate
Car or van 45p for the first 10,000 miles

25p thereafter
Motorcycle 24p
Cycle 20p

 

The current National Insurance rates per business mile with no mileage restrictions are:

Kind of vehicle Rate
Car or van 45p
Motorcycle 24p
Cycle 20p

 

Employees can also receive a tax free payment for carrying passengers on business journeys in their own car or van at the rate of 5p per mile.

Tax rules - What to report, what to pay

If the MAPs you pay to an employee exceed the approved amount for the tax year, then:

 

  • for company directors or employees earning at a rate of £8,500 or more per year, report the excess amount on form P11D
  • for employees earning less than that, you have no reporting requirements
  • regardless of the employee's earnings, you have no tax to pay to HMRC

 

If the MAPs you pay are below the approved amount for the tax year:

  • you have no reporting requirements
  • you have no tax to pay to HMRC
  • your employee will be able to get tax relief (called Mileage Allowance Relief, or MAR) on the unused balance of the approved amount – this can be claimed on the employee’s tax return or by completing Form 87 ‘Tax relief for expenses of employment’.
  • you can make separate optional reports to HMRC of any such unused balances under a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS) - contact your HMRC office if you want to enter the MARORS scheme

 

National Insurance

The rules for National Insurance contributions (NICs) differ from those for tax in a number of ways and take into account a wider range of expenses. NICs are due on payments of relevant motoring expenditure (RME) above a certain level. The maximum amount of RME that can be disregarded for NICs purposes for an employee in each earnings period is called the 'qualifying amount'. The qualifying amount (the amount you can disregard for NICs purposes) where a mileage rate is paid is calculated by multiplying the employee's business miles in the earnings period by the applicable rate per mile from the table above.

NIC rules - What to report, what to pay

If the RME you provide to an employee in the earnings period exceeds the qualifying amount:

  • add the excess to their other earnings for that earnings period when calculating Class 1 NICs (but not PAYE tax) through your payroll

 

If the RME is below the qualifying amount, you have:

  • nothing to report
  • no NICs to pay

 

Note that there is no NICs equivalent of Mileage Allowance Relief and you cannot carry forward the difference between RME and the qualifying amount to use in a later earnings period.

Please contact us at Edwin Smith if you require further advice.

Filed under: PAYE, Tax

Revised Advisory Fuel Rates – 1 June 2011

Posted by: edwinsmith on June 10th, 2011

H.M. Revenue and Customs (HMRC) have published the latest advisory fuel rates relating to mileage payments for business travel in company cars. These are as follows: 

Engine size Petrol LPG
1400cc or less 15p 11p
1401cc to 2000cc 18p 13p
Over 2000cc 26p 18p

 

Engine size Diesel
1600cc or less 12p
1601cc to 2000cc 15p
Over 2000cc 18p

The diesel rates have changed slightly as there are now three categories, previous diesel below 2000cc were the same rate thus having only two rates.  As a result, diesel for 1600cc or less has actually reduced by 1p.

The new rates will be effective from 1 June 2011, however for the first month employers may continue to use the previously published rates if they choose to.

These rates will now be reviewed quarterly, with any changes made from the next review being effective from 1 September 2011.  The revised fuel rates will be published on the fuel rates page on the HMRC website when they are released.

Advisory fuel rates can be used to calculate the following:

  • Reimbursement to employees of fuel used for business travel in a company car
  • Repayment by employees of fuel used for personal travel in a company car
  • Allowable input VAT on business mileage claims

A more detailed explanation of the use of these rates is on the HMRC website.

The rates applying for earlier periods are also on the HMRC website.

If you have any questions regarding the use of advisory fuel rates or mileage payments please contact us.

Filed under: PAYE, VAT

Business Record Checks

Posted by: edwinsmith on May 23rd, 2011

HMRC has started pilot business record checks in 8 locations (Edinburgh, Irvine, Manchester, Liverpool, Stockport, Sunderland, Sheffield and Portsmouth) running until 15 July.

It is expect that up to 1,200 Business Record Check (BRC) visits will be undertaken by the 30 HMRC staff assigned to the pilot.

HMRC has clarified that the BRC initiative does not insist on a specified format for business records, but checks whether the records of all business income and outgoings are recorded in a way appropriate for the size and nature of the trade.

HMRC has also stated that it does not intend to charge any penalties for record keeping failures during the current phase of testing and continues to review its long-term planning around the introduction of such a charge in the future.

At some point during 2011 it is expected that the BRC visits will become standard practice and penalties are likely for poorly kept records. More information is expected after the initial pilot.

HMRC have issued free tools to help you get your business records in order. The four new products are suitable for the self employed, sole traders and small businesses. Also you can contact us as we can help you review your records.

Keeping records for business – what you need to know: a basic guide with a helpful list of where to get more information.

A general guide to keeping records for your tax return: detailed guidance on record-keeping covering what type of records you may have to keep, common problems and examples for different types of business.

Set up a basic record-keeping system: with examples of spreadsheets and information about setting up a record-keeping system.

Find out what records you should be keeping: looks at the records you need to keep and assesses how well you are keeping them. If you are thinking of starting business the tool provides you with a checklist. If you are established it will give feedback and advice on improvements you may need to make.

Filed under: PAYE, Tax, VAT

Spring PAYE alert for employers

Posted by: edwinsmith on May 9th, 2011

HMRC has issued an alert to employers about key PAYE changes coming in this spring.

The changes affect Employer Annual Returns and starter and leaver PAYE forms:

  • From April, employers with fewer than 50 employees must now send starter and leaver forms – P45s, P46s and similar pension information – online to HMRC.
  • All employers who send their Employer Annual Return to HMRC after the 19 May filing deadline will now receive a late-filing penalty. Previously, an extra-statutory concession gave employers extra time before HMRC charged a penalty, but this has been withdrawn.
  • From this year, employers will be liable to a penalty if they file their annual return on paper. Last year, no penalty was charged for employers with five or fewer employees. But these transitional arrangements have now ended.

HMRC will also be issuing PAYE penalties this spring for the first time in two key areas:

  • Penalty notices will be sent out in April to employers with 50 or more employees who have not filed starter and leaver forms online to HMRC. The first penalties will apply for the three month period to 5 April 2011, with further penalties being issued on a quarterly basis.
  • From May this year, HMRC will start sending out penalties for late payment of PAYE. Employers will be liable for a penalty if they haven’t made PAYE payments on time, and in full, from April 2010. The amount of the penalty will depend on the amounts paid late and the total number of late payments made. Penalties will be charged after the tax year-end.

The latest issue of the Employer Bulletin can be downloaded from the HMRC website.

Filed under: PAYE

Reminder on PAYE payments & late penalties

Posted by: edwinsmith on May 3rd, 2011

HMRC have issued a special notice about electronic PAYE payments. To avoid your payment being late you must make sure your payment has cleared into HMRC’s bank account by the due date.

The due date for electronic payments is the 22nd of each month. However when the 22nd falls on a non banking day (weekend or bank holidays) the payment must have cleared into the HMRC bank account by the last bank working day before the 22nd.

For example: 2011–2012 PAYE month 1 for period ended 5 May 2011.

The due date of 22 May 2011 falls on a Sunday (non banking day), so if you are paying electronically your PAYE payment must clear into HMRC’s bank account by Friday 20 May 2011. If the payment isn’t cleared in time you will be noted as paying late, and late payments for this tax year may result in a penalty being charged.

To add a further consideration, the HMRC bank account do not operate Faster Payment so any electronic payment is likely to take approximately three working days to clear.

Please see our previous article on the introduction of the late PAYE payment penalties for more information.

Also see the HMRC website for more information about late PAYE payment penalties.

Filed under: PAYE

HMRC Real Time Information pilot

Posted by: edwinsmith on April 20th, 2011

HM Revenue & Customs (HMRC) has confirmed that Real Time Information (RTI) is going ahead. The system aims to improve the operation of Pay As You Earn (PAYE). Under RTI, employers will report tax and NICs deductions at the same time as they pay their employees, rather than at year end.

HMRC's aim of Real Time Information is to:

  • make it easier to ensure individuals pay the right tax after a change of job and remove the need for the P45/P46 process over time;
  • offer the prospect of simplifying the PAYE end of year reconciliation process for employers and HMRC;
  • remove much of the uncertainty that leads to errors in the Tax Credits system; and
  • support the introduction of the Universal Credit from October 2013.

Following the initial consultation, HMRC has confirmed:

  • A pilot will begin in April 2012 with volunteer employers and software developers;
  • Work to ensure data quality will begin from October 2011 and continue until all employers have moved to the new system successfully;
  • Subject to successful completion of the pilot, employers will be required to start using the RTI system from April 2013 and all employers will be using the RTI system by October 2013;
  • It will invite software providers and their clients to participate in the pilot.

If you are an employer who wants to take part in the pilot, you should contact your software provider.

Filed under: PAYE

State pension age for women changing

Posted by: edwinsmith on April 4th, 2011

The age at which women are eligible to claim their state pension is changing, effective from April 2010.

The previous retirement age for women was 60, but this is increasing gradually to age 65 between April 2010 and November 2018 to be inline with the existing retirement age for men.  The changes will affect women born after 6 April 1950 and the date at which you will be eligible to claim your state pension is dependent on your birthday.  You can find out your individual state retirement age online.

The latest announcements also indicate that the government plans to increase the retirement age further for both men and women once the above scheme has been completed.  The increases are aimed to reflect changes in life expectancy.  Please look out for future articles on this website once the legislation has been agreed.

For further information and guidance regarding state pensions please contact us.

Filed under: PAYE, Tax
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