Payroll
Worked examples
guidance states that the employer must consider the potential costs involved in aggregating and also the impact on employees who may, due to the failure to aggregate, end up without a NICs record and no entitlement to related benefits. But how is this relevant in the case of the NHS Trust in question? The Trust has found a way to aggregate but only by using the monthly earnings period to do so. Regulation 6 sets out the earnings period over which NICs must be calculated. Where there are different earnings periods, and the earnings fall to be aggregated, then the regulation prescribes the period to be used as the shortest one. In this instance, this is one week. So, this returns us to the question of whether aggregation is ‘not reasonably practicable’. Aggregation using monthly earnings period is, clearly, reasonably practicable, since this is achieved by the Trust and many other Trusts using ESR capability. However, the true test here is whether aggregation using a weekly earnings period is ‘not reasonably practicable’. Let us return to that point later, after establishing how these different methods of aggregation impact on the numbers in the worked examples. The ‘wider’ issues This is clearly a matter of principle rather than being about a loss of NICs to the Exchequer. Indeed, using the legislative method, the Exchequer would lose out overall, as shown above. We have sympathy with the view
Scenario A (monthly earnings period) Week 1: £225.00 Week 2: £187.50 Week 3: £275.00 Week 4: £187.50 April: £5,333.00 Total pay: £6,208.00
Total Employee NICs = £445.82 Total Employer NICs = £758.44
Scenario B (weekly earnings period) Week 1: £225.00 Employee NICs = £5.04 Employer NICs = £7.72 Week 2: £187.50 Employee NICs = £0.54 Employer NICs = £2.55 Week 3: £275.00 Employee NICs = £11.04 Employer NICs = £14.62 Week 4 (including April monthly pay): £187.50 + £5,333.00 Employee NICs =
£184.65 Employer NICs = £738.43 Total Employee NICs = £201.27 Total Employer NICs = £763.32
Comparing the total NICs due in each scenario reveals that scenario A leads to higher employee NICs of £244.55 (i.e. £445.82 - £201.27) but lower employer NICs of £4.88 (i.e. £758.44 - £763.32), than the amounts obtained when using a weekly earnings period.
that employees should not be facing an additional NICs cost due to use of a monthly earnings period, rather than weekly. But can aggregation be achieved using a weekly earnings period? Over the course of a tax year, there would be twelve weeks where there was both a monthly and weekly payment, with forty weeks where there was just a weekly payment. Such a calculation would depend on several factors; for example: can monthly pay be processed during the period of a single week? Weekly pay would seem to be simpler to process because it is based on time input during a set period, whereas monthly pay would seem to carry more complexity such as around incremental pay, overtime, salary sacrifice, termination issues, etc. However, we have been reliably informed that ESR has advised that aggregation using a weekly earnings period is not something that it can currently cope with. Should ESR have to find a way to do it? Or can Trusts fall back on the ‘not reasonably practicable’ reason? This may be the crunch question. Since we are advised that ESR cannot, sensibly or reasonably, aggregate earnings using a weekly earnings basis, the Trust would appear to have taken the ‘least
criticisable’ option of aggregating based on monthly earnings periods rather than not aggregating at all. Is it right for that approach to lead to a retrospective settlement of employer NICs? Conclusions If there are to be changes introduced by NHS Trusts as a result of this issue, we believe that should be a national matter first considered by a number of relevant stakeholders, including the Department of Health and Social Care, the NHS BSA, and staff representatives across the NHS. If, as HMRC advises, this is already a national issue and being pursued, then employers need to see the relevant communications across the stakeholder group and any professional advice obtained, so that proper consideration to the matter can be given, going forward. It remains to be seen how HMRC will seek to deal with this matter. One would hope that common sense will prevail. Stakeholders should be invited to contribute to the discussion, particularly ESR, and a national strategic approach adopted, with updated HMRC guidance as appropriate. Then, and only then, should employer compliance officers come sniffing for retrospective liabilities, interest, and penalties. n
...the Trust would appear to have taken the ‘least criticisable’ option of aggregating
based on monthly earnings periods rather than not aggregating at all.
21
| Professional in Payroll, Pensions and Reward |
Issue 66 | December 2020 - January 2021
Made with FlippingBook - Online magazine maker