Payroll insight
in their last pay period before the trigger date”. Therefore, we feel it reasonable that this should be based on the half- pay figure as that was what was received in the last pay period. The employer who raised the query has had this view confirmed by HMRC (although we were not party to that conversation). Whilst this covers the issue of how the BP should be calculated, there are other potential complications with this type of payment which need to be fully considered. Firstly, if the PILON is paid under a written policy, HMRC could argue that it is a contractual PILON subject to tax/NICs in full in any case. On the other hand, if the termination payment is paid wholly on account of the employee’s injury or disability, it could potentially be wholly exempt from tax (and NICs) under the relevant provision of the Income Tax (Earnings and Pensions) Act 2003. Plenty of food for thought, demonstrating that it is always better to take advice and consider the specific circumstances of each payment. A question was raised regarding specific issues facing teachers whose employments are terminated. As we
understand the position, teachers will usually be paid up to the end of a term, so, if they are just paid their normal salary for that period, then the payment is subject to tax/NICs in the usual way. However, they may receive a termination payment on leaving as compensation for loss of office in which case the PENP rules need to be followed. Problems can arise if, for example, the teacher is not formally served with notice. This can cause difficulties in terms of establishing the ‘trigger date’ and the number of days ‘D’ in the PENP calculation. ...the new rules regarding PENP have further complicated things This last example was raised at one of our PENP training courses and is included because of its general importance and its potentially wider application. It is in respect of settlement agreements involving the Advisory, Conciliation and Arbitration Service, which states that any tax due under the agreement must be settled
by the employee. It is very important for employers to be aware that it is always the employer’s responsibility to deduct and account for any tax/NICs due. Failure to do so may result in the employer being liable, not only for the tax/NICs that should have been deducted (for up to six years or even longer in more serious cases), but also the statutory interest and penalty charges (up to 70% of the tax/ NICs underpaid if done deliberately and up to 100% if concealed). It is quite common for settlements to mention the employee indemnifying the employer against any further tax due – which is a matter ultimately to be resolved between the two parties – but that does not mean that the employer can be absolved from their responsibility to deduct, account for and remit tax and NICs on the settlement payment. The tax and NICs treatment of termination payments has always been a complex area to resolve and the new rules regarding PENP have further complicated things. No doubt further technical and interpretative issues will arise over time as employers grapple to come to terms with how the new rules should be applied. n
Salary sacrifice and other optional remuneration
Half day duration
This course is designed for individuals who need to implement and run salary sacrifice schemes and other optional remuneration arrangements but have little prior knowledge.
This course covers: ● What is an optional remuneration arrangement? ● What is salary sacrifice? ● Why use optional remuneration arrangements? ● Potential impact on state benefits ● Which benefits for which arrangements? ● Creating an effective salary sacrifice arrangement ● Implications for tax and NICs ● Legislation and case law ● Payroll implications
Book online at cipp.org.uk or email info@cipp.org.uk for more information.
cipp.org.uk CIPP_UK cip .org.uk @CI P_UK
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| Professional in Payroll, Pensions and Reward |
Issue 44 | October 2018
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