Payroll insight
is on universal credit (UC). When the government announced that UC would be introduced, replacing means-tested social security benefits and tax credits for people of working age, we were told that UC would simplify and streamline the benefits system, improve work incentives, tackle poverty amongst low income families, and reduce the scope for error and fraud. The delivery of this new benefit would require the use of employment earnings obtained from employers (and pension payers) in real time rather than being based on averaging historical amounts of earnings obtained from the P14 annual returns submitted by employers. Real time information (RTI) is the system which collects information on pay as you earn deductions at the time an employee is paid. The information is then reported to HM Revenue and Customs (HMRC) via a full payment submission (FPS) at each pay run. Receiving information through RTI, a claimant’s UC can be amended based on changes to earnings rather than the claimant providing details of their income. This all sounds marvellous in theory, but UC has not been without its problems, one of which surrounds the timing of pay days falling within the claimant’s UC assessment period. In a recent judicial review case heard at the High Court (https://bit.ly/2N6I7xK), brought on behalf of four single mothers, Lord Justice Singh and Mr Justice Lewis ruled that the Department for Work and Pensions (DWP) has been wrongly interpreting the UC regulations. The case challenged the rigid, automated assessment system in UC which meant the mothers lost several hundreds of pounds each year and were subject to large variations in their UC awards because of the dates on which their paydays and UC ‘assessment periods’
happened to fall. The mothers all had monthly paydays that ‘clashed’ with the dates of their monthly UC assessment periods, with the result that if they were paid early some months, because for example their payday fell on a weekend or bank holiday, they were treated as receiving two monthly wages in one assessment period – which in turn dramatically reduced their UC award. This is a problem which has affected many working claimants and has been widely reported in the media. ...important that you send accurate reports to HMRC... In addition to creating wildly fluctuating UC awards, when the mothers received two pay cheques in one assessment period they lost the benefit of one month’s work allowance. The work allowance is the amount of earnings claimants with children or with limited capability for work can keep in full before UC is tapered away at a rate of 63p per pound, worth hundreds of pounds each year. The hearing of the claims took place on 27–28 November 2018, and the CIPP was asked to provide, via written witness statements, expert testimony about the payroll practices around pay dates falling on non-banking days. Despite the DWP putting forward several arguments attempting to justify their method of calculating UC awards, these arguments were rejected by the court which found that correctly interpreted, the regulations mean the DWP can and should adjust its calculation of UC awards when “it is clear that the actual amounts received in
an assessment period do not, in fact, reflect the earned income payable in respect of that period”. In other words, wages are to be allocated to the month in which they were earned, rather than to the assessment period in which they were received. However, and perhaps as a result of this case, HMRC has recently issued guidance about the dates employers should report in FPS returns when the regular payment day falls on a non-banking day. With a nod to the impact of payroll on UC, the HMRC guidance states: “It is essential that you report when you pay your employees on time and use the right payment date when doing so. Remember if you use an incorrect payment date, this could impact on your employees’ financial situation, including any income-related benefits, such as Universal Credit, so it is important that you send accurate reports to HMRC on time or as soon as you are able to do so.” Acknowledging the occasions when employees are paid on a different day to that agreed, such as when the regular payment date falls on a non-banking day (i.e. on a Saturday or Sunday or on a bank holiday), HMRC advises that a payment reporting easement applies to ensure that this payment is treated correctly for tax purposes. When payments are made early or late because the normal payment date falls on a non-banking day then the date entered in the FPS return should be the regular payment day/date. This instruction may come as a surprise to some but knowing now the significant impact the payment date can have on employees, I urge everyone to check their own payroll system to ensure this rule is followed. This is all part of ensuring that the ‘hidden role payroll plays supporting families’ continues. n
Class 3: voluntary contributions
Benefit
Class 1: employees
Class 2: self-employed
Basic state pension
Yes
Yes
Yes
Additional state pension
Yes
No
No
New state pension
Yes
Yes
Yes
Contribution-based jobseeker’s allowance Contribution-based employment and support allowance
Yes
No
No
Yes
Yes
No
Maternity allowance
Yes
Yes
No
Bereavement support payment
Yes
Yes
No
17
| Professional in Payroll, Pensions and Reward |
Issue 52 | July/August 2019
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