This issue includes a bonus 8 pages within this online version. As well as our regular features and news, this issue covers public sector exit payments, tackling youth unemployment and skills shortages in South Africa, Jamie Costello reveals a strange feature of automatic enrolment in the article 'ceasing active membership' along with many more interesting articles.
in Payroll, Pensions & Reward PROFESSI NAL Issue 26 December 2016/January 2017 Official publication of The Chartered Institute of Payroll Professionals
In memory of Michelle Crook (1973-2016)
Ceasing active membership Escaping contributions
Public sector exit payments Government winging it
Let my pension go! Not quite fee free
CIPP update | Policy hub | Professional development
“What we have done for ourselves alone dies with us; what we have done for others and the world remains and is immortal.” Albert Pike (1809–1891)
Editors’ comment
We have made some changes to the magazine from this issue so we can add value to the online version whilst continuing to deliver the printed version to members. The content within the online version
Michelle Crook who I grew to respect and like through the chair messages she penned for the magazine. This year also brought the retirement of several industry luminaries and supporters of the CIPP, among them Norman Green who I had the pleasure to first meet more than twenty years ago through my work as editor of a payroll newsletter. Be sure to read his comments on pages 16–17. Enjoy retirement, Norman. I wish you a great festive season, and better times in 2017.
will be extended and online-only content highlighted through our distribution. We aim to use the online version to complement the printed copy which will continue to be posted to associate, full and fellow members of the Institute. Well, for me 2016 is already well-deserving of the description ‘annus horribilis’, even though at the time of writing there are six more weeks yet before we reach 2017. There have been so many horrible things happen over the past eleven months. Among stalwarts the payroll industry has ‘lost’ this year is, sadly,
Mike Nicholas MCIPP AMBCS Editor
Chairs’ message
Christmas and the new year are often a time for reflection, and it is unfortunate that with this issue we reflect on the life of Michelle Crook who sadly passed away Thursday 10 November. Michelle and I have worked together on the board
don’t love what you’re doing and you can’t give it your best, get out of it. Life is too short.” We are all responsible for our own direction and happiness. This quote reminds us of that. I shall end the year by congratulating those who graduated on 4 November. It was an honour to be a part of your special day and see the benefit of your hard work.
since 2008 and she has been a tremendous support to me recently in her role as past chair. I am extremely honoured to have worked alongside Michelle and am deeply saddened by her passing. My thoughts are with Michelle’s husband Rob and daughter Georgie. News such as this reminds us that we don’t know where the future will take us and it was Al Lopez, an American baseball coach, who said: “Do what you love to do and give it your very best. Whether it’s business or baseball, or the theater, or any field. If you
Eira Hammond FCIPPdip Chair, CIPP
CEO message
It is with great regret and sadness that I must inform you that Michelle Crook passed away on Thursday 10 November 2016, leaving behind a husband, Rob and daughter Georgie. Michelle has been actively associated with the CIPP since 2008 as a well-respected chair and board member and I know she will be sadly missed. You will find an obituary on page 3. We last saw Michelle at the graduation ceremony which took place on 4 November at the Dominion Theatre, London where she congratulated so many of our recent students receiving their certificates on the theatre’s stage. Our education programme is something that Michelle felt passionately about and she would
not wish to dampen the success of those students who graduated in November. Details of our graduates can be found within the enclosed souvenir supplement. Finally, on behalf of all of the staff and Board here at CIPP, I wish you all a well-deserved break over the Christmas and new year period. May it be spent with family, friends and loved ones.
Ken Pullar FCIPP Chief executive officer, CIPP
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Issue 26 | December 2016/ January 2017
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Michelle Crook MSc, FCIPPdip, DIOD, CIOD 15 August 1973 - 10 November 2016
I t’s difficult to overstate the shock, sadness and sense of loss we, your board, felt on the unbelievable and devastating news that our friend and colleague Michelle Crook had passed away suddenly on 10 November in hospital after a very brief illness. Michelle was the life and soul of the graduation ceremony in London the previous Friday but complained of feeling unwell on her return home and was admitted to hospital the following day. To date we still are not fully aware of the reason. As her closest colleague on the board it is my privilege to try to explain to the CIPP community just what Michelle meant to us. In many ways Michelle was a typical member of the payroll profession, falling into it, like most of us did, by accident, but then making it her career of choice and driving herself to the pinnacle of the profession both in terms of qualifications, level of job and by giving something back by serving on the CIPP board for eight years. After joining Pertemps, a major recruitment company in Meriden, West Midlands, she worked her way quickly to be in charge of the payroll service with 20,000 plus temporary workers paid weekly as well as numerous subsidiaries. She introduced efficiency changes and it was soon recognised by Tim Watts (Pertemps chairman) that they had a second core product in providing a payroll bureau service. Michelle played a large part in setting up ESOS, a payroll outsourcing service, within the Pertemps group of companies and became its managing director. Michelle constantly wanted to give something back to the profession which had served her so well. It was probably this that inspired her next step, to put herself forward for election to the board of the IPP (as we were then). In 2008 she was duly elected and subsequently played an active and effective part in steering the board through both good and testing times. Michelle put the membership first in all her thoughts and decision making; her key mantras were: “what would our membership think” and “how will this affect our membership”, which helped all of us to make the best possible decisions on your behalf. During this time, whilst working with Gordon Cresswell, another CIPP director, Michelle became interested in studying for the MSc in Business and Payroll Management and typically attacked the studies with her enthusiasm and analytical mind, passing easily. Her graduation day was a very proud moment for her, her family and all her friends and colleagues. It was working with Michelle as part of your board that I, and my fellow board
Michelle presenting at CIPP annual conference
Michelle at her MSC graduation (with CIPP colleagues Helen Hargreaves and Elaine Gibson)
Michelle presenting at CIPP graduation ceremony
members, got to know her social side and I think it’s fair to say that Michelle liked to work hard and play hard. She was always the centre of social activity and we will all miss her witty one-liners. Michelle had a wonderful sense of humour regardless of the situation and her laugh was utterly infectious and occasionally irreverent. On hearing the appalling news, one of Michelle’s fellow board members stated; “Having known Michelle for a number of years I will really miss her larger than life personality and my friend when trying to solve problems. Wherever you are, I know you will be making a difference”. This sums up the affection in which Michelle was held by many of the people who were fortunate enough to spend time with her. She brought a typical payroll approach to problems and issues with her ability to identify the issues and suggest a plan to get to a resolution. One example of this was the way she revised how the CIPP reviews applications for Fellowships and levels of membership. Michelle had been a campaigner, and was passionate about the new Individual Charter Status. As well as wanting to be amongst the first to achieve this accolade she knew it was a fantastic development for our membership and the profession, so it is sad that she missed out on the opportunity to achieve this goal. Our thoughts and sympathies go out to husband Rob and daughter Georgie of whom she was so proud. We know they will both miss her so much and will have a huge gap in their lives. Just like mum, Georgie is studying hard; we wish her success in her future career. She had a fantastic role model in her mum. Our feelings are understandably very raw at the moment but we will, in time, find a permanent way of recognising Michelle’s valued contribution to the payroll profession in general, and to the CIPP in particular.
Ian Walters MSc, FCIPP, FHEA, CIPP director
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Issue 26 | December 2016/January 2017
| Professional in Payroll, Pensions and Reward |
in Payroll, Pensions & Reward PROFESSI NAL
Also available online at payrollpensionsandreward.org.uk
Contents
December 2016/January 2017
44
GDPR - the clock’s ticking...
Tim Musson considers the implications
Features
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18
23
Tackling youth unemployment and skills shortages in South Africa Sharon Tayfield explains what is being done
It’s all about change Neil Tonks provides insight to product development
End of an era Norman Green reflects on a lifetime working in payroll
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Regulation of master trusts Stuart Earle discusses impending legislation
Employee benefits taxation Bill Thompson, outlines what you need to know about the recent change
Ceasing active membership Jamie Costello reveals a strange feature of AE
| Professional in Payroll, Pensions and Reward | December 2016/January 2017 | Issue 26 4
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Editor Mike Nicholas 01273 412 836 | editor@cipp.org.uk Advertising Jill Bonehill and Jack Grinnell 0121 712 1033 | advertising@cipp.org.uk Design James Bartlett and Nicole Gumery design@cipp.org.uk Printing Warwick Printing Company Ltd
Public sector exit payments Peter Minchinton reviews the termination payments cap and its impact
Let my pension go! Henry Tapper alerts us to good news and suggests action
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Chief executive Ken Pullar FCIPP CIPP board of directors
Gordon Cresswell FCIPP Jason Davenport ACIPP Eira Hammond FCIPPdip Ros Hendren MSc FCIPP, Mgr, FCMIdip, FHEA Paul Rains MCIPP Karen Thomson MSc FCIPP, FHEA Cliff Vidgeon FCIPP Ian Walters Msc, FCIPP, FHEA Ian Whyteside MCIPP, FMAAT, ATT
Epayslips – trends and developments Glyn King shares trends and looks at emerging insight
Is it safe and lawful to use electronic payslips? Lisa Gillespie explains the legal position
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Useful contacts Membership membership@cipp.org.uk 0121 712 1073 Qualifications qualifications@cipp.org.uk 0121 712 1023 Training training@cipp.org.uk 0121 712 1013 Events events@cipp.org.uk 0121 712 1013 Marketing and sales marketing@cipp.org.uk 0121 712 1033 General enquiries
AI and expenses fraud Adam Reynolds explains AI can help fight such fraud
Revolution in the clouds David Woodward reveals how cloud- based payroll streamlines processes
Regulars
01 Chair’s and CEO’s message Events, news and developments 06 Membership focus On your behalf, Advisory, Five minutes with, Your views on salary sacrifice, Voluntary payrolling 16 Professional development Diary of a student, CPD
34 Industry news 35 Reward insight
Employment law cases, The gig economy
40 Feature articles 42 Charity news 43 Technology insight 48 Don’t panic 50 A week in the life of 51 Confessions of a payroll manager
0121 712 1000 info@cipp.org.uk
cipp.org.uk @cipp_uk
20 Event horizon 22 Payroll news 23 Payroll insight 29 Pensions insight
Articles Please support this magazine so that it can continue to be a part of your membership package. Trademarks The CIPP logo, the initials ‘CIPP’ and the words ‘Professional in Payroll, Pensions and Reward’ and ‘CIPP Consult’ are trademarks of the Chartered Institute of Payroll Professionals. Copyright: The Chartered Institute of Payroll Professionals 2016. The Chartered Institute of Payroll Professionals, CIPP, Goldfinger House, 245 Cranmore Boulevard, Shirley, Solihull, West Midlands, B90 4ZL. Switchboard 0121 712 1000 Fax 0121 712 1001 Copyright This magazine is published by The Chartered Institute of Payroll Professionals in whom the copyright is vested. All rights reserved. No part of this publication may be reproduced, stored in a retreival system, or transmitted in any form or any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. The views expressed in this publication are not necessarily those of the CIPP or the editor. The information and comment contained in this publication are given in good faith, their accuracy or completeness cannot be guaranteed.
The Pensions Regulator: Helping clients choose a pension scheme
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Issue 26 | December 2016/January 2017
| Professional in Payroll, Pensions and Reward |
MEMBERSHIP INSIGHT
On your behalf
Policy team update
Diana Bruce MCIPPdip, CIPP senior policy liaison officer , provides an update
Expatriate tax and NICs The Joint Forum on Expatriate Tax and NICs met on 27 October; Samantha Mann, CIPP’s senior policy and research officer, attended. The agenda looked to consider, in brief, the following subjects: ● Consultation on salary sacrifice – Alex Raisen, policy lead from HM Revenue & Customs (HMRC) on the recently closed consultation on salary sacrifice, attended to update the forum on the consultation proposals and possible impact on the expat community, and to highlight the importance of the views of the expat employer. ● Making tax digital (MTD) – another upbeat presentation from the team charged with delivering MTD. Time limits prevented any significant discussion on the impacts that digital services will have on the expat employer community, but the promise of significant ‘real time’ gains were focussed on; time will tell as to how MTD will fully benefit the payroll profession. ● Modified PAYE schemes and the apprenticeship levy – draft employer guidance had been circulated prior to the meeting. A question put to the team was about the 24-month time limit (previously eighteen months) on levy funds being available in the digital apprenticeship payrolls: would the 24-month time limit begin at the point at which the adjustment is processed or when it falls due. The question was taken away for consideration, so we hope to see it in the employer guidance due to be published during December. scheme account for spending on apprenticeship training for modified
switched to the new RBS/NatWest bank account. Q – Is it possible for us to be notified when a new version of the guide for employers is going to be published? An updated version of the employer guide (http://bit.ly/2fxQr7M) will solely contain the new RBS/NatWest details. DWP’s debt management department have begun issuing a mail shot to all employers who are present on their system, informing them of the change, which was due to conclude by the middle of November at the latest. This is the last banking update for the foreseeable future; any other updates are likely to concentrate on process amendments. NMW and the AEO deduction fee Some readers may remember that some six or seven years ago, the policy team were working to have the national minimum wage (NMW) regulations and associated guidance reviewed and amended in light of some employers being caught out. At the time we were receiving several queries relating to the treatment of the £1 deduction fee for attachment of earnings orders (AEOs) and the interaction with the NMW. We began communications with the Department for Business, Innovation and Skills (BIS) – now the Department for Business, Energy & Industrial Strategy (BEIS) – and were informed that employers were not permitted to make the £1 deduction where this would take the employee below the NMW. This is
As ever, if you have any issues arising from administering payments and taxes for your inbound or outbound expat employees please send them to policy@ cipp.org.uk marked for the attention of Samantha Mann. ...time will tell as to how MTD will fully benefit the payroll profession DWP DEA – bank account Following the announcement that the direct earnings attachment (DEA) guide for employers has been revised to reflect a change to the Department for Work and Pensions’ (DWP’s) bank account to which payments are made, questions about the transitional process have been posed to DWP’s debt management team. Q – Can you confirm if the old bank account will remain operational for a while, and if so for how long? DWP have thousands of DEAs set up across its systems, which will currently pay into the existing bank account where it make the Bacs payment. It will be a major undertaking to get them all updated. The HSBC banking details (account number 51826107, sort code 403418) will remain active until March 2017 but DWP have an option to extend beyond this date if absolutely necessary, depending on volumes of employers and customers (via other payment methods) who have not
| Professional in Payroll, Pensions and Reward | December 2016/January 2017 | Issue 26 6
Policy hub
because the fee is seen as a benefit to the employer albeit it is meant to compensate the employer for operating the AEO on behalf of the courts, Child Support Agency and local authorities. As this is a grey area for employers, we contacted HMRC and BIS to request that they consider the following: ● clarifying the guidance as to the correct tax and national insurance (NI) treatment for the £1 administration fee ● revoking the regulation preventing employers from deducting the £1 administration fee when the employee earns the NMW. HMRC’s initial response was that a deduction for an AEO administration fee is a charge which is retained for the employer’s own use and benefit and accordingly reduces the NMW under regulation 32(1)(b) of the NMW regulations 1999 (now regulations 32(1) (b), 34(1)(c) and 35(e)) of the National Minimum Wage Regulations 1999). The legislation is clear in this matter and is reflected in guidance for employers which states: “You cannot make any deduction or take a payment that reduces a worker’s pay below [NMW] rates, even if you have their permission to do so”. The policy team went back to HMRC with concern that as the £1 deduction is taken from net pay, after the deduction of tax and NI contributions (NICs), why is the deduction not permitted? We also questioned the ‘employer’s own use and benefit’ arguing that the employer has had the duty to process AEOs imposed on them – it is not employers’ choice to provide the service on behalf of the courts etc but merely a vehicle to deduct and pay over amounts on behalf of these organisations. The £1 deduction is not an employer benefit but recompense for the employer and in some cases the employer will employ resource to cope with such an admin duty and the £1 deduction does not come close to funding that resource. For legislation to be written in such a way preventing the deduction does appear to be unfair. We respectfully requested again that consideration be provided to review the regulation in question. We also requested provision of employer guidance that reiterates and clarifies the current rules as they stand and to give consideration to including this guidance in HM Courts and Tribunal Services’ (HMCTS’s) handbook for
operation of AEOs. We were informed that as BIS would be considering the NMW regulations as part of other employment law reviews the points we raised in relation to regulation 32(1)(b) would be considered as part of this work. It may surprise readers to know that this review did not come to fruition. This issue has been raised again recently with HMRC and BEIS but the position has not changed: “The £1 deduction for administration charges does have the effect of reducing pay for [NMW] purposes. NMW Regulations 2015, Regulations 12(1) & 12(2)(e) …” (See http://bit.ly/2fU9htR.) ...lack of funds and resource within government has restricted the work... AEO guide At the beginning of 2015, the policy team were informed that HMCTS were to review the AEO guide and at this time we were asked to assist with this work. You may recall that we asked for member input and duly fed our contributions to HMCTS. Unfortunately, we are no further forward with this review as the lack of funds and resource within government has restricted the work happening. In the meantime, pay attachments become more numerous and the need for an accurate update to the guide, that recognises differences across the four UK nations, is more vital than ever. CIPP members and other payroll professionals will benefit enormously from this work and so we feel that payroll professionals, across all sectors, would add real value to this update. This subject was raised at our Annual Conference in October during the Advisory Panel session and we asked at the time if there were any members who would like to volunteer to be involved with in a working group with the sole aim of updating the guide and we were pleased to receive several offers on the day and since then. If you would like to be involved in this working group, please email policy@cipp. org with ‘AEO guide’ in the subject box.
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Issue 26 | December 2016/ January 2017
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MEMBERSHIP INSIGHT
‘Replacement’ or issue a letter which is a statement of earnings for the whole of the tax year. Q: Where a student loan is in place for an employee who has sadly died, should a student loan deduction be made from a final payment of salary? A: Student loan deductions are based on the same earnings as Class 1 NICs. Therefore, as the earnings are not subject to Class 1 NICs due to death, the student loan deduction is not applicable. This link explains that student loan deductions cannot be made from the pay of a deceased employee: https://goo.gl/ we33iY. Q: The chief executive officer of the company uses the company credit card for personal purchases, with the cost of the personal purchases then deducted from earnings after pay as you earn (PAYE) tax and Class 1 NICs have been calculated and deducted. Are there any tax implications for using the company credit for personal purchases? A: The guidance in regard to using a company credit card for private goods is that you should deduct Class 1 NICs via the payroll on the value of the bill and that an entry should be made for income tax purposes in a P11D return at box C. Though the employee has made good (i.e. reimbursed to the employer the cost of the purchase), and there will be no NICs liability, for clarity an employer may wish to get a ruling from HMRC. It would still go in the P11D (at box C) for tax purposes along with the amount that the employee has reimbursed to the employer, so there will be no tax liability. The following two links illustrate the tax and NICs position. The first – https://goo. gl/Ta9JJM – to HMRC’s National Insurance Manual explains that where the employee reimburses the employer then there is no Class 1 NICs liability. The second – https:// goo.gl/FWyp3W – explains the process if the employee/director does not reimburse the company. Q: The company has two payrolls which have separate PAYE schemes and operate as separate companies. The employment bill for one company is approximately £4 million and the other is £2.5 million.
Advisory Service is available 9a.m. to 5p.m. Mondays to Thursdays, and 9a.m.
to 4.30p.m. on Fridays. It is free to all CIPP members * , students and attendees of approved CIPP courses and conferences in the last six months. Call 0121 712 1099 , email advisory.service@cipp.org.uk or visit cipp.org.uk for frequently asked questions.
Advisory
*please see summary at cippmembership.org.uk for details.
Q: We have a new employee who has received a letter from HM Revenue & Customs (HMRC) which has a National Insurance number (NINo) on it, which does not conform to normal NI numbers. Should I report this in the full payment submission (FPS)? A: This is not a NINo, but a reference that the employee can use if they need to contact HMRC. If the employee has not already applied for a NINo they should be encouraged to apply via the Jobcentreplus. Until the employee receives the NINo from the Department for Work and Pensions the employer should leave the NINo field blank but ensure the name, address, date of birth and gender are recorded in the FPS. Q: An employee was made redundant during statutory maternity leave (SML). The remaining statutory maternity pay (SMP) was paid in a lump sum (as requested by the employee) alongside statutory redundancy pay. Due to this lump sum payment going through the payroll, the individual was hit with a large student loan repayment deduction. The former employee thinks that the large deduction for student loan would not have occurred if the payment had been made after form P45 was issued. Is that correct? A: As student loan deductions are calculated using the same earnings and method used to calculate National Insurance contributions (NICs), and a lump sum payment of SMP would be classed as a normal payment (rather than an irregular payment) then it would make no difference to how the payroll system has treated the student loan deduction on this occasion.
Although an employer can choose to make a lump sum payment of SMP to employees in circumstances where the employment contract has been terminated, it is not best practice. A lump sum payment can only be paid if both the employer and employee agree to this; neither party can impose it on the other. When considering making a lump sum payment of SMP one of the first questions an employer should ask is whether a student loan is in place. Where a lump sum payment of SMP is made, then a potentially large student loan deduction will occur because the SMP is subject to NICs. The student loan deduction will use the earnings which are subject to NICs to calculate the deduction amount in that pay period. The following link is useful when deciding what earnings should be used when calculating student loan deductions: https://goo.gl/aDI845. The other reason it is preferable to pay SMP on a pay period by pay period basis is that both parties pay lower NICs, and the employee pays less income tax. Unfortunately, this will have to stand as there is nothing the employer can do to change this. The system has operated the student loan deduction in the correct manner. Q: Where an employer has corrected the year to date figures in an earlier year update (EYU) would an employer have to give the employee an amended certificate P60? A: On correcting the payroll and the EYU, the employer must inform the employee of the correct figures and can choose either to produce another P60 marked
| Professional in Payroll, Pensions and Reward | December 2016/January 2017 | Issue 26 8
Policy hub
Does this mean that the apprenticeship levy will be applied to the larger company only? A: The apprentice levy will be payable by all employers in the UK at 0.5% of paybill, through PAYE, alongside income tax and NICs on a monthly basis from April 2017. However, as employers are given an annual allowance of £15,000 to offset against payment of the levy this means that only those employers with a paybill in excess of £3million will be required to pay the levy. Where several employers are connected as a group, they will only be able to use one £15,000 levy allowance across all the connected companies regardless of the paybill size of each. Within a group of connected employers, the group must decide what proportion of the levy allowance every employer in the group will be entitled to. This decision must be made at the beginning of the tax year and will be fixed for that tax year, unless a correction is necessary because the total amount of the levy allowance claimed across the group exceeds £15,000. Each employer in the group will then calculate what they have to pay through the same processes set out above, but using only their portion of the £15,000 levy allowance. The government has published guidance in regard to the apprenticeship levy located here: https://goo.gl/RthrYZ. Q: If an employer signified to HMRC that the employment bill for the company was in excess of £3million (in regard to the apprenticeship levy), but in actual fact part-way through the tax year it turned that it would be less, would this impact on the amount of levy to be paid over to HMRC each tax month? A: Because the apprenticeship levy is going to be calculated on a cumulative basis, the first step is to calculate 0.5% of the monthly pay bill. The pay bill is all earnings subject to Class 1 secondary NICs. Once you have calculated this figure you reduce it by the monthly allowance (based on one twelfth of £15,000.00) of £1,250.00. The residue is the levy which is payable for the tax month. If the difference between the monthly allowance and the 0.5% of the pay bill means that not all the allowance is used,
then the balance would be available in the next tax month. Where the company for one reason or another ends up with a pay bill of less than £3million, then any overpaid levy will be refunded to the employer. Q: Would providing a Christmas gift to employees of a hamper costing less than £50 be exempt from tax under the trivial benefits exemption? A: The guidance on the changes to the provision of trivial benefits by the employer which are exempt from tax and NICs can be found via this link: https:// goo.gl/J7mXya. What an employer will need to prove is: the gift is not given based on the employment of the individual; and the employer is providing the gift as a personal gift, not as a reward in recognition of the employment duties carried out. For the exemption to apply, specific conditions must be met; these are that the benefit: ● must not be cash or a cash voucher ● must cost £50 or less ● must not be provided as part of a salary sacrifice or other contractual arrangement, and ● must not be provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services. Q: An employer usually arranges for a nurse to come into the work place to inoculate employees with the flu jab. The company is considering changing this instead to providing employees with a voucher to enable them to go to the chemist to have their flu immunisation. This would be a cheaper option as the vouchers would cost the employer £7.50. Would the employer have to report the benefit in a P11D return due to the new legislation? A: Nothing has changed in regard to the exemption for flu jabs, as they are still classed as a trivial benefit even if provided in the form of a non-cash voucher. This link – https://goo.gl/ElUo4U – to HMRC’s Employment Income Manual confirms HMRC’s view in regard to flu jabs provided by the employer. The exemption applies to seasonal flu inoculation only, not for any other immunisation or to prevent pandemic flu. n
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Issue 26 | December 2016/January 2017
| Professional in Payroll, Pensions and Reward |
MEMBERSHIP INSIGHT
Your views on salary sacrifice
Samantha Mann, CIPP senior policy and research officer, reviews perceptions and reactions to the proposals
O ver the years I have been involved with many different consultations on a wide range of topics, but it is fair to say that the proposals put forward for salary sacrifice – specifically the proposals for adapting the tax system to fit where salary is exchanged for a benefit in kind (BiK) – seemed to ignite passionate response from payroll and employment tax professionals that almost no other subject has done. In fact, I think it is fair to say it even overshadowed the big consultation on the block – making tax digital. So, what is the proposal? In a nutshell, the proposal sought to change tax legislation so that where a BiK is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer National Insurance contributions (NICs), even if it is normally exempt from tax and Class 1A NICs, at the greater of: ● the amount of salary sacrificed, and ● the cash equivalent set out in legislation (if any). This would mean that where the normal taxable value of the BiK is higher than the amount of salary sacrificed, it would be subject to tax and Class 1A NICs in the normal way. Excluded from consultation (i.e. BiKs that ● employer-provided pension advice based on the recommendations of the financial advice market review ● employer-supported childcare and provision of workplace nurseries, and ● cycles and cyclist’s safety equipment which meet the statutory conditions. Time will tell as to whether the arguments put forward for further ‘health’ related BiKs were successful in achieving any further additions to the ‘in’ list but it is fair to say that we received a sense that a significant amount of evidence and data would be needed to make the argument that wider will remain ‘in’) currently include: ● employer pension contributions
this new process. Furthermore with only 4.5 months available at the time the consultation closed, we have no final decision, no draft regulations, no software specification for supporting any relevant changes that will impact employers who have taken up voluntary payrolling. For employers whose reward scheme runs from January to December, their employees are making decisions now, and so for this timeline that guidance needs to be accurate and available now. Roundtable Earlier in 2016, a policy Think Tank on salary sacrifice was held and saw HMRC meet with CIPP payroll professionals to discuss the issues that would concern the profession in the event of change to salary sacrifice. Following up this earlier meeting a further roundtable was held during the consultation to allow payroll professionals an opportunity to share their views of the proposals with HMRC. One point became clear during discussions that hadn’t come out through the survey is that, for some employers in some sectors, salary sacrifice is used almost exclusively for pretty much anything that an employee might desire – with payslips running to three pages not uncommon for these employers. And so, for many payroll professionals, any proposal that looks to disincentivise employers from engaging with salary sacrifice would be welcomed, in the full knowledge that this would significantly simplify the payslip. Timing for employers who haven’t engaged with voluntary payrolling was less of an issue – as confidence was high that there would be sufficient time for the software community to respond to change to the P11D return. However, concerns about grandfathering were high and again we came away with a reasonable expectation of a sensible solution being found. Annual Conference discussion and debate An opportunity for payroll professionals to
savings could be achieved by government by the inclusion of health screening, gym membership, private medical health insurance and the like. The message from HM Revenue & Customs (HMRC) was ‘we are listening’. It is understood that the consultation received in the region of 350 responses, and so it will be interesting to see how much HMRC truly were ‘listening’ to the views and experiences of stakeholders. Recognising that this was a subject of great interest to CIPP members and the wider payroll profession, the CIPP policy team looked to gather views through a variety of sources. Survey We ran a survey in order to gather as wide a viewpoint as possible. The survey went live on the 16 September and closed on the 12 October and views in some instances were polarised. However, there were some consistent points raised: ● Administrative burden – it is acknowledged that delivering a reward strategy around salary sacrifice, whilst often resulting in savings in NICs, does inevitably bring with it a measure of burden. ● Complexity – “how will this work in practice?” was a common question, and the call for revised detailed guidance to enable employers to be able to communicate the change and impact to their employees is a priority for survey respondents. ● ‘Grandfathering’ – or some form of process that recognises that many reward schemes are arranged over a set period of time; the shortest example given was a year, the longest five years, with a common three- year period for car leasing arrangements. Any transition ideally will build allowance for contracts that are ongoing at a given point in time once the final proposals are announced. ● Timing – this was by far the biggest area of concern. April 2017 is too soon to start
...passionate response from payroll and employment tax professionals...
| Professional in Payroll, Pensions and Reward | December 2016/January 2017 | Issue 26 10
Policy hub
share their views came during the Annual Conference when Paul Tucker, partner employment tax at Smith & Williamson, delivered his session on salary sacrifice. Delegates always expect an excellent seminar with Paul and they were encouraged to share their thoughts and views. It was during this session that the subject of fairness was raised, specifically when considering employees who aren’t able to enter in to salary sacrifice schemes and reward arrangements because they are paid at (or very near) the national minimum wage. The impact of the recently introduced national living wage has already seen more employees being taken out of salary sacrifice arrangements and if the predictions, published by the Low Pay Commission come to fruition, this number will increase. Nevertheless, the timetable once again proved to be a huge area of concern along with concerns about the impact of the proposals on administrative simplicity. If change is to happen, and I don’t think any response we have seen or heard has failed to see the logic behind the need to change, April 2018 should be the earliest implementation date for all of the reasons
effectiveness of the work of the OTS, which would be extremely worrying as HMRC seem to be a significant beneficiary of many, if not all, of the simplification measures. On a final note There has not been a clear steer from members or the wider profession about what impact these proposals will have in affecting change in the behaviour of employers as it relates to their pay and reward arrangements. Some members will come out of any salary sacrifice arrangements as soon as necessary, where their BiKs are not on the ‘in’ list. However, this view is balanced against the belief that many employers will simply take the administrative hit of the additional administrative burden of a process that will see them taxing the greater of the cash equivalent of the BiK (either as per the benefits code or where it would otherwise be exempt), or the actual amount of the salary sacrificed by the employee. They will therefore fund the additional cost in Class 1A NICs, because the value of having a complex reward structure far outweighs the disadvantages brought about by an increasingly complex tax system. n
mentioned above. Albeit we accept a more immediate cut off point, to prevent schemes being promoted ahead of implementation that seek to maximise the benefits of any grandfathering arrangements. ...timetable once again proved to be a huge area of concern... How does this support the simplicity agenda? A note of concern has also been raised about the message being sent, with such a tight timetable, to employers who have already or who are in the process of engaging with voluntary payrolling. Voluntary payrolling proposals have come about as a result of recommendations made by the Office of Tax Simplification, and thus has been developed under the banner of simplification. We observe that HMRC are sending significantly mixed messages about its commitment to simplification measures and risk derailing or at least casting doubt as to the long-term
Counts towards CPD
Payrolling benefits and legislation update Training course
One day duration
This course is aimed at everyone responsible for, or involved with payroll, expenses and benefits or policies within their organisation; whether working in payroll, HR or finance, who need to be updated with this significant change in legislation.
The course covers: l New exemption to replace the dispensation regime l Review current expense policies l New exemption for trivial benefits l Abolition of the £8,500 threshold l Pay as you earn settlement agreements (PSA) l Voluntary payrolling of benefits in kind
For full details or to book your place, please visit cipp.org.uk , email training@cipp.org.uk or call 0121 712 1063
cipp.org.uk
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Issue 26 | December 2016/January 2017
| Professional in Payroll, Pensions and Reward |
MEMBERSHIP INSIGHT
Voluntary payrolling
The CIPP’s policy and research team reveals the progress of this major change
S ince April 2016, employers have been able to process the cash equivalent value of benefits in kind (BIKs) through the payroll and collect income tax due on the BIKs via the pay as you earn (PAYE) process in real time. In turn, these employers’ annual reporting of the BIKs via the P11D return and the collection of any tax due by way of an adjustment to the tax code comes to an end. Whilst this doesn’t impact the collection of Class 1A National Insurance contributions (NICs), for many employers it offers – for the first time – a regulatory framework that provides additional flexibility for them in processing their tax reporting and collection duties. To be able to take full advantage of this option, employers needed to have registered their intentions to payroll using HM Revenue & Customs’ (HMRC’s) payrolling benefits in kind service (PBIKs) (http://bit.ly/1VNWlPP) before the tax year they intend to begin in. For 2016–17 that was 5 April 2016, and for 2017–18 that will be no later than 5 April 2017. Once the BIKs to be payrolled have been selected, a flag is set that ensures that any pre-tax year adjustments to the tax codes are cleared down to avoid the risk of double taxation. Employers can also elect to exclude an employee from payrolling via PBIKs.
Whilst registration can occur at any time up to 5 April, in order to minimise the number of tax code changes – specifically, P9 code notifications – the earlier in the year it is done the better. ...amazing 573 responses throughout September with 33% of respondents saying ‘yes’... The PBIK deployed to ‘live’ (as opposed to beta ‘test’) on 10 May 2016. HMRC’s project team are thrilled at how well, so far, the service has been received; though there have been modest numbers taking up the service there have been productive outcomes: ‘so far so good’. This matched the responses the policy team have received from delegates at National Forums and other events to our questions about whether they have elected to payroll and how it is going. Straw poll results suggest only small numbers so far, but with many positive success stories. A further question to delegates – who is planning to payroll BIKs next year? – resulted in a much more
positive show of hands and enthusiasm. Although a ‘show of hands’ is good, the policy team like a good quick poll question; so, as the new CIPP website launched, we ran a poll asking ‘Are you planning to take up voluntary payrolling of benefits for the 2017–18 tax year?’ We received an amazing 573 responses throughout September with 33% of respondents saying ‘yes’ they would be taking up voluntary payrolling next year. This matched the straw poll findings but prompted us to wonder about the remaining 67%? What is stopping the 35% who said ‘no’ they would not be, and the 32% who are still undecided? So we ran a survey, from 20 October until 5 November, which was promoted through NewsOnLine and supported by AccountingWeb and the Association of Accounting Technicians. Although a survey doesn’t have the value of a face to face discussion or a roundtable meeting, it provides the opportunity to gather statistics and to drill down into detail. The invaluable comments result in lessons for those who have yet to dip their toes into voluntary payrolling; namely, the opportunity to learn from the experiences of others who have gone first. The following comments are informative. ● “Staff have been positive about it; they
| Professional in Payroll, Pensions and Reward | December 2016/January 2017 | Issue 26 12
Policy hub
all trust the company to update records more quickly than tax codes were updated for car changes in the past – [which] caused numerous under/overpayments for our staff and much unhappiness especially when it happened around year end as it took them far too long to resolve.” ● “I sent out clear information to all the employees who had company cars, and made sure they understood how it would change their code. Most of them are delighted that this year they will be able to do their tax returns early and not have to wait until July for a P11D.” ● “The switch to payrolling was comprehensively communicated to employees and all questions were addressed before the change.” ● “After initial change, cars/fuel queries reduced to nil”. ● “We need to be informed early that someone has changed their car.” ● “Some of the spreadsheets/processes required some ‘fine-tuning’ in order to ensure complete reliability of the data being fed though to payroll. Also, timing issues with mid-month leavers and pro-rata calculations of private medical insurance.” ● “Voluntary payrolling is more time- consuming when non-payroll staff are calculating the amounts to be payrolled as they are not used to working to payroll timetables. We are still refining the calculation system.” ● “Registered on line with HMRC, informed staff I would be payrolling their benefits in 2016/2017 and updated my spreadsheet with the increased amounts for 2016/2017 tax bands. I worked out what the tax codes for the employees should be with the car benefit removed and new personal allowances for the new tax year and asked them to check with me when they received their amended codes. The majority of the codes were correct; any that did not match mine were further
investigated with the employee and HMRC and duly corrected. As people have changed their cars I have recalculated their car benefit and changed the payroll to suit. I am running my P11D software also this year as a double check and to make sure the Class 1A [NICs are] correct.” ● “At the moment it does not save me any time, but the employees are happy that they are being taxed in real time. I have set up a spreadsheet to calculate the [NICs] and will discontinue using P11D software after this year, [which] will be a cost saving and I will also free up time by not having to produce and hand out P11Ds.” ...still early days, and a complete cycle of tax year Reasons for not taking up voluntary payrolling mainly comprise caution, tradition, lack of time/resource as illustrated by the following comments: ● “We did not [payroll] as an informal practice and did not want to test it in the first year, therefore we would be looking at payroll benefits for the next tax year.” ● “I wanted to see the change bed in and make sure that the process and HMRC did not change things post roll out…” ● “The team leader before preferred the P11D approach.” ● “I am also in a sole role with no resources available and need to find the capacity and time to implement this.” ● “Due to workload we have not yet moved to PBIK. We do intend to do so by April 2018.” ● “Too late for this year to register, but will look at changing this for next.” ● “Resourcing issues have stopped us doing this, but we are planning on doing it has yet to be concluded...
within six months.” ● “There were too many other things happening.” Beneficial loans Looking ahead to April 2017, amending regulations will result in the extension of the range of BIKs covered by the voluntary payrolling framework to include non-cash vouchers and credit-tokens. However, what about beneficial loans? In September, a roundtable of CIPP members met together with HMRC to discuss the challenges or otherwise of incorporating beneficial loans under the voluntary payrolling framework. Previously it had been discounted as being too challenging and too difficult. The roundtable was in agreement that given the right adjustment to payroll software (where needed) and to internal procedures, it would be possible to incorporate the precise method of calculation. The usual concerns about the timing of payroll deadlines and the efficiency (or otherwise) of internal communications, where the data might come from another department, was an issue that raised concerns and questions about whether the existing ‘late reporting reasons’ would be sufficient. When a plan comes together This year all sources of data on the subject of voluntary payrolling came together: straw polls matched quick polls, and the survey that drilled down for data added matching depth of information. Don’t you just love it when a plan comes together? But it is still early days, and a complete cycle of tax year has yet to be concluded, including the processing of the Class 1A NICs declaration – the P11D(b) return. And looking ahead there is the introduction of the company car and fuel data reporting requirements that will be introduced in to the full payment submission from April 2017. n Thank you to everyone who took the time to share their views and experiences in our survey, and also to AccountingWeb and the AAT for supporting the survey. Another survey to be held in 2017 will obtain the views and opinions of those intrepid folk who are taking the plunge now or are planning to embrace voluntary payrolling from April 2017.
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Issue 26 | December 2016/January 2017
| Professional in Payroll, Pensions and Reward |
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