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A: In a true TUPE arrangement it is not the outgoing employer’s responsibility to pay all the remaining SMP to the employee who is being TUPE’d out as the liability passes smoothly and seamlessly over to the new employer. So, this should not impact on the employee at all and the SMP will just continue to be paid. Q: I am about to set up a payroll for a new client who has started their own company, with their position being a director. I have received a copy of their last P45 which includes all their taxable earnings made to date. Will these earnings be used and included in the threshold for director NICs or is this separate and only taken into consideration in month 12? A: You are probably aware directors can have irregular payment patterns and they often have the power to influence how and when they receive their pay. This means that if class 1 NICs for them were calculated under the ‘normal’ basis they could pay their annual salary in one single week which would result in them paying less NICs than a normal employee who is paid the same amount but spread over the whole year. Under legislation, directors’ NICs are calculated based on an annual earnings period, in a similar way to PAYE. However, the one difference is that you do not include previous employment earnings in the calculations. The standard annual earnings period method is a cumulative method involving calculating the NICs liability in each pay run on a year-to-date basis using the annual earnings thresholds. This means that the NICs are calculated on NICable earnings to date using the annual thresholds then deducting the amount of NICs paid to date, with the balance being the amount of NICs due for the pay period. This means that the director does not have to pay any NICs unless/until the earnings exceed the annual primary threshold. And they would pay 12% until the earnings exceed the annual upper earnings level (UEL). In this scenario the director has been appointed during the tax year therefore NICs will be calculated on a pro-rata cumulative basis. This method is only used for directors who join a company part-way through a tax year and you would not include any NICs paid prior to this date. Where a director leaves during the tax
year there is no pro-rata calculation, so at the time of leaving the NICs must be reassessed. If you wish to check the calculations, there is quite a useful tool on GOV.UK; visit https://bit.ly/2I4Eok8. You should only use this calculator to do a reassessment at the end of the tax year or when a directorship ends; do not use it for any other assessments. You will need the following information to use the calculator: l the director’s NICs category letter l the earnings for the tax year, and l details of any employer and employee NICs paid in the tax year Q: Is travel insurance classed as a benefit in kind? Our purchasing manager has to travel internationally quite often to meet new suppliers. The company therefore pays for his travel insurance costs which typically cost a minimal amount of £86 per annum. Would this be reportable in the P11D return or would it be exempt as it is for business travel? A: It would really depend on how the insurance was arranged and paid for. For example, if this was a corporate policy that covers employees generally and not just a certain named individual, there would be no benefit in kind to report. However, if the insurance was only taken out for the individual concerned it would be reportable as a benefit in kind as it is classed as a pecuniary liability and could be used by the employee for personal use as well as the means in which it was purchased. If this is an individual policy, the way in which it is paid for will then depend on how it is reported. If the contract is between the employee and the provider and the employer pays the provider direct, then it will need to be declared under section B of the P11D return for tax and included in the payroll to account for class 1 NICs. If the employer reimburses the employee directly, then the costs will need to be processed via the payroll to account for PAYE tax and NICs. n
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Issue 41 | June 2018
| Professional in Payroll, Pensions and Reward |
*correct at time of publication
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