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Christmas Benefits

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With the festive period upon us, some employers may want to provide their employees with a gift or bonus, but how will this affect your payroll?

CHRISTMAS BONUSES
All cash bonuses paid at Christmas count as earnings and must go through payroll in the normal way. Non-cash vouchers, and benefits with a money’s worth are also counted as taxable earnings and must go through payroll. Some employers may wish to pay the tax and NIC the bonus will attract, so that the employee receives the full cash bonus in their pay packet. Most payroll providers can ‘gross up’ bonuses without too much trouble.

CHRISTMAS GIFTS
Employers may choose to provide their staff with goods as a seasonal gift (items that cannot be resold or exchanged for cash) such as a turkey, or a bottle of wine. It is generally considered that items with a cost value of under £50 are deemed as trivial benefits with HMRC, so there is no liability or reporting requirement and are not included in a PAYE settlement agreement (PSA). If the gift is larger, such as a crate of wine or a hamper, HMRC may not consider this as a trivial benefit, and should be reported on a P11D as a benefit (for employees with earnings above £8,500).

THIRD PARTY GIFTS
Small gifts of goods can be given to third party employees, as long as the gift is not made in recognition of the provision of services; it is not provided by the employer or anyone connected to the employer and the cost is less than £250.00

CHRISTMAS PARTIES
Christmas parties are exempt from tax and NIC if they meet these 3 conditions:
* It is an annual event, such as a Christmas or New Year party
* The event is open to all employees to attend
* The cost per head is no more than £150.

The entitlement applies to each attendee, including guests, but the total cost cannot be offset against the cost of a more expensive event. If the £150 per head limit is exceeded, there is no exemption and the full cost would be considered a benefit on the employees who attended.

Don’t pay HMRC too early!

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Since Real Time Information (RTI) started, some employers have been experiencing difficulties in reconciling the difference between the tax they think is due, and the tax HMRC think is due according to the RTI submissions. As I mentioned in my last blog, it is vital for employers to use their correct PAYE Accounts reference for the corresponding tax year and month, but it has now become evident that employers must also pay HMRC as well as submitting any Employer Payment Summaries (EPS) if applicable, within a certain time frame to avoid payments being allocated to incorrect periods.

HMRC derives an employer’s ‘monthly charge’ from values reported in RTI returns comprising the full payment submission (FPS) and the employer payment summary (EPS). An EPS submission is due if an employer needs to report any difference in PAYE/NIC reported in the FPS; such as statutory maternity pay reducing the NIC liability or CIS deductions to be added to the tax liability. EPS submissions do not include tax month data, only year-to-date data, so the timing of submitting the EPS is important. Sending the EPS too early or too late may result in HMRC applying it to the wrong tax month, thereby affecting the ‘monthly charge’. For example; if a monthly payroll is processed on 15th October for the month of October, and the FPS and EPS submissions are also submitted on 15th October for October, HMRC may assume the EPS refers to September as it has been received before September’s payment deadline of 19th October. So the ‘window’ for submitting EPS submissions and paying HMRC should be from 20th of current month to 19th of the following month. If two EPSs are submitted within the same time frame, one will apparently overwrite the other.

RTI: The importance of reporting Hours Worked

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From October 2013, the new Universal Credits system will start to be introduced around the UK. This new benefits system will replace income support, housing benefit, job seekers allowance and employment and support allowance. Then, from April 2014, workers who are currently claiming tax credits will claim universal credits instead.

It is therefore crucial that you report the correct number of Normal Hours Worked for your employees when you submit your RTI FPS report each time your employees are paid. These hours will effect employee entitlements to tax credits, and subsequently the new Universal credits. Currently, for RTI reporting, the hours are banded:
Band A: less then 16 hours per week
Band B: 16-29.99 hours per week
Band C: 30 plus hours per week
Band D: Other

From April 2014 however, there will be an additional band:-
Band A: less than 16 hours per week
Bank B: 16-23.99 hours per week
Band C: 24-29.99 hours per week
Band D: 30 plus hours per week
Band E: Other

Payroll software should automatically apply the bandings from the Normal Working hours entered when employees are added, but if this information is not given to the payroll provider, the software may have to choose ‘Other’ which may then effect any Universal Credit claims.

Paying HMRC correctly

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Since April 2013 and the introduction of RTI (Real Time Information), HMRC know exactly what each employer owes them every month and are quick to chase for late payments or apparent underpayments. We have seen many cases recently of our clients being sent demands for underpayments when in fact they have paid the correct amounts, but the payments have been misallocated to previous tax years due to the incorrect PAYE reference suffix being used when they make payments. It is vital that you use the correct PAYE reference each time you make a payment to HMRC.

Each employer has a 13 character Collection or Accounts Office reference which will be given by HMRC when a new PAYE scheme is set up and will be shown on the payslip booklet. For example 123PA00012345. This 13 character reference will never change, however the all important suffix will change each month, as it signifies the tax year and tax month your payment refers to.

The 4 digit suffix you need to add on the end of your Accounts Office reference will be made up of 2 digits for the tax year and 2 digits for the tax month. For tax year 2013-14, the suffix is 14 and for April the suffix is 01 for the first tax month of the year, May is 02 etc.

There is only one account now for all payments which is AO Cumbernauld, sort code 08-32-10, account number 12001039. Payments by cheque should be sent with the relevant payslip from your HMRC paying in booklet (and we recommend you write the full 17 digit reference on the back of your cheque) and received by HMRC no later than 19th of the following month or 22nd if paying electronically.

By ensuring you use the right PAYE reference each month will avoid late payment notices, misallocation of funds to wrong tax years and no phone calls from HMRC!

RTI…Is it working so far?

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Since RTI started, we are told that the majority of employers have come on board and have been submitting successfully and all is working well. However, for many employers this has not been the case, and although they have reported RTI correctly, they have been inundated with apparent underpayments due to discrepancies between the employers Full Payment Submission (FPS) and HMRC’s NI and PAYE service (NPS) which shouldn’t happen. We were all told that whilst RTI was bedding down there would be no penalties for this tax year, yet several employers have been pursued for late payment penalties, fines and threats of interest.

As a bureau, we correctly submit the FPS payroll report for RTI on each pay day; the client pays HMRC the correct amount on time, but somehow HMRC records appear to show different totals and immediately inform the employer that they have an underpayment due. We have been inundated with calls from HMRC and clients asking us to explain why HMRC claim they owe more than they actually do. We don’t have the answer and HMRC’s Debt Management division cannot provide us with that detail, as all they have is a total owing.

In its annual report to HMRC, the National Audit Office identified some shortcomings in the RTI project as it went live. By mid-May this year, 10,000 duplicate employee records had already been created, with HMRC apparently unable to ascertain the root cause. The system went live with shortcomings identified in relevant system capturing and reconciling data and payment coming in. There is no budget for contingency and corrective work where errors are discovered.

Employers are being ask to look on their employer dashboard on the HMRC website, but HMRC have errors in their systems, and the amount shown on the employer dashboard is not necessarily the amount reported on the FPS. It’s the amount tallied from HMRC NPS records. Many employers are finding their cases being passed to HMRC’s technical department, but we haven’t heard back from them so far….HMRC need to fix their problems and reconsider their policy of pursuing employers appropriately.