NEWS
- New National Minimum Wage 2010
- Additional higher rate of income tax 2010-11
- Extra Personal Allowance for 2008-09
- SMP Update
- Pay in Lieu of Notice
- Work and Families Bill
- SMP Changes
- P38(S) Forms
- Company Vans - Good News and Bad News!
- Leavers Holiday Pay
- Company Car Tax Reform
- Winners and losers
New National Minimum Wage 2010
The national minimum wage applies to nearly all workers and sets hourly rates below which pay must not be allowed to fall.
It is an important cornerstone of Government strategy aimed at providing employees with decent minimum standards and fairness in the workplace. It helps business by ensuring companies will be able to compete on the basis of quality of the goods and services they provide and not on low prices based predominantly on low rates of pay.
The rates set are based on the recommendations of the independent Low Pay Commission. The rates change on 1st October each year.
New National Minimum Wage rates from 1 October 2010
Workers aged 21 and over - £5.93 per hour
Workers aged 18-20 - £4.92 per hour
Workers aged 16-17 - £3.64 per hour
Accomodation offset - £4.61 per day (£32.27 per week)
For more info:
http://www.direct.gov.uk/en/Employment/Employees/TheNationalMinimumWage
New apprentice rate
A new apprentice rate of £2.50 per hour will be introduced for pay reference periods starting on or after 1 October 2010. This will apply to apprentices who are workers, and aged either under 19 or aged 19 and over, and in the first year of their apprenticeship.
Additional higher rate of income tax 2010-11
This year’s Budget announced that from 6/4/10 a new rate of Income Tax of 50 per cent will apply to income over £150,000. Also, the Income Tax Personal Allowance will be reduced for those with incomes over £100,000, tapering down to zero.
Extra Personal Allowance for 2008-09
Summary of changes
In his statement on 13 May 2008, the Chancellor of the Exchequer announced a £600 increase to the basic Personal Allowance. The Chancellor also said that the extra allowance should only benefit individuals who pay all their tax at basic rate. So, to make sure that this happens, the Government will also reduce the basic rate limit by £1,200 to £34,800. We anticipate that the Government will make these changes effective for the purposes of PAYE from the first pay day on or after 7 September 2008. As usual, any changes to the Personal Allowance and basic rate limit are subject to the will of Parliament and Royal Assent to the annual Finance Bill.
The p7x form should be taken into consideration when updating codes in september and this outlines what changes should be made.
The PAYE Threshold with effect from 7 September 2008 is £116 per week
(£503 per month).
The code for emergency use with effect from 7 September 2008 is 603L.
The rates and bandwidths for 2008-09 are as follows:
Basic Rate 20% - up to and including £34,800
Higher Rate 40% - over £34,800
All suffix L codes will be increased by 60. All other tax codes must stay the same until a revised P6 is received from HMRC. The extra Personal Allowance is backdated to 6 April so monthly paid individuals should see an increase in their September wages of around £60 followed by a £10 a month increase for the rest of the year. Weekly paid individuals should see an increase in their pay for the week commencing 7 September of around £53 followed by an increase in their pay of about £2.30 a week. Individuals on a week 1 or month 1 code will only get a £2.30 a week or £10 a month increase for September. They will get the full increase once they are back on a cumulative code or after the end of the year when we review their total liability. Around 40 million individuals will be affected by the change.
SMP Update
Length of the period
Extending Statutory Maternity Pay (SMP) to 39 weeks towards a goal of 52 weeks
The Maternity Pay Period is to last for a maximum of 39 consecutive weeks. Only women expecting babies on or after 1 April 2007 will qualify for a 39 week MPP. Women expecting babies up to and including 31 March 2007 will continue to qualify for 26 weeks.
Statutory Adoption Pay (SAP) has also been extended to 39 weeks for those whose child is expected to be placed with them for adoption on or after 1 April 2007.
Start date of the Maternity Pay Period
Currently where a woman has given her employer notice of the date she expects her SMP liability to begin, the MPP starts from the week following the week she ceased work in accordance with that notice – in practice the Sunday following the day she stopped work in accordance with that notice. The new rule, which applies only to women whose babies are due on or after 1 April 2007, enables the period to start on any day of the week as specified by the woman in the notice she gives to her employer. The woman is required to tell her employer when she wants her SMP to start and she must have stopped work in accordance with that notice. Prior to the start of her SMP she may have been absent from work for other reasons – perhaps she chose to take some annual leave before her SMP starts or she has been on sick leave. This will not affect her choice of when she wants her SMP to start.
In line with this “any day” start, where a woman actually resigns from her employment after the 11th week before her expected date of childbirth but before her MPP is due to start the MPP will start the day after the day her employment ends (instead of the Sunday after as now).
There is no change in the existing rules for the start of the MPP in cases of early birth (ie births which take place before the 11th week or before the date she wants her MPP to start) or where the woman is absent from work for a pregnancy related reason in the last 4 weeks of her pregnancy. In these cases the MPP already starts from “any day” and payroll systems may already provide for this. Thus the change simply extends the existing principles applied to early birth and pregnancy related absence cases to all women.
As is the case now for Statutory Adoption Pay and Statutory Paternity Pay and for SMP where the start of the MPP is triggered by an early birth or pregnancy related absence, “weeks” in the MPP will mean any period of 7 days. This means that where, for example, a MPP starts on Tuesday, “weeks” within that MPP will run from Tuesday through to the following Monday and so on throughout the MPP.
Keep In Touch Days (KIT)
A woman can do some work for the employer paying her SMP during her maternity pay period under their contract of service without losing her SMP for that week. She can work for up to 10 days, whether consecutive or not. This enables a woman to undertake odd days training or to go into work on occasion to 'Keep in Touch' (KIT). The woman would not lose her SMP for the week in which the work is done or need to end her maternity leave. Whether the woman just goes in for one hour or a whole day, it will still be counted as one day for 'KIT' purposes.
This provision is designed to help ease a woman's eventual return to work and to make it easier for her to keep in touch with her employer during her leave from work.
Both the woman and her employer must agree that these days may be worked and the arrangements including what work she will be doing and how much she will be paid. The employer has no right to demand that any such 'KIT' work is undertaken and the woman has no right to undertake such work.
Pay in Lieu of Notice
Historically, there has been much confusion surrounding the tax treatment of Pay In Lieu of Notice (PILON) payments made when an employee leaves.
In the main, PILONs should be taxable if there is any mention of it in the contract of employment, or if the employer habitually makes such payments on termination to all, or particular sections of their staff. In all other cases PILONs can be made free of Tax and NIC. This logic is often misunderstood, as some employers assume that PILONs automatically fall into the £30,000 limit set for termination payments.
In a recent case (SCA Packaging verses R & Coomrs) the Special Commissioners rejected the HMRC view that such habitual payments should be treated as being made under the terms of the employment contract and therefore should be Taxable and NIC-able. In this case, the employer had an established practice of making PILONs to employees whose employment was terminated. The Commissioners decided that where employees had been offered such a package and had subsequently agreed then the payment should be deemed contractual. However, when an employee's contract was simply terminated it was deemed that no alteration was made to the employee's contract and therefore the payment should be made free of Tax and NIC.
All of this goes to show that great care should be taken when deciding upon the correct treatment of PILON and other lump sum payments on leaving. If you would like any advice on such matters please contact on of our payroll consultants.
Work and Families Bill
In October 2005 the DTI published a draft bill for consultation during 2006 concerning various issues regarding the rights and entitlements for working parents. The bill forms part of the government's ten year childcare strategy and we have outlined the main recommendations for you in this article.
The government has confirmed it will extend maternity leave and pay to nine months from April 2007. An additional extension to one year is planned to be in place by 2010. The bill suggests that entitlement to 12 months maternity leave will apply to all employed women; many employers have already objected to these proposals on the grounds of cost and inconvenience, especially employers that have a contractual maternity scheme linked to statutory entitlements.
Also proposed is a new form of additional paternity leave be introduced allowing employees (usually fathers) to receive additional leave should the mother not wish to take up their own additional maternity leave entitlement. This should not affect the current arrangements for paternity leave. It is suggested that entitlement to this new leave and payment should be granted whereby the mother returns to work after their six months ordinary maternity leave and has chosen to pass the entitlement of additional leave to their partner. The rate for this new payment is likely to be the same as flat rate SMP. Various other factors will invariably affect the employees (fathers) qualification to this new leave and payment such as qualifying earnings and right to parental responsibility.
There are other recommendations included in the draft bill concerning Statutory Maternity Pay (SMP) designed to reduce the administrative burden on employers. It has been suggested that SMP should start on any day of the week (not just Sundays) therefore aligning SMP to Adoption (SAP) and Paternity (SPP) payments. Also recommended is the alteration of SMP to a daily rate - this will help greatly with the payment of SMP to monthly paid staff, currently the recommended approach is to pay a number of SMP weeks in a particular month's payroll, typically four or five. Therefore a common disproportion exists when SMP is paid since employees often find it difficult comparing typical SMP weeks paid in a month to normal monthly salary payments.
All of these proposals are subject to consultation and change and we will therefore endeavour to keep you up to date in our November edition of this newsletter, in the meantime more information can be found on the DTI website at www.dti.gov.uk/er/work_families_bill.htm
SMP Changes
With effect from 6th April 2005 alterations have been made to the calculation of average pay for SMP purposes. Generally speaking this calculation has for many years been based on payments made to the employee in the 8 weeks preceding the qualifying week (QW), which is 15 weeks before the expected week of confinement (EWC).
The changes made this year affect any women starting SMP who received a pay increase after the relevant period at some point during the period of maternity leave. Where a pay award of this type has occurred the increase should be factored into the SMP calculation.
PSC will assess whether this has happened and calculate SMP using the new salary wherever possible. However, once SMP has commenced we would not necessarily be informed whether a pay award has been made since this is unlikely to be actioned within the payroll. In cases such as these please contact one of our payrollers who will be happy to advise on the adjustments that may be required.
At the time of writing the Government are yet to advise on the process employers should undertake in terms of backdating such SMP adjustments.
This situation has arisen due to a case heard at the European Court of Justice (ECJ), whereby a Mrs Alabaster made a claim against her employer, Woolwich plc, on the above basis. Detailed information is available on the DWP website here: http://www.dwp.gov.uk/lifeevent/benefits/ecj_judgement.asp
P38(S) Forms
From April 2004 the PAYE procedure has changed for students working during their holidays. Before this tax year P38(S) forms were kept until the end of the tax-year and then submitted to the Inland Revenue at the end of the year along with the year-end declaration P35. From this year the forms should simply be retained by the employer (for compliance audit purposes) for three years at the end of the tax year to which they referred.
Company Vans - Good News and Bad News!
Changes were announced in the 2004 Budget to the benefit for employees who use vans in the course of their duties and take these vehicles home at night. The first changes come into effect from 6th April 2005 with the remainder following in April 2007.
Currently taxable benefit charges of £500 and £350 for vans under and over four years old respectively apply to employees who have private use of their company vans, This benefit has remained unchanged since 1993.
From 6th April 2005 employees who have vans that are taken home at night, but are not allowed to use their van for other private journeys except home to work travel will no longer incur a taxable benefit. Employees who are allowed extended private use of the van will continue to be charged a benefit of either £500 or £350. The new rules will remove the obligation to report many of the vans provided to employees on P11Ds although the Inland Revenue will require the employer to prove that their employees had not used their vans for private trips except commuting.
From April 2007 the £150 discount for older vans will be abolished and the scale charge will be raised to £3,000 for all vans. This will only apply to employees who are allowed to use of their van for private use other than just commuting. In addition, where fuel is provided for unrestricted private use an additional charge of £500 will be applicable. These huge increases for privately used vans will no doubt make the benefit much less attractive and will force employers to tighten controls.
Employers will therefore need to ensure that sufficient evidence is available to prove to the Inland Revenue that private use of a van has not been made. Compliance audits by the Inland Revenue will inevitably focus on this area, particularly where an employer has a large fleet of vans, since grossed up tax and Class 1A NIC on a benefit charge of up to £3,500 per van for could be sought from an employer with insufficient evidence or a wrongly categorised van.
Definitive guidance and legislation will be published by Government in the new year, although many employers are already considering the impact of these changes and adapting new policies already.
Leavers Holiday Pay
Many employers reclaim holiday pay from employees on leaving when the employee has taken more holiday than accrued at the time of leaving, a recent Employment Appeal Tribunal (Hill v Howard Chappell) confirmed that such deductions can be deemed unlawful. The original tribunal was found to have made a mistake on appeal by assuming that such reclaims were covered by law.
The Working Time Regulations 1998 include provisions to make it compulsory for employers to pay untaken entitlement for an employee leaving. However, the regulations do not include any rights for employers to deduct any overtaken holiday.
Employers wishing to deduct holiday pay in such situations must enter into a relevent agreement with their employees. This agreement must be in writing and would give the employer the contractual right to make a deduction.
If an employer makes a deduction without a relevent agreement in force, this may be deemed an unlawful deduction under the Employment Rights Act 1996.
Company Car Tax Reform
The long awaited and controversial reform of company car taxation finally takes effect from April 2002.
The new rules are designed to encourage the use of environmentally friendly vehicles and the new rules are therefore linked to vehicle exhaust emissions.
For cars with an approved emissions figure the benefit will be calculated on a percentage of the cars list price starting from 15% and increasing in 1% steps for every additional 5 g/km over the qualifying level (165g/km for 2002/03). The maximum charge will be 35% of the cars list price.
The qualifying level will reduce, and in turn the benefit will increase, over the following two years (155g/km 2003/04, 145g/km 2004/05).
Diesel cars are subject to a 3% supplement and therefore the minimum benefit for a diesel car is 18%, the maximum remains as 35%. The only diesel cars that are exempt from this supplement are those that conform to the new 'Euro4' European Community standard for cleaner engines.
Winners and losers
The drivers who are likely to be the biggest losers are those who currently drive 18,000 business miles or more in a year. They are currently paying a tax charge based on 15% of their car's list price and so they cannot be better off under the new regime and will have to drive one of the very cleanest cars just to stay neutral.
The winners are likely to be the 'perk' car drivers, whose tax charges are currently based on 35% of the list price of the car. They cannot be worse off under the new system even if they drive the most polluting vehicles.
The band of drivers covering between 2,500 and 18,000 business miles will contain both winners and losers under the new system, depending on the level of emissions of their new cars.