All the recent changes in payroll legislation have had a knock-on effect on the electronic interface between employers and HMRC. Below is a roundup of the updates.
Employer Payment Summary (EPS)
From April 2017 organisations with a pay bill of more than £3 million are required to report and pay the Apprenticeship Levy.
Under the apprenticeship levy definitions, an ‘employer’ pays secondary Class 1 National Insurance contributions, and all employers are subject to the apprenticeship levy. However, due to the apprenticeship allowance most smaller employers will not pay the levy.
The pay bill includes:
- Earnings below the Lower Earning Limit (LEL) and the Secondary Threshold (ST)
- Earnings of employees under 21 years of age
- Earnings of apprentices under 25 years of age
- Earnings of employees under 16 years of age
- Earnings of employees not subject to UK legislation
- Employees working overseas who pay employee-only contributions
Employers with a prior year pay bill of £2.8 million or above are also required to report on the EPS.
For payroll software that does not have the EPS facility, HMRC’s Basic Payroll Tools (BPT) has new fields added to the EPS and this may be used instead.
Adjustments to employee’s tax codes have started during the tax year instead of the traditional flurry of tax code notifications before the tax year, and demands for tax, or tax refunds paid, following the end of the tax year. The consequence of this is that more employees will, by the end of the tax year, have paid the correct amount of tax.
This may prompt more employee enquiries to Payroll than normal, and these should be handled calmly and sympathetically. The process is new to everyone, but employees should be encouraged to login to their Personal Tax Account where much of the information they require is stored.
Payrolling of benefits
There are now new fields in the FPS for the payrolling of benefits. The process of payrolling of any benefits means that tax due on the benefit(s) will be paid in ‘real time’. For employers, the benefit of payrolling benefits is the reduction in administration as the need for completing the P11D is no longer required, though the completion of the P11D(b) return is.
Employers who intended to payroll benefits in tax year 2017-18 should have registered by 5 April 2017, so it is too late for existing benefits. However, employers who are offering benefits for the first time can register during the current tax year. Registration by employers can be done online using their unique ID. The registration process can be found here.
Once registered it is assumed by HMRC that benefits will be on-going for future tax years unless told otherwise.
Withdrawal can only be done at the end of the tax year, unless the employer stops offering the benefit(s). If that is the case, they can withdraw at any point during the tax year. Individual employees can be added or withdrawn during the tax year under certain circumstances (starters or leavers).
Benefits that can be payrolled include:
- Cars, car fuel, mileage allowance and passenger payments
- Medical insurance
- Credit tokens and vouchers
The two areas of benefits in kind that are excluded are:
- Beneficial loans
Any amounts paid for ‘making good’ of payrolled benefits must be anticipated and deducted from the annual cash value of the benefit and then divided by the number of pay periods that are in the tax year. For more information on ‘making good’ please read my previous article.
For the 2017-18 tax year, it is not possible for agents to access the online service but access will become available in due course.
The payrolling fields are optional for 2017-18 tax year, but will become mandatory from April 2018.
There is a three-day easement of penalties for late filing of an FPS in the hope that educating employers is better than penalising them. It also meant that HMRC could focus their efforts on more serious offenders.
Staying on top of all the changes can be challenging, but it is hoped that with reading HMRC’s Agent Updates, these articles and attending CPD and training courses, employers and their agents will manage to keep up to date.
Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.