UK: FAQ Question & Answer Received By Dedicated Payroll Technical Helpline

Last Updated: 25 April 2001
Article by Himenshu Rajyaguru

Question

I understand that it may still be possible for employers to receive some kind of relief when they have paid out SSP and SMP, what is called and how does it work and who gets it?

Answer

The Percentage Threshold Scheme is aimed at ALL employers who may have a high proportion of their work force off sick at any moment in time.

Under the PTS Scheme the employer has to compare the total of SSP paid in any tax month with 13% of the total employers and employees gross class 1 NIC liability for that tax month

For employers who pay contracted-out NIC, they need to deduct the contracted-out rebate for that month prior to working out the 13% If you do qualify for the rebate in any one-tax month, you have to re assess the conditions each month, as you not automatically qualify for rebates from one month to another.

Where there is more than one PAYE reference for the employer, then the amounts of Class 1 NIC liability and SSP need be aggregated for the purposes of PTS calculations.

Worked Example

Total Class 1 NI due Eees & ER's

£ 800.00

Less Cont.-Out Rebate

£15.00

13% of £ 785.00

£102.05

SSP paid in month

186.60

The SSP paid is £186.60 and the NIC @ 13% is £ 102.05 the difference of £84.60 is recoverable in that given month. Recovery is made by reducing the amount paid over to the Inland Revenue

For SMP paid in tax year 2001/2002, Small Employer Relief is given to an employer who has paid, or was liable to pay gross NI contributions of £20000 ( £ 40000 for 2002/2003) or less in the qualifying tax year.

The qualifying year is defined as the last complete tax year before the employees qualifying week therefore if the qualifying week falls on Sunday 9th April to Sunday 1st April 2001…The Qualifying year is 1999/00

If Cont.-Out NIC's are paid, the NIC Rebate should be deducted before working out the SER

Worked Example

For an employee who's qualifying week begins Sundays 1April 2002 so that the Qualifying year is 2001/2002.

In 2001/2002 Class 1 NI Cont. for 9 months

£12750.00

Less Cont. Out Rebate

£ 150.00

£1260.00 divide by 9

£1400.00

£1400.00 Multiplied by 12

£16800.00

Therefore, as the amount is less then £20000, The employee would qualify for SER

Qualifying employers may recover 100% plus the compensation rate of 5% ie105% is recoverable. A non-SER employer would recover 92% of the total SMP paid. The recovery is made by deducting from the Revenue Payments the amount of SMP recovered.

There is no need to make a special entry, However if you want to keep a record of the SMP recovered you can enter the amount on the P11, under column headed ' for the employer use'

Question

We have a lady who is on Maternity Leave, and she is also a member of our company pension scheme, could you please advise me of how to deal with this?

Answer

The employer must continue to pay contributions as though the woman was still at work and regardless of whether the woman had decided not to return back to work after her leave. The Social security Act 1989 Sch 5 basically states that a woman should be treated as if she was still at work. Following on from that the employer must pay full contributions based on her "NORMAL PAY" the employee however may only pay on the ACTUAL payment. These payments need only be maintained during the course of Ordinary Maternity Leave.

Question

We like to pay one of our longest serving employees's a payment for their long service. How can I do this where there would no PAYE nor NI liability generated.

Answer

Payments can be made to an employee to mark long service, would normally be seen as taxable income. The Inland Revenue has agreed that certain non-cash long service awards made to employees will be exempt from income tax subject to specified conditions being met.

  1. The award is in the form of 'tangible articles' or shares in the company (or another company in the same group) of reasonable cost; i.e. no more then £20.00 per year of service. Items
  2. Length of service of service is not less than 20 years; and
  3. Not a similar award been made to the employee within the last ten years.

Therefore, the employee can initially receive tax-free a maximum of £400 (20 years × £20). A further tax-free award can then be made after 30 years service up to a maximum value of £600 (30 years ×£20) and again after 40 years up to a maximum value of £800 (40 years ×£20). Awards that exceeds £20 per year of service, can be paid, these payments will be subject to PAYE and NI.

Question.

We are in the process of doing a "Spring Clean " of the payroll Dept.

Can you please advise what records I need to keep and for how long?

Answer

You are required to keep ALL records and all other related documents, that have used to calculate the salaries, and that you are not required to send to the Inland Revenue for at least three years after the year to which they relate this is stated in the. [Income Tax (Employment's) Regulations 1993 (SI 1993 No 744), reg 55(12)]. The Inland Revenue code of practise document, Reviews of Employers and Contractors Records, outlines in greater detail what is required

Question

We have received an AOE order, and we need to identify "Attachable Earnings"

Answer

Attachable Earnings are identified, as earning that can be use in connection with the calculation of any deduction as a percentage of earnings.

Broadly speaking, earnings are any sums payable as

  1. Wages or salary, overtime pay, including any fees, bonus, commission, or other emoluments payable in addition to wages or salary or payable under a contract such as contractual maternity pay or contractual redundancy pay
  2. Pension, including an annuity in respect of past employment, and including periodical payments by way of compensation for the loss, abolition, relinquishment, or diminution in the emoluments, of any office or employment;
  3. Statutory sick pay.

There are however payments that are not included in attachable earnings.

  1. Income payable by any public department of the Government of Northern Ireland or of a territory outside the UK.
  2. Pay or allowances payable to the debtor as a member of Her Majesty's Forces.
  3. Allowances or benefits payable under any social security enactment.
  4. Statutory maternity pay and Statutory redundancy pay
  5. Pensions or allowances payable in respect of disablement or disability.
  6. Any pension or allowance paid for a disability.
  7. Except in relation to a maintenance order, wages payable to a person as a seaman, other than wages payable to him as a seaman of fishing boat.
  8. A guaranteed minimum pension within the meaning of the Social Security Pensions Act 1975.

Question

We make a number of small and irregular payments to our employees which are seen by the revenue as benefits in kind, These seem totally impracticable for reporting purposes on the P11d, is there an alternative?

Answer

PAYE Settlement Agreements (PSAs) are voluntary arrangements agreed with your inspector under which an employer can settle, the payment of income tax and NI liabilities on a range of minor benefits-in-kind and expenses payments provided to employees. These can be used in situations where the employer wishes to settle the tax liabilities instead of the employee.

Items covered by a PSA do not have to be declared on forms P9D and P11D, and the employees receiving the benefits do not have to enter the details on their self-assessment returns. Also the payment of the additional PAYE and NICs payable in respect of a PSA are not reported on year-end forms P35 and P14. The inspector could withdraw a PSA if it were established that the employer is operating outside the agreed terms or fails to account for the tax and NICs due under the agreement.PSAs apply to expenses payments and benefits which are "minor" or items paid on an "irregular" basis or where it is "impracticable" to apply PAYE or apportion the benefit between the employees receiving the benefit. The terms irregular, minor and impracticable to operate PAYE are explained in the IR1 131 Statement of Practice SP5/96

In the calculation of the tax due on PSAs , there are several things to consider, the amount of the expenses payments or the cost of providing the benefits in kind, any deductions or relief's that may have been applicable if the items had not been included in the PSA. One should also consider the marginal tax rates of the employees involved. The tax due will be needed to be "grossed up"; this is necessary, as paying tax on behalf of an employee will give rise to a taxable benefit. The National Insurance due is Class 1B. The charge is calculated using a fixed percentage (12.2 % for 2000/2001 and 11.9% for 2001/2002), of the total value of the items in the PSA which are normally liable for Class 1 or Class 1A NICs AND the total grossed – up tax payable under the PSA agreement.

Deadline for payment is 19th Oct following the tax year in which it related.

You should apply for the PSA before or during the tax year to which the PSA applies and only operated once agreement has been given. On items, which would have normally be entered on the P9 or P11d, you should apply after the end of the tax year but before 6th July. PSAs are annual agreements and therefore need to be "renewed" each year.

Worked Example:

Value of benefit

£ 20000

Tax due @22%

£ 4400

Grossed up Tax

£ 5640

Total Amount chargeable

£25640

Class 1b due @ 12.2%

£3128

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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