Adding new employees to payroll

Employers that take on a new employee need to work out which tax code and starter declaration to use in their payroll software. Incorrect tax codes can lead to the new employee paying more tax than is due.

The necessary information can be collected from the employee’s P45 or by asking the new employee to complete HMRC's new starter checklist (if they do not have a recent P45). A number of changes have been made to the new starter checklist from April 2020 to make it easier to complete.

The information collected must be held in the employers’ payroll records for the current year and the 3 following tax years. The new employee's tax code must be sent to HMRC using a Full Payment Submission (FPS) on or before the new employee’s first payday.

The required information usually comprises the following, the employee’s:

  • date of birth
  • gender
  • full address
  • start date

From the employee’s P45:

  • full name
  • leaving date from their last job
  • total pay and tax paid to date for the current tax year
  • student loan deduction status
  • National Insurance number
  • existing tax code.

New edition of the employer bulletin

HMRC has released the latest issue of the 'Employer Bulletin' publication which includes summaries of recent changes and updates that have been announced which are relevant to employers and agents.

The topics covered in the latest edition include the following:

  • Coronavirus relief measures. Updates on the Coronavirus Job Retention Scheme, COVID-19 Statutory Sick Pay Rebate Scheme, Deferral of VAT payments, general Coronavirus guidance on supporting employees and a Benefits and Tax Credits Update.
  • Short term business visitor changes. HMRC’s rules for employers with short term business visitors (STBVs) from overseas branches or territories with which the UK does not have a Double Taxation Agreement changed from 6 April 2020. This is known as STBV Appendix 8. A number of changes have been made to HMRC’s guidance due to the COVID-19 outbreak.
  • Off-payroll working rules. The government has postponed the roll-out of off-payroll working rules to the private sector until 6 April 2021. This deferral was announced in response to COVID-19, to help businesses and individuals deal with the economic impacts of the pandemic and the government remains committed to introducing this policy.
  • COVID 19 – Salary Sacrifice. If an employee wishes to amend their terms and conditions of employment and opt out of a salary sacrifice arrangement directly because of the change in their circumstances due to COVID-19 (including furlough arrangements), this can be done. HMRC’s guidance includes further details.
  • Claiming Employment Allowance. The Employment Allowance increased by a third to £4,000 from 6 April 2020. The allowance is now only available to employers with employer NIC liabilities of under £100,000 in the previous tax year. Connected employers or those with multiple PAYE schemes will have their contributions aggregated to assess eligibility for the allowance.
  • Official Rate of Interest for the 2020-21 tax year. From 6 April 2020, the official rate of interest was reduced to 2.25% (from 2.5%). This interest rate is used to calculate the Income Tax charge on the benefit of employment related loans and the taxable benefit of some employer-provided living accommodation.

Expenses and benefits filing deadlines

The deadline for submitting the 2019-20 forms P11D, P11D(b) and P9D is 6 July 2020. Employees must also be provided with a copy of the information relating to them on these forms by the same date. P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits.

This is known as payrolling and removes the requirement to complete a P11D for the selected benefits. However, a P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled. The deadline for paying class 1A NICs is 22 July 2020 (or 19 July if paying by cheque).

Where no benefits were provided from 6 April 2019 to 5 April 2020 and a form P11D(b) or P11D(b) reminder is received, employers can either submit a 'nil' return or notify HMRC online that no return is required. Employers should ensure that they complete their P11D accurately, including all the details of cars and loans provided. There are penalties of £100 per 50 employees for each month or part month a P11D(b) is late.  There are also penalties and interest if for late payments.

Any tax or National Insurance due for 2019-20 under a PAYE Settlement Agreement (PSA) needs to be paid electronically to clear into HMRC’s bank account by 22 October 2020 (19 October 2020 for payments by cheque).

Reclaiming statutory sick pay

Under the Coronavirus Statutory Sick Pay Rebate Scheme, small-and medium-sized businesses and employers will be able to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The online service to reclaim SSP is not available yet. HMRC will announce when the service is launched.

The scheme covers up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19. Employers are eligible for the scheme if their business is UK based, small or medium-sized and employed fewer than 250 employees as of 28 February 2020. Employers must also have had a PAYE payroll scheme that was created and started on or before 28 February 2020. A claim can be made for employees that had / have Coronavirus, cannot work because they are self-isolating at home or are shielding in line with public health guidance.

Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note. If evidence is required by an employer, those with symptoms of Coronavirus can get an isolation note from NHS 111 online and those who live with someone that has symptoms can also request a note from the NHS website.

HMRC’s guidance has been updated with information relating to the EU Commission temporary framework. Claim amounts should not be above the maximum €800,000 of state aid under this framework.

Deferral of VAT payments update

It was announced at the end of March that VAT registered businesses have the option to defer any VAT payments due between 20 March 2020 and 30 June 2020.

HMRC’s guidance for the deferral of VAT payments has been updated and states that you can only defer the following:

  • quarterly and monthly VAT returns’ payments for the periods ending in February, March and April
  • payments on account due between 20 March 2020 and 30 June 2020
  • annual accounting advance payments due between 20 March 2020 and 30 June 2020

The deferral does not cover payments for VAT MOSS or import VAT.

There is no application process required to request this deferral as permission is automatic and all VAT-registered UK businesses are eligible. However, businesses can still choose to pay any VAT due as normal. HMRC are continuing to process VAT reclaims and refunds as normal.

It is important to note that this is only a deferral and whilst no interest or penalties will be charged, the full amount of VAT due will still need to be repaid. If you choose to defer your VAT payment as a result of Coronavirus then you must pay the VAT due to HMRC on or before 31 March 2021.

If you are planning to make use of the special deferral period and you pay by direct debit, then you must cancel your direct debit in order to benefit from the VAT deferral. You can cancel your direct debit online using online banking or contact your bank if necessary. Please make sure that you do this as soon as possible to ensure that HMRC do not automatically collect the VAT due. You will also need to remember to set up the direct debit again when your next VAT payment is due (if no further deferrals are announced).

HMRC’s tax app

A free HMRC tax app is available and offers some useful functionality. The app has recently been updated.

The APP can be used to see:

  • your tax code and National Insurance number
  • an estimate of the tax you need to pay
  • your income and benefits
  • how much you will receive in tax credits and when they will be paid
  • your Unique Taxpayer Reference (UTR) for Self-Assessment

The app can also be used to complete a number of tasks that usually require the user to be logged on to a computer. This includes:

  • renew and report changes to your tax credits
  • access your Help to Save account
  • using HMRC’s tax calculator to work out your take home pay after Income Tax and National Insurance deductions
  • track forms and letters you have sent to HMRC
  • claim a refund if you have paid too much tax
  • update your postal address

The app is available to download from the App Store for iOS and from the Google Play Store for Android.

Aggressive rent collection banned

The government has announced the introduction of temporary new measures to protect commercial tenants on UK high streets from aggressive rent collection and closure during the Coronavirus pandemic.

These measures will see statutory demands and winding up petitions issued to commercial tenants to be temporarily voided. There will also be changes made to the use of Commercial Rent Arrears Recovery, building on measures already introduced in the Coronavirus Act. Existing measures include a moratorium on commercial landlord evictions for at least three months that was announced in late March.

The government is encouraging landlords and investors to work collaboratively with high street businesses unable to pay their bills during COVID-19 pandemic. In many cases, this is happening, but some landlords have been using aggressive tactics to recover rent due.

These measures will help to safeguard the high street and millions of jobs by protecting businesses from permanent closure during this time. However, while landlords are urged to give their tenants the breathing space needed, the government is also calling on tenants to pay rent where they can afford it or to pay what they can in recognition of the strains also felt by commercial landlords.

The new legislation to protect tenants will be in force until 30 June 2020 and can be extended in line with the moratorium on commercial lease forfeiture.

Changes to holiday pay arrangements

Some important changes to holiday pay arrangements came into effect from 6 April 2020. This has seen the reference period for calculating holiday pay increase from 12 to 52 weeks. This change affects workers with no fixed or regular hours. It means that their holiday pay will now be based on the average pay they received over the previous 52 (not 12) weeks. The 52 week reference period will continue to function in the same way as the previous 12 week period.

Almost all full-time workers in the UK are legally entitled to 5.6 weeks' (or 28 days) paid holiday per year. This is known as their statutory leave entitlement or annual leave. Legally, employers can include bank holidays in this total although not all employers do this. Employers are also free to provide additional non statutory holiday entitlement.

An employee’s actual statutory entitlement depends on how many days they work per week but all employees including part-time, agency or casual workers are entitled to holiday. There is no statutory entitlement to holidays for the self-employed and there are special rules for those in the armed forces, police and civil protection services.

Part-time workers are entitled to a pro-rata entitlement. For example, 5.6 days holiday per year if they work one day a week. Employees who work irregular days or hours or that are in the first year of a new job can use HMRC’s holiday entitlement calculator to work out how many days they are entitled to.

Any employee that has a problem with their holiday pay should try and resolve the issue with their employer. If this does not work, there are a number of ways to resolve the dispute including contacting ACAS or taking their employer to an employment tribunal.

Self-employed Income Support Scheme

If you are self-employed and qualify for the Self-employment Income Support Scheme you will receive a cash grant from HMRC based on 80% of profits, up to £2,500 per month. The initial grant will be for the three months, from 1 March through to the end of May 2020, but could be extended for a longer period.

There has been little additional information published since the scheme was first announced at the end of March. The online service is not currently open for applications and HMRC is aiming to contact those eligible to use the scheme by mid-May 2020. Those eligible will be invited to apply online when the portal opens. You will only be able to claim using the GOV.UK online service. The first grants are expected to be paid out at the beginning of June.

If you are self-employed you may be able to make a claim for Universal Credit whilst awaiting the grant. Government figures have suggested that many have already applied for help, but this option remains available if you qualify. When the grants are paid these should be recorded as part of your self-employment income, and it may affect the amount of Universal Credit paid. This will not affect Universal Credit claims for earlier periods.

HMRC will use data on 2018-19 returns already submitted to identify those eligible and will risk assess any late returns filed before 23 April 2020 deadline in the usual way.

To be eligible your self-employed trading profits must be less than £50,000 and more than half of your income must derive from self-employment. This is determined by at least one of the following conditions being true:

  • having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constitute more than half of your total taxable income
  • having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of your average taxable income in the same period.

Furlough scheme extended to 30 June 2020

The Coronavirus Job Retention Scheme will now be available until at least 30 June 2020. Payments under the scheme can be backdated to 1 March 2020 for employees who met the eligibility criteria on that date.

The scheme is designed to help employers furlough their employees with significant government support. Employers can claim cash grants of up to 80% for eligible furloughed wages to a maximum of £2,500 per month, plus the employer National Insurance contributions and minimum auto-enrolment employer pension contributions on that 80%.

There are a number of important conditions that must be met in order for an employee to be classed as a furloughed worked. This includes the following:

  • Employees must be notified that they have been furloughed.
  • Employees must be furloughed for a minimum of three weeks.
  • The employee cannot do any work for the employer that has furloughed them.

The application process for the scheme was officially launched on 20 April 2020. The Chancellor, Rishi Sunak told the House of Commons on 27 April 2020 that the first grants have already started to be paid. Payments for claims made on Monday 20 April will be in the employers’ bank accounts by 28 April and are taking a maximum of 6 working days. When the Chancellor spoke, more than 500,000 claims had already been made and over 4 million jobs had been furloughed. Over 5,000 HMRC staff are working on delivering the scheme including those manning phone lines and webchat services.