P9 Notice of Coding form

The P9 Notice of Coding form is used to notify employers of the tax codes to use for employees. HMRC has begun to send email notifications to employers advising that the coding for the tax year starting 6 April 2020 can be viewed online. The emails are being sent up until 10 March 2020. HMRC has also advised that the paper P9 coding notices should arrive with employers on or around 21 March 2020.

If an employer does not receive their paper P9 notices in time for the first pay period on or after 6 April 2020, they can request a duplicate from the Employer Helpline on 0300 200 3200. A request for a duplicate can only be made in respect of a full employer scheme and is not available for individual tax codes.

HMRC has stated that as Income Tax thresholds and rates for the UK Government and devolved administrations will not be finalised until March, tax codes are calculated using 2019-2020 rates and thresholds for all parts of the UK.

After the Budget announcements, HMRC may need to carry out a re-coding exercise to include changes to rates or thresholds. If this is the case, any changes will be issued to employers on a P6b. These codes should only be operated on or after the date shown on the P6b.

PAYE payment dates

This article is a reminder to payroll staff about the electronic PAYE payment dates. The due date for electronic PAYE payments falls on the 22nd of the month and when a payment is made electronically, a payment on the day usually suffices.

However, where the due date falls on a non-banking day (weekend or bank holidays), HMRC must have cleared funds by the last bank working day before the 22nd. This advice is particularly relevant this month i.e. for electronic payments due on 22 February 2020, which this year falls on a Sunday. The electronic payments must therefore clear HMRC’s bank account by Friday 21 February 2020.

Remember that electronic payments sent using the Faster Payments Service (FPS) are able to clear into HMRC’s account on a non-banking day – a Saturday, Sunday and most Bank Holidays. The service enables electronic payments to be made and processed in hours rather than days.

Paying wages to connected persons

The definition of a connected person for tax purposes includes certain relatives, trustees, partners and companies.

A person is connected with an individual if that person is

  • the individual’s spouse or civil partner
  • a relative of the individual
  • the spouse or civil partner of a relative of the individual
  • a relative of the individual’s spouse or civil partner
  • the spouse or civil partner of a relative of the individual’s spouse or civil partner.

The term 'relative' does not cover all family relationships. In particular, it does not include nephews, nieces, uncles and aunts.

When it comes to making a claim to deduct wages paid to relatives or connected persons, the reason for the payment must be wholly and exclusively for the purposes of the trade. If there is another reason (either in addition or instead), then the deduction will not be allowable. There have been a number of important cases that have looked at this issue including in relation to payments made to minor children and spouses.

PAYE payment dates

We would like to remind employers about the electronic PAYE payment dates. The due date for electronic PAYE payments falls on the 22nd of the month and when a payment is made electronically; a payment on the day usually suffices.

However, where the due date falls on a non-banking day (weekend or bank holidays) HMRC must have cleared funds by the last bank working day before the 22nd. This advice is particularly relevant this month i.e. for electronic payments due on 22 December 2019 which this year falls on a Sunday. The electronic payments must therefore clear HMRC’s bank account by Friday 20 December 2019. This also coincides with the day a lot of employers will close up shop for the Christmas break.

Remember that electronic payments sent using the Faster Payments Service (FPS) are able to clear into HMRC’s account on a non-banking day – a Saturday, Sunday and most Bank Holidays. The service enables electronic payments to be made and processed in hours rather than days. Finally, if you pay by cheque through the post, the deadline is Thursday 19 December 2019.

Reporting PAYE information in real time

In December 2018, HMRC wrote to employers to advise of a temporary easement on reporting PAYE information in real time over the Christmas period. This was put in place because many employers pay their employees earlier than usual over the Christmas period.

This can be for a number of reasons, for example during the Christmas period the business may close early or because in certain businesses employees have traditionally received their pay check early in December.

HMRC has now confirmed that following feedback from employers and the Department for Work and Pensions (DWP) this extended Christmas payroll easement is to be made permanent. If employers pay their staff early over the Christmas period, they should report their normal (or contractual) payday as the payment date on their Full Payment Submission (FPS) and ensure that the FPS is submitted on or before this date.

For example, an employer who pay staff on Friday 20 December 2019, but the normal/contractual payment date is Tuesday 31 December 2019, should report the payment date on the FPS as 31 December and ensure the submission is sent on or before 31 December.

Doing this will help protect Universal Credit claimant’s eligibility for Universal Credit as reporting the payday as the payment date may affect current and future entitlements.

HMRC is clear that the overriding PAYE reporting obligation for employers is unaffected by this announcement and remains that employers must report payments on or before the date the employee is paid, i.e. payday.

Increase in National Living Wage?

An independent review into the evidence on minimum wage rates has been published by the government. The review concludes that increases in the National Living Wage (NLW) have little effect on employment whilst significantly increasing the earnings of low paid workers. This was found to be the case even in countries who had the most ambitious policies for increasing minimum wage rates. The report also concluded that there was room for the UK to explore a more ambitious National Living Wage (NLW) remit resulting in increased wages in the range of 60% to two-thirds of median hourly earnings.

The NLW currently stands at £8.21 per hour, or 58.9% of median hourly earnings. In response to the report, the Chancellor has pledged a more ambitious increase in the NLW such that, on current projections, it is set to reach £10.50 per hour by 2024. This announcement had the caveat that the increase would be subject to favourable economic conditions.

The Chancellor has also committed to expand the living wage to more young people by bringing down the age threshold for the NLW to cover all workers over the age of 21. The government is expected to issue a fuller response to the review in due course. This is also part of the government’s commitment to do more to end low pay.

Whilst many low paid employees will be buoyed by this news, it is important that employers with a significant proportion of staff who are paid the minimum wage rates pay, consider their medium term planning options.

Waivers of remuneration

A waiver of remuneration happens when a director or an employee gives up their right to salary or other cash remuneration and gets nothing in return. Where the employee gets a non-cash benefit in return, this is called a salary sacrifice.

The treatment of a waiver of remuneration, when a director / employee gets nothing in return, is different to the scenario when this is treated as a salary sacrifice.

The effect of a waiver for Income Tax purposes depends on its timing.

  • If the remuneration waived is given up before it is treated as received for employment income purposes, then the remuneration given up will not be taxable earnings.
  • If the remuneration waived is given up after it is treated as received for employment income purposes, then the employee remains taxable on the remuneration given up.

The view taken by HMRC is supported by case law decisions, including the cases of Parker v Chapman (13TC677) and Reade v Brearley (17TC687) quoted in the Employment Income Manual.

PAYE late filing penalties

There are late filing penalties in place for employers that don’t report payroll information on time. The size of the late filing penalties depends on the number of employees within the PAYE scheme.

Number of employees  Monthly filing penalty per PAYE scheme
1 to 9 £100
10 to 49 £200
50 to 249 £300
250 or more £400

Payments that are over 3 months late can be subject to an additional penalty of 5%.

HMRC has confirmed that having reviewed the effectiveness of the risk-based approach to late filing PAYE penalties, they have decided to continue with their same approach as for the 2019-20 tax year. This means that late filing penalties will continue to be reviewed on a risk-assessed basis, rather than being issued automatically. The first penalties for 2019-20 will be issued in September 2019.

This approach means, that penalties will not be charged automatically if Full Payment Submissions (FPSs) are filed late but within 3 days of the payment date and there is no pattern of persistent late-filing. This is not an extension to the statutory filing date, which remains unchanged, and HMRC has confirmed that employers who persistently file after the statutory filing date, but within three days thereof, will be monitored and may be charged a late filing penalty.

This move confirms that HMRC will continue to focus on penalising those who deliberately and persistently fail to meet statutory deadlines, rather than those who make occasional and genuine errors.

Home to work travel that may be allowed

Whilst there is usually no tax relief for ordinary commuting – home to work – there are a number of exceptions. The term 'ordinary commuting' is defined to mean travel between a permanent workplace and home, or any other place that is not a workplace. Case law has established the principle that travelling between your home and a permanent workplace is not a travel expense related to the performance of your duties.

The rules are different for temporary workplaces where the expense is allowable. A workplace is defined as a temporary workplace if an employee only goes there to perform a task of limited duration or for a temporary purpose.

Other home to work travel that may be allowed includes:

  • where the employee has a travelling appointment;
  • where the employee’s home is a place of work and the place where the employee lives is dictated by the requirements of the job;
  • where the duties of the employment are carried out wholly or partly outside the UK;
  • where a non-domiciled employee is working in the UK;
  • emergency call-outs.

There are also specific exemptions from tax for works bus services and subsidies paid to public bus services as well as for the provision by an employer of bicycles and cycling equipment in order to encourage environmentally friendly transport between home and work.

OpRA’s defined

The Optional Remuneration Arrangements (OpRA) legislation was introduced with effect from 6 April 2017. The legislation counters the tax and NIC advantages of benefits where an employee gives up the right to an amount of earnings in return for a benefit. This includes flexible benefit packages with a cash option, cash allowances and salary sacrifice.

The taxable value is now the higher of the cash foregone or the taxable value under the normal BiK rules. A benefit is deemed to be provided under an OpRA if it is provided under an arrangement of either type A or type B.

Type A arrangement

Type A arrangements are arrangements under which the employee gives up the right, or the future right, to receive an amount of earnings which would be chargeable to tax in return for the benefit.

Type B arrangement

Type B arrangements can be defined as – other than type A arrangements – under which the employee agrees to be provided with a benefit rather than an amount of earnings.

A benefit does not include arrangements under which the employee reduces their working hours or becomes entitled to additional unpaid leave.