Calling all employers Employment Tax and Pensions workshop May 2014

Today’s workshop  Alastair Wilson - Introduction  Mark Parkinson – Workplace Pensions  Claire Brown – Payroll  Clair Williams – Salary sacrifice  Alastair Wilson – A quick 2014 Budget round up  Questions

Before we start – Growth Vouchers

Mark Parkinson Wealth Management & Workplace Pensions

Why has auto enrolment come about? Six million people in the UK have no retirement savings

Auto enrolment criteria  All employers regardless of size – 1.3m employers in UK.  Minimum income aligned to income tax threshold (£10, /15) but pay on income earned between the lower and upper NI thresholds (£5,772 - £41, /15).  Age 22 – SPA, can opt in if aged between or SPA to 74. Employer contributes if employee has qualifying earnings.  Individuals can opt in, if earning less, employer contributes on income over the lower NI threshold.  Optional 3 month waiting period (employee can opt in earlier and employer must pay).

The SME market What do employers need to do?  Provide a qualifying workplace pension scheme  Assess workforce every pay reference period  Automatically enrol eligible workers  Administer opt out processes  Provider information to employees including: o Telling eligible jobholders they have the right to opt out o Notifying non-eligible jobholders and entitled workers they have the right to opt in o Notifying workers if using a postponement period  Arrange membership of a pension scheme for entitled workers who choose to opt in  Pay contributions to the pension scheme  Keep records about their workers and the pension scheme

Hopefully you’re all familiar with this?

And this?

Preparing for the challenge ahead

Compliance & Employer Fines

Compliance & Employer Fines – Dunelm Furniture Case Study Background Dunelm had a Staging Date of 1st April They were due to complete registration to confirm they had complied with employer duties, by 31st July The Pensions Regulator investigated and discovered that Dunelm had breached the rules in several instances. -Failure to enrol members of four weekly payroll on time. Members enrolled a month late -Failure to enrol certain members of monthly payroll on time. These members were enrolled 3 months later -Failure to pay across to the pension provider a significant level of contributions due to the above failures Regulatory Action Due to the significant amount of pension contributions and in order to protect the benefits of the employees of Dunelm, The Pensions Regulator served an Unpaid Contributions Notice pursuant to section 37 of the Pensions Act Outcome Dunelm were ordered to pay across the total amount of contributions owed to members, £108,000.

The Auto Enrolment ‘Tsunami’ Source: – 30/07/2013 In 2014 around 38,000 employers will stage In 2015 around 70,000 employers will stage In 2016 around 450,000 employers will stage In 2017 around 850,000 employers will stage

Staging Dates – part 1 Staff on payroll Staging Date 120,000 or more1 October , ,9991 November , ,9991 January , ,9991 February , ,9991 March , ,9991 April , ,9991 May , ,0991 June , ,9991 July , ,9991 August , ,9991 September ,2491 October November January February April May – 891 July 2014

Staging Dates – part 2 Staff on payroll Staging Date 61 1 August October November January March April August October 2015 <30 with the last with the last two characters in their PAYE reference, numbers 92, A1-A9, B1-B9, AA-AZ, BA-BW, M1-M9, MA-MZ, Z1-Z9, ZA-ZZ, 0A-0Z, 1A-1Z or 2A-2Z 1 June 2015 <30 with the last 2 characters in their PAYE reference - BX 1 July 2015 <30 with the last 2 characters in their PAYE reference - BY 1 September 2015 <30 with the last 2 characters in their PAYE reference - BZ 1 November 2015 <30 with the last 2 characters in their PAYE reference – 02-04, C1-C9, D1-D9, CA-CZ or DA-DZ 1 January 2016 <30 with the last 2 characters in their PAYE reference – 00, 05-07, E1-E9 or EA-EZ 1 February 2016 <30 with the last 2 characters in their PAYE reference – 12-16, 3A-3Z, H1-H9 or HA-HZ 1 April 2016 <30 with the last 2 characters in their PAYE reference – I1-I9 or IA-IZ 1 May 2016 <30 with the last 2 characters in their PAYE reference – 17-22, 4A-4Z, J1-J9 or JA-JZ 1 June 2016 <30 with the last 2 characters in their PAYE reference – 23-29, 5A-5Z, K1-K9 or KA-KZ 1 July 2016

Staging Dates – part 3 Staff on payroll Staging Date <30 with the last 2 characters in their PAYE reference – 30-37, 6A-6Z, L1-L9 or LA-LZ 1 August 2016 <30 with the last 2 characters in their PAYE reference – N1-N9 or NA-NZ 1 September 2016 <30 with the last 2 characters in their PAYE reference – 38-46, 7A-7Z, or 0A-0Z 1 October 2016 <30 with the last 2 characters in their PAYE reference – 47-57, 8A-8Z, Q1-Q9, R1-R9, S1-S9, T1-T9, QA-QA, RA- RZ, SA-SZ or TA-TZ 1 November 2016 <30 with the last 2 characters in their PAYE reference – 58-59, 9A-9Z, U1-U9, V1-V9, W1-W9, UA-UZ, VA-VZ or WA-WZ 1 January 2017 <30 with the last 2 characters in their PAYE reference – 70-83, X1-X9, Y1-Y9 XA-XZ or YA-YZ 1 February 2017 <30 with the last 2 characters in their PAYE reference – P1-P9 or PA-PZ 1 March 2017 <30 with the last 2 characters in their PAYE reference – or April 2017 <30 unless otherwise described 1 April 2017 Employer who does not have a PAYE scheme 1 April 2017 New Employer (PAYE income first payable between 1 April 2012 and 31 March 2013) 1 May 2017 New Employer (PAYE income first payable between 1 April 2013 and 31 March 2014) 1 July 2017 New Employer (PAYE income first payable between 1 April 2014 and 31 March 2015) 1 August 2017 New Employer (PAYE income first payable between 1 April 2015 and 31 December 2015) 1 October 2017 New Employer (PAYE income first payable between 1 January 2016 and 30 September 2016) 1 November 2017 New Employer (PAYE income first payable between 1 October 2016 and 30 June 2017) 1 January 2018 New Employer (PAYE income first payable between 1 July 2017 and 30 September 2017) 1 February 2018

NEST – The government’s answer to Automatic Enrolment  Maximum contribution £4,600 (2014/15)  Limited investment choice  No transfers in or out until 2017  0.3% annual management charge + 1.8% contribution charge There are currently 6 different levels of access that can be given by employers to scheme administrators:  Read-only access  Payment access  Enrolment delegate  General access  Schedule access  Full access

Phasing in contributions Period (#)Minimum employer Minimum employee (*) Tax Relief (*)Minimum Total 1 st Oct to 30th Sept 20171%0.8%0.2%2% 1 st Oct 2017 to 30th Sept 20182%2.4%0.6%5% October 2018 onwards3%4%1%8% (#) Depending on the company’s Staging Date (*) Assuming employer pays the minimum allowed NB – the above is based on a percentage of ‘qualifying earnings’ = NI threshold earnings

Definitions of pay Qualifying Earnings This definition means pension payments are based on earnings between £5,772 - £41,865 (2014/15) Certification 9% of Basic Pay 8% of Basic Pay (Provided that basic pay accounts for at least 85% of total pay) 7% of all earnings

How are SME businesses responding? Cost “In house” work needed “Bespoke” pension

Wealth Management advice on choice of pensions provider Employment tax advice on how to minimise the cost Payroll advice and processing for contributions tailored for that provider What makes Tait Walker different?

Our recent implementations Our ClientsStaff NumbersStaging Date Residential Care Home6351 st November 2013 Aerospace Manufacturer3201 st February 2014 National Charity (1)2301 st April 2014 National Charity (2)3251 st April 2014 Regional Legal Firm2971 st April 2014 Manufacturing Firm1671 st May 2014 Engineering Firm1381 st May 2014 Distribution Firm1121 st May 2014

Real Life Stories and Lessons  Maintaining compliance  Opt Ins  Successful communication strategies  Pitfalls of communication  Sourcing schemes for clients  Charge caps  Types of queries from employees

Concluding thoughts Automatic Enrolment is a four party project as it brings together:  The Employer  The Adviser  The Pensions Provider  The Payroll Provider In our role as advisers, Tait Walker can offer guidance for employers on the best way to proceed and project manage the process using its 3 steps  Strategy  Implementation  On-going support & Compliance

 Tax and legislation are likely to change. The information given here is based on Tait Walker Wealth Management’s understanding of law and HMRC practice at the date of presentation  Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority (FCA)  Automatic Enrolment is not regulated by the FCA.  Tait Walker Chartered Accountants is not regulated by the FCA.

Claire Brown Payroll

Auto Enrolment What will your Pension Provider do for you!  Who will issue postponement letters?  Who will issue new joiner packs?  How will the data be uploaded?  Will data be duplicated at the start?  Is there more than 1 scheme reference?

Scottish Widows Middleware: Assist Me Auto Enrolment Sage (or equivalent software)Scottish Widows – Assist Me Assesses entire workforceIssue Postponement letters if applicable Auto enrol eligible workers Calculate & deduct correct pension amounts Export File from Sage into Assist MeTriggers communication which will be sent out to employees Authorise payment and direct debit Send opt out notifications to employer Process Opt outs notifications Calculate refunds and refund via payroll Do not assume the pension provider will do everything

The Peoples Pension Middleware: AE Hub Auto Enrolment Sage (or equivalent software)The Peoples Pension – AE Hub Assesses entire workforce Issue Postponement letters if applicableIf you don’t have Sage they will provide a template letter for postponement Auto enrol eligible workers Calculate & deduct correct pension amounts Export File from Sage portalTriggers enrolment communication which will be sent out to employees Authorise payment and direct debit Send Opt out notifications to employer Process Opt out notifications Calculate refunds and refund via payroll Do not assume the pension provider will do everything

NEST Middleware: NEST Auto Enrolment Sage (or equivalent software)NEST Assesses entire workforce Issue Postponement letters if applicable Auto enrol eligible workers Calculate & deduct correct pension amounts Export File from Sage portalTriggers enrolment communication which will be sent out to employees Authorise payment and direct debit Send Opt out notifications to employer Process Opt out notifications Calculate refunds and refund via payroll Do not assume the pension provider will do everything

Auto Enrolment Planning is CRUCIAL  Compliant software  Understanding your role  Pay reference periods & Tax months  Pay elements  Agreeing the best definition of pensionable pay  Testing Data with provider

Auto Enrolment Pay reference period example (4 weekly payroll)  Staging date 1 February 2014  Employer wants to postpone for the maximum 3 months  Employer assumes deferral date 30 April (End of Postponement)  Employer assumes deductions to be deducted from May payroll : WRONG! The legislation states that contributions must be deducted from the first time the employees get paid after the assessment date. See the example below; Assessment date: 21 st April - the first day of the 4 weekly pay reference period (PRP) that includes the 1 st May (ie. The day after the postponement period has ended) PRP: runs from 21 st April to 19 th May When do you deduct the premium? First date that an employee gets paid after the 21 st April is 25 th April so despite these earnings relating to the earnings from 23 rd March to 20 th April, it is from this pay that they must deduct a premium.

Auto Enrolment Pay reference period example (4 weekly payroll) The legislation states that contributions must be deducted from the first pay date, after the assessment date and as they were paid on the 25 th this falls into the previous period. PayReferencePeriod 23rd MarchTo20 th April Paid to employees on 25 th April PayReferencePeriod 21 st April25thTo19 th May End of Postponement 30 April

Auto Enrolment Planning is CRUCIAL  Compliant software  Understanding your role  Pay reference periods & Tax months  Pay elements  Agreeing the best definition of pensionable pay  Testing Data with provider

Auto Enrolment Payroll issues  Statutory Sick Pay  Statutory Maternity Pay  Statutory Paternity Pay  Existing Pension Schemes  Employees Handbook  Record Keeping

Clair Williams Salary sacrifice for pensions

What is salary sacrifice?  An agreement between an employer and employee that an element of salary will be sacrificed in return for employer provided benefits  … in this case – additional employer pension contribution  Pension contributions made by employees receive income tax relief therefore saving = NI (both employer and employee) on the amount of salary sacrificed  Total required contributions set at a certain level - expected to be split between the employer and employee but this is not prescribed  Employee proportion is subject to NI for both employer and employee

Salary sacrifice for pensions Example based on qualifying earnings

Salary sacrifice for pensions Example  Basic rate employee currently making a net pension contribution of £400 pa − Salary sacrifice is based on gross pension contribution of £500 − Employee NI saving = £60 − Employer NI saving = £69  Income tax relief achieved directly via salary sacrifice  Easy to see how savings grow as more employees sign up Employer NI saving 10 employees = £690 pa50 employees = £3,450 pa  Using this example with 50 employees money saved in Y1 would cover a lot of the costs of implementing pensions auto-enrolment  NI saving can either: − Increase employee’s net take-home pay (pension contributions remain the same) − Increase the pension contribution made (take-home pay remains the same)

Salary sacrifice for pensions Example pay-slip pre salary sacrifice Example pay-slip post salary sacrifice

Salary sacrifice for pensions Example Annual savings based on 30 employees earning £24k pa (median 2013 NE wage) Annual costs based on first 3 months (i.e. no salary sacrifice) Annual costs after implementing salary sacrifice Employer NI£64,422£59,454 Salaries£720,000£684,000 Employer pension % of notional salary £21,600£57,600 NEST pension fees-- Payroll fees£1,000 EMPLOYER COSTS£807,022£802,054 Employer saving£4,968 Employee NI savings£4,320

Salary sacrifice for pensions Timings  Pension providers are requesting that the implementation of salary sacrifice is deferred until 3-4 months after a company’s staging date so that: − any opt-outs have been processed and reversals in respect of payroll deductions have been reflected − any employees remaining within the scheme 3-4 months after the staging date are likely to continue in the pension scheme  Deferral is possible but communication with employees becomes more complex as: − For first 3-4 months in pension scheme  employee’s take-home pay will be reduced by the net employee pension contributions made − When salary sacrifice commences  employee’s take-home pay will be increased as the net employee pension contribution will no longer be deducted and they will be subject to tax and NI on the reduced gross salary (or pension contributions will increase)  Communicate to employees before staging date so set expectations and explain reason for changes to pay-slips

Salary sacrifice for pensions Practicalities to observe when implementing salary sacrifice  A formal variation to the employees’ contracts of employment must be agreed  Salary sacrifice schemes cannot reduce an employees wage < NMW or LEL − Current NMW = £6.31ph / £11,485pa (35 hour week), Current LEL = £5,772 per annum − For 1% pension contribution via salary sacrifice  employee > £11,600 (£11,950 – Oct 2014) − Most payroll software will flag ongoing  Once a salary sacrifice scheme is implemented employer only pension contributions will be paid − Employer must notify pension provider that salary sacrifice is being operated − Contributions must be input to pension middleware as employer contributions − If employee contributions continue in error then pension provider will continue to claim tax relief within pension scheme too!  The employees’ pay-slips will change - ‘Basic Pay’ is replaced by ‘Notional Pay’ from which a contribution is taken − equivalent to previous gross pension contributions (increasing net take-home pay) − to result in the same net take-home pay (increasing pension contributions)

Salary sacrifice for pensions Example pay-slip pre salary sacrifice Example pay-slip post salary sacrifice

Salary sacrifice for pensions Communication of salary sacrifice and TW services  Communicate salary sacrifice to employees as part of Auto-enrolment implementation  Communicate before staging date showing difference between pre and post salary sacrifice pay-slips  TW can help the employer to communicate salary sacrifice to employees - this could include written communications, face-to-face presentations and/or drop-in sessions for employees  TW can prepare a tailored employee communication booklet which explains salary sacrifice to your employees. This will include examples of how salary sacrifice works, explains the impact of salary sacrifice on statutory payments (e.g. redundancy, maternity, sick pay) and answer other salary sacrifice FAQs  TW can prepare calculations, employee letters and variations to the terms of employees’ contracts  The salary sacrifice scheme must be communicated to HMRC once implemented  Maintenance of scheme – e.g. new employee calculations, annual updates regarding changes to tax rates and periodic review the pension filings submitted to the pension provider

Alastair Wilson General updates

Hopefully you all remembered…. Employment Allowance (‘EA’)  Eligible employers can claim up to £2k off Class 1 NIC from April 2014  Only one employer within a charities / connected company structure can claim EA  Not automatic! Employer must claim via EPS  Excluded employers include: − employing someone for personal, household or domestic work − allowance claimed by a connected company or charity − public authorities (local, district, town and parish councils) − functions provided either wholly or mainly of a public nature (unless charity) − Personal and Managed Service Companies who pay contract fees instead of wages and salaries

General updates from the Budget Benefits and expenses reporting  Office of Tax Simplification - proposals to simplify dealing with taxable benefits 1. Voluntary payrolling of taxable benefits 2. PSAs – employers to settle any tax liability on benefits and expenses 3. An exemption for qualifying business expenses paid for or reimbursed by an employer 4. Abolition of the £8,500 threshold 5. Simple ‘principles based’ definition of a trivial benefit, incorporating a per item cap (e.g. £50) 6. Travel and subsistence - clarification regarding permanent workplaces, homeworking, scale rate subsistence payments and updates to HMRC guidance 7. Simplifying NICs – 2 suggestions: − apply Class 1 NICs to all employee remuneration (whether cash or benefits in kind) − alignment of the underlying definitions of income and expenses for income tax and NI 8. This would represent a fundamental policy review − But the employer must still know what is and what is not a taxable benefit? − whether the way a benefit is provided should determine how much tax is paid on it − whether non-taxable items can be excluded from charge to tax

Any Questions? Next workshop will be in September…..