What's in Store for 2012 January 2012
Posted date: 20 December 2011
Paul Tew outlines what payroll and benefits professionals can expect in 2012.
The end of 2012 will mark the halfway point in the life of the current Parliament. Some of the measures introduced by this Government are likely to be further advanced during 2012, while other longstanding planned changes will come into force. All in all, this year is likely to be busy for payroll and benefits professionals in dealing with a raft of legislative amendments.
Contracting-out
On 6 April 2012 all contracting-out certificates held by defined contribution (money purchase) schemes are cancelled automatically. Individuals with an appropriate personal pension or an appropriate personal pension stakeholder pension will no longer be contracted out of the State Second Pension (formerly SERPS). HM Revenue & Customs (HMRC) records are to be updated to show employer’s contracted-out money purchase and individual personal pension scheme memberships as closed from 5 April 2012. Only schemes that are contracted-out on a defined benefit (salary-related) basis will be able to contract out after 5 April 2012.
For those employers operating defined contribution schemes, 2011/12 is the last tax year that National Insurance contribution (NIC) category letters F, G and S should be used. From 2012/13 these NIC category letters are not valid on individual employee records and end-of-year returns. The relevant not contracted-out rate and the corresponding NIC category letters should be used in calculating Class 1 NIC employee and employer liabilities instead. Where exceptionally, employees are allowed to join a defined benefit scheme, the appropriate salary-related NIC category letters should be used. HMRC will remove the Scheme Contracted Out Number (SCON) box on form P14 from 2012/13 onwards.
For tax years 6 April 2012 to 5 April 2017 inclusive, the NIC rebate for those individuals remaining contracted out of the State Second Pension in salary-related schemes is reduced to a total of 4.8 per cent. This will be split – 3.4 per cent for employers (secondary Class 1 contributions) and 1.4 per cent for employees (primary Class 1 contributions).
Residence and domicile
The Government is proposing to introduce a legal definition of residence from 6 April 2012. It is anticipated that the tax residence status for most individuals will remain unchanged as a result of residence becoming a statutory test.
From the same date, it is also planned to reform the tax liability of non-domiciled individuals by increasing the annual tax charge to £50,000 for those resident in the UK for 12 or more years of the 14 years prior to claim and who wish to use the “remittance basis” in a tax year. For individuals resident in the UK for at least seven of the past nine years but less than 12 years, the £30,000 charge will be kept.
For individuals working at or supplying to the London Olympic Games 2012, there are no specific tax exemptions in place, and normal tax laws apply. However, tax exemptions pertain to the activity of a small number of specified non-UK resident individuals coming to the UK temporarily to carry out “Olympic-related” business.
New tax year
From the start of tax year 2012/13, the following measures will come into force:
- the Consumer Prices Index (CPI) is to be used as the default indexation assumption for annual increases in the NIC primary threshold and Lower Earnings Limit. The Income Tax personal allowance increases by £630 to £8,105, with an equivalent £630 reduction in the basic rate tax limit to £34,370, to leave the higher rate tax threshold unchanged
- the threshold for recovering relevant debts through a Pay As You Earn (PAYE) coding adjustment where the debtor is in employment or in receipt of a UK pension increases from £2,000 to £3,000 for almost all types of tax debt, with limited exclusions. These include tax credit debts and amounts overdue under contract settlements, but these can be coded out with the taxpayer’s prior agreement
- the lifetime allowance applied to pensions is to be reduced from £1.8 million to £1.5 million, as tested when benefits start to be taken
- the 10 per cent qualifying low emissions category for cars emitting 120g/km or less of CO2 is to be replaced with a system of bands starting from 10 per cent, increasing by one percentage point with every 5g CO2 per km increase in emissions, from a revised lower threshold of 100g/km. The 10 per cent category then applies to cars emitting between 76g and 99g or less CO2 per km
- the annual earnings threshold that applies to the current student loan repayment system is up-rated annually in line with the Retail Prices Index figure, rounded up to the nearest £5, so the repayment threshold increases from £15,000 to £15,795
- the right of an employee to claim unfair dismissal will be extended from one to two years, meaning that only after working for the same employer for two years can an employee bring an unfair dismissal claim.
HMRC will have the additional power to ask employers to pay a security, likely to be a cash deposit where amounts due under PAYE or NIC obligations are seriously at risk (to be applied mainly where the employer has a history of late and/or non-payment).
HMRC is also likely to start charging penalties for the tax quarter ending 5 April 2012 to those employers with fewer than 50 payees in their PAYE scheme mandatorily required to send starter and leaver information online.
Good Friday Agreement
This agreement, first introduced in 2007, was designed primarily to overcome potential timing difficulties regarding PAYE/NIC calculations where the 6 April – the start of the tax year – falls on a Good Friday, as it does in 2012. HMRC guidance states that when a regular payday falls on a non-banking day (Saturday, Sunday or bank holiday) and the payment is made on the last working day before the regular payday, or the next working day after the regular payday, then for NIC purposes the payment must be treated as if it had been made at its regular time, if the actual and regular payment days are in the same tax year. The payment may also be treated as having been made at its regular time when the payment dates straddle a tax year.
For PAYE purposes the payment may be treated as having been made on the regular payday. There may be a “week 53/54/56” payment of earnings where the last normal weekly payment falls on 5 April (and/or 4 April in leap years).
Real-Time Information
Under Real-Time Information (RTI), HMRC will be receiving details of tax and other deductions made from employees pay at the same time as, or before, each salary or pension payment is made, regardless of the amount of pay or pension.
RTI will mean that employers and pension providers are no longer required to prepare and submit year end forms P35 and P14 or the P38A supplementary return. The RTI service is being piloted with volunteer employers (a mixture of size and type), starting in April 2012, to give employers time to adjust their payroll processes. HMRC is looking at how to expand the number of employers to volume test systems later in 2012/13.
All employers, with limited exceptions, are expected to be using RTI to submit data monthly to HMRC by 6 October 2013. HMRC could issue a direction requiring employers to submit RTI returns before that date. HMRC envisages that employers not in RTI during 2012/13 will have to join from April 2013.
Auto-enrolment
From October 2012, employers, starting with those with 120,000 individuals in their PAYE scheme, will begin the process of automatically enrolling eligible workers into a qualifying workplace scheme or the default scheme, known as the National Employment Savings Trust (NEST). This will include all workers, aged between 22 and at least State Pension Age, earning at, or above, the PAYE threshold (this is subject to review each year).
Automatic enrolment is to be introduced over four years. All employers must enrol their relevant workers by 1 September 2016. Employers with staging dates of October or November 2012 are likely to be allowed to bring forward their staging date up to July 2012.
An optional waiting period allows the auto-enrolment date to be deferred for up to three months, a provision aimed at employers with short-term and seasonal workers. Individuals will retain a right to opt out, although employers must not encourage this practice. Pension contributions will be phased in from October 2012 and these initially will be one per cent from the employer and one per cent from the worker. Contributions are to be based on a band of annual gross earnings.
Holiday pay
Since 30 October 2007, the exemption that allowed contributions made by a group of employers to a central, independently managed holiday pay fund (with the person making the payment being entitled to reimbursement from the fund) to be disregarded for Class 1 NIC purposes ceased to apply.
However, under transitional arrangements the NIC holiday pay exemption is being maintained for the construction sector, where the employer is carrying on “construction operations” and the employee was personally engaged in such operations at the time that entitlement to that pay accrued. However, this temporary agreement ends on 30 October 2012.
The Government, as a separate measure, intends to allow a worker to carry over the full 5.6 weeks’ annual leave entitlement per year due to the taking of maternity, paternity (including additional paternity), parental or adoption leave. This is likely to take effect some time in 2012.
An extra bank holiday is to be granted to mark Her Majesty’s Diamond Jubilee in 2012. The additional day necessitates moving the late May bank holiday to Monday 4 June and creating an extra bank holiday on Tuesday 5 June 2012.
Parental Leave
The Parental Leave Directive (2010/18/EC) repeals and replaces the existing Parental Leave Directive and European Union member states have until 8 March 2012 to bring this into national law. The minimum period of parental leave entitlement following the birth or adoption of a child will increase from 13 weeks to four months per worker, and at least one of the four months cannot be transferred between parents (it is lost if not taken).
Paul Tew is a freelance adviser on payroll issues
- Issue:
- January 2012
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