It’s that time of year…
27 November 2017
Neil Tonks MCIPPDip, legislation manager at MHR, discusses impending changes to software
As payroll software developers, our busiest time of year is always autumn when we’re developing the new features our clients will need for the next tax year. About now, we’re usually wondering how we’re ever going to fit it all in, but this year seems a bit strange, however, because we don’t have to cope with any big new initiatives.
There’s nothing like the apprenticeship levy to deal with this year or, thankfully, any major real time information (RTI) or pension-related changes this time around. It’s the first time this has happened for quite a few years.
That’s not to say there’s nothing to do, of course. There are routine amendments to RTI, such as the addition of a field showing the plan type used when student loan deductions are reported. Additionally, the fields relating to company cars become mandatory in April 2018 for employer that are voluntarily ‘payrolling’ car benefits, but we added that functionality to the system this time last year so there’s nothing to do, save for a minor tweak or two.
The only real unknown at this point is the precise detail of how we calculate and report the Class 1A National Insurance contributions (NICs) on large termination payments, which also commences next April. However, we already know basically what we need to do and we’re just waiting for guidance from HM Revenue & Customs (HMRC) to fill in a few blanks.
Actually, Class 1A NICs on termination payments is a bit of a puzzle. It’s not that the principle is particularly complicated (employers pay these NICs at the usual rate on termination payments above £30,000), the puzzle is why it’s treated in a totally different way to all other Class 1A liabilities.
It’s calculated at the time the payment is made to the employee and reported in the RTI full payment submission (FPS) in that pay period. (New fields have been added just for this purpose.) We’re presuming (and hopefully will know for sure by the time you read this) that it’s also to be paid over to HMRC immediately rather than the following year via the P11D(b) return. After all, why have the details in the FPS otherwise?
So, the question is, why this totally different system? After all, the actual cash amount of Class 1A NICs collected on these termination payments will be tiny in comparison to the total NICs which HMRC collect, so the special system seems to be overkill.
All this makes me wonder whether this is the precursor to Class 1A NICs on payrolled benefits becoming payable in-year? That would justify the development of the new reporting and payment method, which frankly the termination payment scenario doesn’t. Of course, to make that idea work, the voluntary nature of payrolling would have to change, as employers are unlikely to volunteer to pay their Class 1A early. So, I wonder whether payrolling may become compulsory at some point.
This is all just my speculation, of course. I don’t have a direct line to the Chancellor (though that might make my job easier at times). And even if I’m correct, we won’t have to worry about it for 2018/19.
Away from the FPS, we have to make the earlier year update (EYU) work for 2017/18. (I wish HMRC would release the specification for this with the one for the FPS rather than making us wait until half-way through the tax year.) However, there’s actually very little to change for this either, this time around.
Apart from that, we mainly have to deal with the routine (but vital) job of implementing the changes to rates and thresholds for the various taxes and benefits. We have this task five times in all, since we support payrolls for Ireland, the Isle of Man, Jersey and Guernsey in addition to the UK. There’s also a change to the treatment of illness benefit payments in Ireland as the rather odd current system, where the state pays the benefit direct to the citizen but their employer has to tax it, is to be ended and the Revenue will deal with the taxation in future.
This year’s breathing space will be short-lived, though. We already know we have a major piece of work to do for Ireland for the 2019 tax year (as my colleague Rachel explained in the November issue). Also, experience tells us that years with few changes are often followed by significant change in following years – so we’ll be paying particular attention to what HMRC say over the course of the next year.