Employer Bulletin – December 2020
10 December 2020
HMRC has published the December edition of the Employer Bulletin.
This edition includes an update on a range of topics aimed at providing employers and agents with the latest information on subjects and issues that may impact them.
There is discussion of a variety of measures that continue to be implemented in order to help to support employers and individuals through the outbreak of coronavirus, and updates relating to Brexit.
There is the timely addition of guidance on reporting PAYE in real time where payments are made to staff early in December. News about occupational pensions and off-payroll working rules in relation to Student and / or Postgraduate Loans is also included.
Employers operating a childcare vouchers scheme
As a result of restrictions imposed due to coronavirus, the way employees are working has changed and they may subsequently not need their standard childcare services. Those who are using the childcare voucher scheme may continue to receive the vouchers but could request to temporarily lower the amount that they receive, so that they don’t accumulate a large number of unused vouchers over time.
Employers may, therefore, wish to remind employees that they can reduce their contribution by way of agreement with the employer. The value of the childcare vouchers can be increased again later, when required, and changing the amount has no effect on eligibility for the scheme.
If employees receive childcare vouchers via salary sacrifice, it is advisable to ensure that they would not be better off financially on Tax-Free Childcare (TFC), which helps eligible working parents with the costs of childcare. For every £8 placed into a childcare account, the government supplies an additional £2, up to a maximum of £2,000 per child under 12, per year. This increases to £4,000 for children who are aged under 17 and are disabled. Some families currently in receipt of childcare vouchers would benefit more financially from TFC. Some illustrative examples of this are provided:
Example 1: Family with children aged 2 and 6 years old
David and Sarah have two children, Oliver aged 6 and Amelia aged 2. Sarah is employed and receives tax exempt childcare vouchers through her work via salary sacrifice. David is self-employed and so cannot receive tax exempt childcare vouchers. Oliver goes to an afterschool club for 38 weeks a year and a holiday club for six weeks of the year. His annual childcare costs are £3,345.28. Amelia is at a nursery for 48 weeks a year with an annual cost of £12,262.56. This makes an annual total for David and Sarah of £15,607.84. As a higher rate taxpayer, Sarah receives a total of £1,484 in tax exempt childcare vouchers per year, saving £623 in tax and NICs. David receives no relief. On TFC, David and Sarah would receive the full £2,000 top up for Amelia’s care and £669 for Oliver’s care (per annum). Their total top up is £2,669. This family would be better off financially on TFC.
Example 2: Family with children aged 6 and 10 years old
Tarun and Ameena have two girls (Gita and Heema) aged 6 and 10. Tarun is employed and receives tax exempt childcare vouchers through his work via salary sacrifice. Ameena’s employer does not offer a childcare voucher scheme. Both Gita and Heema go to an afterschool club for 38 weeks of the year, and also attend a holiday club for seven weeks of the year. Tarun and Ameena’s total annual childcare costs are £5,301.60. As a basic rate taxpayer, Tarun receives £2,915 in tax exempt childcare vouchers per year, saving £932 in tax and NICs. On TFC, Tarun and Ameena can receive a top up of £1,060, compared to the savings of £932 through the voucher scheme. This family would be better off financially on TFC.
Note: In these examples, it is assumed that a year’s worth of childcare is 48 weeks.
Occupational pension and Off-payroll working rules – Student and Postgraduate Loans
Student or Postgraduate Loan (PGL) deductions should not be taken from either Occupational pension payments or payments subject to PAYE under the Off-payroll working rules.
Occupational pension payments
Student Loan or PGL should not be deducted from an occupational pension that is paid to a former employee. The “Occupational pension” indicator on the employee’s FPS should be selected to inform HMRC that the payment is in relation to an Occupational pension.
Where Student Loan or PGL has been deducted in error, but the Occupational pension indicator has been selected, HMRC will send a generic notification message or call the relevant party to advise them to take corrective action. If the Occupational pension indicator has been selected by mistake, it should be unselected.
Payments subject to PAYE under Off-payroll working rules
Companies are not responsible for deducting Student Loan and / or PGL for workers who are engaged through their own companies. The worker will account for Student Loan and PGL obligations in their own tax return.
Where Student Loan or PGL has been deducted and the ‘Off-payroll worker subject to the rules’ indicator has been selected, HMRC will send a generic notification message or contact the relevant party to tell them to correct the issue. Where the “Off-payroll worker subject to the rules” indicator has been selected in error, it should be unselected.
At present, the indicator must only be used in relation to contractors that provide services to the public sector and have been determined to be inside the Off-payroll working rules. From April 2021, however, the indicator must also be used against contractors providing their services to medium and large sized non-public sector organisations, who are determined as being inside the rules.
The worker’s FPS should be checked to ensure that Student Loan and / or PGL deduction entries are correct, and that “Occupational Pension” and the “Off-payroll worker subject to the rules” indicators have not been selected in error.
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