New AEO, new problems
25 September 2018
This article was featured in the October 2018 issue of the magazine.
Neil Tonks ChMCIPPdip, legislation manager at MHR, divulges details of the new and surprising Northern Ireland AEO
One of the new features we’re currently working on for our payroll product is the processing of a new type of ‘court order’ called a Northern Ireland fines attachment of earnings order (AEO). This new AEO actually came into effect at the beginning of June this year but because there was no publicity about this innovation, virtually no-one knew in advance.
As the name suggests, the new AEO is available to courts in Northern Ireland and will be used to recover unpaid fines. It was passed into law through the Enforcement of Fines and Other Penalties Regulations (Northern Ireland) 2018 and the Justice (2016 Act) (Commencement No.2) Order (Northern Ireland) 2018.
Since the legislation gives courts in Northern Ireland similar powers to those which courts in England and Wales have had for well over a decade, it might have been expected that the mechanism for recovering fines directly from earnings would also mirror the arrangements in England and Wales. This is not the case, however, as the Northern Ireland rules are instead heavily based on the direct earnings arrestment (DEA) arrangements which are used to recover overpaid state benefits.
Like DEAs, the arrangements allow for two types of deduction:
The first type is based on tables which specify a percentage of ‘net earnings’ to be deducted, with the percentage rising as the earnings increase. Initially the tables mirror the weekly and monthly tables used for DEAs but since the Northern Ireland ones are in separate legislation, there is no guarantee they will remain identical over time. As with DEAs, there is an overriding rule which says the AEO cannot leave the person with less than sixty per cent of their ‘net earnings’. For the purposes of the calculations, ‘net earnings’ is basically earnings minus tax, National Insurance contributions and pension contributions.
The other type has a fixed cash deduction, agreed with the debtor before the order is made, specified in it.
Although very similar to DEAs, the Northern Ireland orders are not a direct copy of the DEA arrangements. For example, the Northern Ireland arrangements only refer to weekly and monthly based tables of deductions while the DEA also has a daily table, and there is no concept of ‘higher rate’ percentage deductions, which exists for DEAs.
...legislation specifically says ‘months’ not ‘tax months’...
The order received by the employer will specify how the payment over of amounts deducted is to be made. Payment is due by the 19th of the month following that in which the deduction is made.
The legislation specifically says ‘months’ not ‘tax months’ so where a pay day is in the first five days of a month the payment isn’t due until the 19th of the following month, unlike pay as you earn where payment would be due by the 19th of the same month.
You might think that, given their similarity to DEAs, implementing the new orders into payroll systems would be easy. In fact, you might ask why we don’t just tell our clients to set them up as DEAs and avoid the need for software changes altogether. There are a number of possible drawbacks to this approach, though, depending on how the software works. For instance, the new AEOs can’t be described on payslips as being a DEA (because they’re not DEAs). They also need separating for reporting purposes and for the generation of BACS output to make the payment to the courts. Additionally, if the values in the tables of earnings and deduction percentages used for the Norther Ireland AEOs should diverge from those used for DEAs in future it would be difficult, or even impossible, to apply the right table to each order if they were all set up as DEAs and therefore indistinguishable.
Adding the new functionality to payroll systems, while not technically challenging due to the similarities with DEAs, can nevertheless be long-winded. There are a lot of software components to change and every change has to be tested and documented. It would have been nice to have had advance warning of these changes so that we could have made the amendments in advance, but I guess we can’t have everything. However, this lack of forewarning shouldn’t be a problem because if past experience with new types of AEO is anything to go by, the courts in Northern Ireland won’t be issuing these orders in large numbers initially. Indeed, as I write this, three months after the new legislation came into effect, we’ve yet to have a single client ask for advice on processing these orders.