21 June 2010



A number of instances have been brought to the attention of the Institute in which employers have been penalised in deducting the £1 admin fee for operating an AEO or a Deduction of Earnings Order (DEO). In these circumstances, the effect of the fee reduction takes the employee’s pay below the NMW and is therefore in breach of the legislation.


The purpose of the fee is to reimburse employers for the cost associated with their statutory obligations as an administrator for AEOs relating to Local Authority Council Tax Orders, numerous Court instructed orders and the DEOs issued by the Child Support Agency (now the Child Maintenance and Enforcement Commission).


The IPP’s Policy & Research team have been asked by its members to lobby HM Revenue & Customs (HMRC) to revisit the rules around the £1 deduction and to clarify the correct tax and National Insurance treatment for the admin fee. It appears that many employers have been caught out during compliance checks regarding the related processes, which they believe to be correct.


Karen Thomson MIPPdip, Associate Director of Policy, Research and Strategic Visibility, said: “It is important to note that the £1 deduction is a token gesture to assist employers with their costs but is certainly not a true reflection of the far higher processing costs under the AEO regulations.


“As there are planned changes to NMW legislation as announced in the December 2009 Pre-Budget Report, the IPP would request that serious consideration be given to changing the legislation and add the AEO £1 admin fee as a permitted deduction.


“In the meantime, we hope that HMRC re-considers its interpretation of the rules surrounding a benefit being received by employers. It appears that the ambiguity in these regulations is providing the opportunity for HMRC compliance inspectors to gain additional revenue by penalising employers for deducting what they are entitled to.”