Tax credits – employers role from April 2000
From April 2000 most employers are obliged to pay the tax credits entitlement for and to their eligible employees. Here we look at which employers and employees this applies to, what systems should be in place by April 2000 and some other details, which seem relevant.
1. Which employees/ workers?
a) Most tax credit claimants who are employees will come under the new system and thus be paid by their employers.
b) The following are excluded and so will be paid by the Inland Revenue
§ claimants not in employment such as non working partners;
§ self-employed workers;
§ domestic staff
§ people whose job is expected to last less than 3 pay periods from the “start notification”;
§ people whose work finishes before the start date;
§ people entitled to £4.05 tax credit, or less, per week
§ workers earning less than the lower earnings limit for NI and tax
c) For employees paid tax credits by their employer, whose employment then stops before the end of their 26 week award period, payment is taken on again by the Inland Revenue.
2. Which employers?
Presume all employers who do PAYE, ie deduct tax and National Insurance (NI) for their employees. This includes employment agencies.
If a claimant has more than one employer, the employer who pays the highest amount of wages, at the date of the award, is responsible for the tax credit payment
But the following employers are not expected to pay TCs for relevant employees:
§ those not deducting tax / NICs
§ those employing domestic staff
3. Payment
TCs should be paid at the same frequency as pay (ie weekly, monthly etc).
Your TC entitlement for each pay period should be itemised separately on your pay slip and end of year P60.
Inland Revenue will send employers and employees/ claimants
§ the start and end date of the TC for this claimant;
§ the daily rate of payment
IR will issue employers with easy-to-use tables/ ready-reckoners for working out entitlement over various pay periods. Employers do not have to calculate entitlement, nor are they informed of the details used for the calculation
Starting and ending employers’ payments
To start
IR must send employers the “Employer Notification to Start Paying Tax Credits” (“Start” notification). This should give
§ 14 days (2 weeks) notice if employee is paid weekly or
§ 42 days (6 weeks) notice if paid monthly
If an employee has already left, employers should return the start notification to the IR.
The start notification will give the employee’s name, NINO, payroll no, the start and end date of the employer’s obligation to pay TCs, the daily and total amount and an easy to use table/ ready reckoner.
The TCO simultaneously send the employee similar details, ie the period of payment, how payments will be made, the daily rate and the total amount.
IR pay TCs direct to the employee up to the start date
If the employer accidentally pays too much for a period, they recoup this from the employee as they would excess wages.
Even if you have no actual wages for a period, TCs can be paid eg on top of SSP or SMP.
If you are not due any payment for a period – eg unpaid leave – the meployer has a choice whether or not to pay TXC alone – see below.
To end TC payments
à The IR assume that the employer continues the appropriate payments until the end of the 26 week award date given. There is no need to notify IR.
At the end date – given in the Start notification employers should finish payment. They then await until the IR notifies them of another/ if any start date for that person’s next 26 week award (again with 14 / 42 days notice).
TCO/IR assumes responsibility in the meantime.
à If the IR want TC payments to stop before then they will issue a “Stop” notice – in which case employers don’t need to issue a Certificate of Payment.
Stop notices should give employers 14/ 42 days advance notice.
Otherwise, if payments stop before the 26 weeks are up the employer must give the employee a “Certificate of Payment”; eg if
§ employment stops before the end date;
§ the employee leaves
§ the employee dies!
If no earnings are being paid in a pay period– eg for unpaid leave, trade dispute, the employee has not worked at all in that pay period, the employer has choice whether or not to:
- pay tax credits alone – at normal pay interval in normal way; or
- terminate TC payments as well – in which case a certificate of payment must be issued and the IR resume responsibility
The Certificate of Payment must be issued within 7 days of the last payment of TCs. The employee sends a copy of the Certificate of Payment to the TCO
If there is not enough time between Certificate of Payment and next TC due, the employee can fax the certificate to the IR, or even phone the TCO. The TCO then phones the employer to confirm that the employment has ended and makes a payment ASAP.
Then the IR assumes responsibility for the remaining payments for that period
Employer’s reimbursement
Employers deduct TC payments made from their regular PAYE, NICs and student Loan repayments to the IR
If employers don’t have enough cash flow to pay, they can apply to the IR for an advance- providing supporting details. A maximum of 6 months funds is available in advance. This is paid in instalments. Employers are expected to do estimates once they get the start notification and to apply for the cash flow advance at least 9 working days before the first TC payment is due. If the IR disagree with the amounts requested they will contact the employer to “resolve any misunderstandings”
There is some scope for urgent/ last minute and faxed requests.
4. Administration needs
The following list some of the new changes and obligations on employers:
· extra queries from IR, regarding eg an employee’s pay;
· adjust computerised pay systems – regularly;
· adjust manual pay systems;
· increased cash flow checks;
· extra recording on pay slips, P14s,P60s and P11s, P35s;
· show TC payments paid to IR;
· issue Certificates of Payment if TC payments end prematurely
IR may visit employers at ‘short’ notice to monitor compliance and solve problems.
C:\WINDOWS\TEMP\TC employers apr 2000.doc 02/03/00