Are you aware of all the forthcoming PAYE and pensions legislation? How will SMEs gear up for the changes?
Despite repeated promises to SMEs by successive governments that the administrative burden is set to ease, nothing really seems to change.
One subject close to my heart is the forthcoming changes to pension legislation and the change in PAYE submissions.
Apart from the extra burden that is going to be imposed I also have a concern that the government aren’t doing enough to inform SMEs about what’s going on, why it’s going on and how it will impact them.
I’m going to endeavour to help but I would recommend that what I write is my understanding and it may require some verification, not least because some elements have yet to be defined and set in stone.
Pensions
Some of the most important changes to the pension system will start coming into effect from October 2012 so the clock is ticking.
By 2016 every employer in the UK will be affected by this new legislation. Whether you employ one person or more you will be required to automatically enrol them into a pension scheme – this is being called “auto enrolment”. In addition, when you enrol them you will also be expected to make a contribution to the pension on the employees’ behalf (this changes over time but will be between 1% to 3% i.e. you can start with 1% but by late 2017 it looks like you will be expected to contribute 3%). Plus, you will be obliged to keep an audit trail of contributions, auto enrolment conversations and opt out decisions for every employee for more than six years.
This is far more reaching and will have much more impact than the stakeholder pension schemes that were introduced a few years ago.
Starting from 2012 everyone earning over the standard pension allowance (£7,475 – 2011/12) will need to be automatically enrolled into a scheme and the employer will have to make some kind of minimum contribution. If the employee decides not to join they will need to “opt-out” and the employer has to have on record, in a way that can be proved,that the conversation has been had and that it was the employee’s decision to opt out. Not easy to do this efficiently but critically important if you don’t want to get fined!!
The bigger employers will start first but it’s amazing how time flies – every business will need to comply in less than 5 years from now!
Key Dates:
Oct 2012 – Largest firms go first PAYE of more than 120,000 employees
Nov 2012 to March 2013 – 10,000 to 120,000 PAYE employee companies
April 2013 to Sept 2013 – 1250 to 9,999 PAYE employee businesses
Oct 2013 to July 2014 – medium size businesses of PAYE 50 to 1249 employees will need to be enrolled
August 2014 to Feb 2016 – small businesses – fewer than PAYE 50 employees
New PAYE schemes started between April 2012 and March 2016 have until Sept 2016 to enrol their employees
There are some exclusions as to who needs to be offered the chance to auto enrol – those aged 16-22 and those over state pension age have some slightly different qualifying criteria – suggest you check this out nearer the time!
Employers can start this process before these key dates, which may be wise as there are possible penalties if the dates are missed.
In terms of schemes, probably the most popular for the smaller businesses will be the Government’s own scheme called NEST (National Employment Savings Trust). The scheme is designed to be low cost but there are still some annual management charges.
Plus, the government has estimated the cost of simply administering and complying with the new regulations at around £46.00 per employee per year based on an Employer with fewer than four employees, while the Federation of Small Business has suggested the total cost to the same employer will be will be at least an extra £2,550 per year in administration and pension costs.
Confused yet? I’ve spent a few months trying to get my head around this and it’s still a bit unclear. However, the good news is that, together with Wealth Management Group, we’re working on a cost-effective and automated system that will take the headache and a lot of these admin costs away – watch this space and our SSLPost tweet account for updates nearer the time!
Changes to PAYE
Have you heard of PAYE RTI (Real Time Information)? HM Revenue & Customers (HMRC) have confirmed that its Real Time Information is going ahead with a pilot in the beginning of April 2012. If the pilot is successful then it will go ahead from April 2013 and everyone is expected to be in the scheme by October of that same year.
But what is it? In brief it’s that employers will have to report tax and NI deductions at the same time as they pay their employees rather than at the end of the financial year. As you can imagine this change could be significant for SMEs and won’t be possible unless their existing software/payroll bureau providers come up with a way of doing this automatically. This is what the pilot is all about.
Again, we’ve been working with BASDA (Business Application Software Developers Association) to try and keep abreast of what’s happening.
HMRC say that RTI is aimed at:
a. making it easier to ensure individuals pay the right tax after a change of job
b. removing the need for the P45/P46 process over time
c. simplifying the PAYE end of year reconciliation process for both employers and themselves
d. removing any errors in the tax credits systems
There was even talk about employers having to pay HMRC before any employees got paid but I’m not sure whether that’s still on the cards.
Again, watch this space – I’ll try to keep you udated
For more information please click the following link to an article on "accounting web":
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