| PAYE and National Insurance for Parish Clerks – Update – November 2011 |
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PAYE and National Insurance for Parish Clerks – Update – November 2011 Earlier this year, HMRC removed a concession which enabled low-paid local council clerks to pay any income tax arising from their earnings via an end-of-year, self-assessment tax return. Because of uncertainties about how the ruling would apply in practice to low-paid and to unpaid clerks, last March we sought written clarification from HMRC. Following reminders, and eventually securing the help of local MP Alan Beith, we have now received a response from HMRC HQ in London. Regrettably, HMRC is taking a tough line, and we have reluctantly concluded that we will not make any further progress in trying to address this head-on with the civil servants in London. It appears inescapable that every local council must now register as an employer with the local HMRC tax office, even if the clerk is an unpaid councillor. What happens after registration appears to depend on the advice given by the local tax office, and so we can only advise you to follow what they tell you. What is the process? Before you start The local council must register as an employer for PAYE and NI purposes. You can do this with a phone call to 0845 6070143 or do it online through: http://www.hmrc.gov.uk/paye/intro/register.htm Once registered you will be sent a letter confirming your Employer PAYE reference Number and also your Accounts Office Reference Number. The majority of communications with HM Revenue and Customs are required online and parish councils are not one of the groups that are allowed to complete forms manually. Because of this it is advisable to register your council to use online services. You can see a demonstration of online services at: http://www.hmrc.gov.uk/online/new.htm Or register at: https://online.hmrc.gov.uk/registration/organisation choosing PAYE for employers. During the registration process you will set up passwords etc. and will be given an Online Service Number. You need to keep a note of this because you will receive a letter with an activation code so the account can be used. When you have your basic information. Once you have this basic information you are able to operate PAYE through commercially purchased software or through a programme issued and maintained by HMRC. You can download that software from this link: Downloading PAYE basic Tool This software is reasonable self-explanatory but does require your Employer PAYE reference Number and your Accounts Office Reference Number. You can also send documents directly to HMRC through the Online Service. The instructions for operation of PAYE are covered by a booklet issued by HMRC called Paying Someone for the First Time. You can find a copy at: http://www.hmrc.gov.uk/forms/p49.pdf This booklet will take you through the basic principles of PAYE and help you better understand the requirements of the software. If you want to explore more complex issues of PAYE there is a variety of books issued by HMRC, two of which might be of benefit: Day-to-day payroll: http://www.hmrc.gov.uk/helpsheets/e13.pdf Employer Further Guide to PAYE and NICs: http://www.hmrc.gov.uk/guidance/cwg2.pdf Payments to HMRC The PAYE software will work out the tax payable on a monthly basis. This tax and NI need to be paid over to HMRC. The council can set up direct debit payments through the website but ensure that the council can make direct debit payments that are able to be authorised by an individual. Other Issues Unpaid Clerk If the council is using the services of one of its councillors as clerk that person cannot receive remuneration for the work they do. HMRC need to be informed by phone or letter so they can note on the employer record that the PAYE collection will be dormant for that period. When someone is employed again remember to inform HMRC. Working for a number of councils If a clerk works for a number of councils each would need to register separately and the person would be required to complete a P46 for each council. Expenses If a council decides that it will only pay expenses this would be fine for a councillor undertaking the work for their own council but HMRC would expect that in other circumstances an element of the payment relates to “salary”. In any circumstances HMRC lay down specific levels of expenses that a person using their own home, their own computer, their own vehicle would be entitled to claim. The council can pay towards the use of the private residence. If the amount paid is less than £3 per week it can be paid as an allowance. This means that the gross pay entered into the PAYE calculator will only be the actual salary. The sums paid as allowance have to be accounted for at the year-end by completion of additional declarations. Frequency of Payments If payments are only made once or twice a year the clerk may be penalised by paying tax or NI on the single large payment whereas a monthly payment may have qualified for relief. The discrepancy would be resolved at the year end but NI payments will stand. Councils may wish to consider moving to more frequent payments. National Minimum Wage We have been asked our opinion about clerks who choose to work more hours and actually receive less than the minimum wage. David’s advice is: “In recent years, a number of councils and clerks have sought advice from me on how to remain within the law. In most cases, neither the council nor the clerk has wished to increase the salary, because this would place a disproportionate demand on the precept. In my view, the alternative solution is for the council, as employer, to agree to contract the clerk for fewer hours per week, so that their hourly rate can exceed the National Minimum Wage, and for the clerk to work a certain amount of unpaid overtime.
This is lawful, but it must be mutually agreeable to both parties.”
Early Registration When the need for councils to register for PAYE some councils were eager to ensure they complied with the rules. If they registered before the 6th April 2011 they made themselves liable to complete tax returns for the 2010/11 tax year. On October 13th 2011, HM Revenue & Customs issued the following Press Release: “HMRC are aware that a small number of Parish Councils registered for PAYE in response to the guidance before 6 April 2011, without realising that this would mean they would have to submit a P35 Employer Annual Return for 2010-11. This has caused some parishes to have incurred a liability to penalties for non-return of a 2010-11 P35 when in fact no 2010-11 P35 is due. HMRC is sympathetic to parishes’ situation and has briefed a team to handle this issue so that parishes are not disadvantaged in any way. If parishes receive a penalty notice for non-submission of a P35 as a result of the circumstances outlined above, they should contact Ian McDonald as below to ensure that the penalty is cancelled. Ian McDonald BP4009, Chillingham House, Benton Park View, NEWCASTLE-UPON-TYNE NE98 1ZZ Councils that are affected by a Penalty for non-completion of a 2010-11 Form P35 Annual Return for PAYE should contact Ian McDonald as set out above.
Help A number of organisations offer payroll services on behalf of voluntary and community sector organisations so if you require outside help with the process they may be able to help. There will normally be a charge and that would have to be agreed. We are not able to recommend any particular organisation but some you may wish to consider are: Howard's Pay Joan Howard MCIPP Dip JP 6 Eden Grove Stobhill Grange Morpeth NE61 2UN Telephone: 01670 701139/517327 Mobile: 07854 808164 Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it Ellison Services Graeme Lyall Telephone: Council for Voluntary Service on 0191 2357020 or Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it Northumberland County Council Lorraine Summers Telephone: 01670 533371 Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it Seahouses Accountancy Services Lynn Dawson Telephone: 01665 721868 Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it Wansbeck CVS, 107 & 109 Station Road Ashington Northumberland, NE63 8RS Contact Marie Sembukuttige Telephone 01670 858688 Email This e-mail address is being protected from spambots. You need JavaScript enabled to view it James Little & Co Northumberland Accountants Limited Leaside Whittingham Alnwick Northumberland NE66 4UP Telephone: 01665 574500 Mobile: 0791 778 0606 Fax: 01665 574933 |