Helping users of HMRC's Basic PAYE Tools undertake automatic enrolment calculations - Consultation document
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Consultation document Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations March 2015
Introduction
This consultation document presents a proposal for mitigating the risk
that small and micro employers, who use HMRC’s Basic PAYE Tools
(BPT), will not have access to adequate software to be able to carry out
their automatic enrolment duties.
It summarises the evidence of this risk and goes on to describe the
proposal and rationale behind it in more detail. The final section
explains how to give feedback.
What is the risk?
The BPT is free payroll software for small and micro employers which
assists them in complying with the income tax and national insurance
requirements. The BPT will not be updated to provide automatic
enrolment functionality. HMRC’s website and the BPT will refer users
to, and/or provide web links to, The Pensions Regulator’s website for
assistance on this matter.
There is a risk that small and micro employers (or their agents) who are
users of the BPT will not have access to adequate software to support
their automatic enrolment duties. Whilst there is no legal requirement to
have software, our experience to date indicates that software supports
an employer’s compliance. In particular there is a risk that without
adequate software they may not know how to assess their workers or
calculate contributions. In addition, they are likely to have no automated
mechanism to keep statutory records. This presents an increased risk of
both initial and ongoing non-compliance amongst BPT users.
Evidence
Approximately 200,000 PAYE schemes used by employers due to take
on their automatic duties before August 2017 are managed using the
BPT. These employers (or business advisers using it on their behalf)
have demonstrated an unwillingness to purchase or utilise free payroll
software available in the market to submit their income tax and National
Insurance returns.
Our research indicates that half (54%) of employers with less than nine
workers would be unwilling to pay to upgrade their payroll software for
automatic enrolment1. Given their behaviour to date this figure is likely
to be higher amongst BPT users. Even though we anticipate that as they
get closer to their staging dates the number of employers willing to pay
will increase, the evidence nevertheless suggests that there will remain
1
a group of employers who will not pay for automatic enrolment Automatic enrolment
software support. employer research 2014.
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 2Evidence
At present we are aware of one free-to-use commercial payroll software
package that supports both automatic enrolment and PAYE. There are
several more low-cost payroll products where no additional charge
is made for automatic enrolment functionality. However, the level of
automatic enrolment support offered by these products varies.
An alternative source of support for BPT users might be via their pension
scheme. A number of the pension schemes available to micro employers
offer software that calculates eligibility and contributions. However, this
is not always free of charge and is not a standard offering across the
market.
Those that do not have access to payroll software, or equivalent
functionality from their pension scheme, will be required to undertake
a range of manual calculations, decisions and actions in each pay
reference period (PRP) in order to comply. For some BPT users, for
example employers with workers whose earnings do not fluctuate, a lack
of software may not result in a high risk of error.
However, those with more complex workforces, such as those with
fluctuating pay and/or pension schemes requiring contributions on
banded earnings, are at greater risk of making mistakes. For these types
of employers, even if they were initially compliant, a lack of ongoing
support could lead to compliance breaches in the longer term (eg they
may find it difficult to keep track of when a worker becomes eligible for
automatic enrolment for the first time).
While there are a number of encouraging developments in the market
that might reduce the risk of non-compliance among BPT users, our
analysis is that unless there are significant further developments on both
the supply and demand side of the market there will continue to be a
reasonably large group of BPT users who do not access free-to-use third
party software and attempt to comply with automatic enrolment without
software support. This proposal seeks to address this residual gap.
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 3Proposal
In the light of the evidence and risk identified, we propose to publish
on our website a range of options an employer typically has when
considering how to carry out the assessment and contribution
calculation processes. We will present the options in order of which we
consider to best support employers in complying quickly and easily with
automatic enrolment. The options will be to:
1. use commercial payroll software/services to comply with automatic
enrolment.
2. use a third party (non-payroll) provider (including a pension provider
that offers assessments), which will mean ensuring pensions
contributions are input into the BPT in each pay cycle.
A third option, to use a tool provided by us, is the subject of this
consultation and would only be undertaken if we consider there to be
insufficient coverage in the market for BPT users.
The concept of a basic assessment tool is that it could be used by
employers, particularly BPT users, who choose not to undertake options
1 or 2 above. The tool, whilst proposed and positioned for BPT users,
would be available for any employer to use. To be consistent with the
BPT, the proposed tool would calculate up to nine employees in a pay
reference period. An employer with more than nine employees would
need to create multiple reports in order to assess all of their staff.
The proposed tool would be separate from basic contribution/worker
calculators we already provide on our website.
As a minimum the proposed tool under consultation would include
some basic functionality to be used before staging and for each
subsequent pay cycle to:
assess all workers each pay cycle
calculate pension contributions for workers based on qualifying
earnings
allow the user to store worker information so they only have to enter
the pay-related data each cycle
be based on pay data entered and inform the employer what
actions are needed for different categories of worker (eg whether
they are an eligible or non-eligible jobholder or an entitled worker)
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 4In addition to the basic functionality described above, more advanced
functionality could also be considered, such as:
Output files: the tool could expect the user to 'cut and paste' the
results and/or manually input them into the pension provider’s
required submission format. A more advanced version could include
a data output function to allow the employer to upload/submit
the results in a electronic file to the major pension providers in the
micro employer market and/or used by third party software.
Record-keeping duties: the tool could provide a function such as a
printable or storable report to fulfil ongoing record-keeping duties.
The full tool functionality for consideration is described in the appendix
to this document.
The tool, if developed, would sit alongside and link to generic
educational material aimed at helping employers understand, plan and
comply with their duties.
If a tool were provided, to ensure users were encouraged to consider
alternative software on an ongoing basis, we may also consider the
possibility of providing links to the web pages of industry-representative
bodies that provide educational information about the wider payroll and
automatic enrolment software market. We welcome the industry’s view on
suitable methods of supporting BPT users to consider market solutions.
Rationale
A tool is being considered because BPT users have already chosen
not to use software available in the market for tax/payroll purposes.
Regardless of our preferred options which encourage take up of existing
market solutions, there is likely to remain a proportion of BPT users who
choose not to.
Without support to assess workers or calculate contributions there is
an increased risk that BPT users may be non-compliant with automatic
enrolment duties. The basic tool under consideration aims to address
this risk while creating no or minimal impact on the automatic enrolment
software and related markets.
In attempting to address the risk we also need to be mindful of the end
to end process for these users, including:
how and when the user would enter the data into the tool
how the user would enter the calculated pension contributions
into BPT
how the user would get the enrolment/contribution data to a
pension provider each cycle
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 5If we find evidence that there are sufficient free-to-use/low cost software
products or services available to BPT users in the market (that have
similar or better functionality than the tool we are considering), then
we would take this into account when making a decision whether to
develop a tool. As part of any decision we would need to understand
how BPT users could find these free software/services and whether
meaningful numbers would in fact make use of them.
If, as a result of the consultation, we publish a tool, it would only be
available for a temporary period whilst there is a justifiable need for it.
The tool’s effectiveness and impact on the market would be monitored
and a review of its suitability would be conducted at least annually.
If a tool is published the level of functionality included could be phased
in over time.
Your feedback
We welcome feedback on this proposal, in particular the views of payroll
software providers, pension providers, firms in automatic enrolment
software-related markets and employer representative bodies, on the
following questions:
1. Is there a need for us to develop a tool for BPT users?
2. Is the proposed tool a proportionate response to the risk identified?
3. What kind of functionality for the tool strikes the right balance
between supporting BPT users with automatic enrolment
compliance and at the same time maintaining an incentive for
them to seek a better automatic enrolment solution from the
marketplace? Please comment in particular on both the basic
functionality proposed and the more advanced options that could
be considered
4. How might the proposal affect the marketplace?
5. What more could be done to encourage BPT users to switch to a
system which provides integrated support for automatic enrolment?
Closing date
This consultation will be open until 19 May 2015. Once the consultation
period has closed, we will take into account the responses received
when finalising our proposal. We intend to publish our response in
summer 2015.
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 6Responding to the consultation
Responses may be made by email to:
Pension_Reforms_for_Software_Developers@tpr.gov.uk
Our preference is for responses in electronic format. But, alternatively,
you can submit your response by post to:
Neil Esslemont
The Pensions Regulator
Napier House
Trafalgar Place
Brighton
BN1 4DW
If you have any queries about this consultation, please contact Neil
Esslemont at neil.esslemont@tpr.gov.uk.
We may need to share the feedback you send us within our own
organisation or with other government bodies. We may also publish this
feedback as part of our response to the consultation.
If you wish your response to be kept confidential, please make this
known and we will take the necessary steps to meet your request.
However, please be aware that, should we receive a formal request
under Freedom of Information legislation, we may be required to make
your response available. When responding, please advise whether you
are responding as an individual or on behalf of an organisation (and if
the latter, which organisation).
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 7Government consultation principles
For the purpose of this consultation paper, we are following the
government’s consultation principles, found at www.gov.uk/
government/publications/consultation-principles-guidance. The key
consultation principles are:
Departments follow a range of timescales rather than defaulting
to a 12-week period, particularly where extensive engagement has
occurred before.
Departments need to give more thought to how they engage and
consult with those who are affected.
Consultation should be ‘digital by default’, but other forms should
be used where these are needed to reach the groups affected by
a policy.
The principles of the compact between government and the
voluntary and community sector continue to be respected.
As part of developing the consultation, we considered our
responsibilities under the accountability for regulatory impact (ARI)
principles in terms of how the proposal would impact on affected
employers. At present our proposal is not finalised and therefore we
have not undertaken a full business engagement assessment (BEA). We
will review our ARI position depending on the solution we choose to
develop following the consultation responses.
Feedback on the consultation process
We value your feedback on how well we consult. If you have any
comments on the process of this consultation (as opposed to the policy
issues raised) please contact our consultation co-ordinator at the email
or postal address listed on page 7 (separately from your response to the
consultation).
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 8Appendix: Proposed tool
Tool functionality
If a tool is developed, the design and functionality would be reviewed based on the feedback
received. For the purpose of the consultation we have separated tool functionality into basic and
advanced levels.
The design principle for a basic tool would be to offer a solution to calculate worker status and
contribution requirements to enable BPT users to comply with their duties. However, additional
functionality beyond this design principle would be limited.
It is proposed that a basic tool could perform the functions listed in the following table.
Function Basic functionality
Scope Support a single employer with up to nine workers
Contribution Support a single pay frequency, based on a single tax-based PRP, with the
calculations start/end of the PRP derived from the pay frequency and date of pay day
Assess worker category, using the appropriate and current automatic
enrolment thresholds and state pension age (SPA) for each worker
Calculate pension contributions for members of a single automatic
enrolment pension scheme, which may either be a:
a. legal minimum banded qualifying earnings (QE) based pension
scheme, or
b. pension scheme type of ‘other’ to enable an employer to pay more
than the minimum (where the user will have to input the monetary
value of pensionable earnings per member each cycle)
Allow appropriate worker contribution, expect the user to specify whether
the pension scheme uses ‘net pay arrangement’ or ‘tax relief at source’ in
its handling of tax relief
Worker Support for opt-ins
information Manual entry of joining requests and opt-outs
Store the date a worker becomes a member, opts out or ceases
membership of the pension scheme
Hold other appropriate worker information (eg employment start and end
dates)
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 9Appendix: Proposed tool
Function Basic functionality
Action Based on pay data entered, inform the employer what actions are needed
notifications for different categories of worker (eg whether they are an eligible or non-
eligible jobholder or entitled worker)
Link any relevant automatic enrolment resources, eg listing any statutory
letters, which may need to be issued
Data storage No data will be permanently stored on the behalf of the employer on our
systems
At the end of each pay cycle the tool will save all data into a file on the
user’s computer
Output The user would be able to ‘cut and paste’ the contribution results and/
or manually input them into the pension provider’s required submission
format
Generate a printable report each pay cycle
More advanced functionality under consideration, in addition to the basic functionality described
above, might include the following.
Function Advanced functionality
Output Generate a data output file, in one or more industry compatible formats,
containing all of the tool’s data. The output could, for example, be used to
submit pay cycle contributions to the pension scheme being used
The output file would be in a format based on one or more open industry
standard where possible (any data fields not available in this standard will
be in a format published by us)
By storing the output data file generated each pay cycle in one or more
open (published) industry data formats, provide a mechanism for any third
party supplier to provide additional services (eg worker communications
and/or send enrolment/contribution information to a pension provider)
Record- Generate report suitable for record-keeping purposes
keeping Allow the user to input additional data (not explicitly used by the tool) for
the purposes of record-keeping, such as the Employer Pension Scheme
Reference (EPSR)
Re-enrolment Allow the user to set a (valid) re-enrolment date (or will default to staging
date + 3 years) and notify accordingly those workers to re-enrol
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 10Appendix: Proposed tool
Any tool developed would have to update pension contribution rates in line with increases to
the legal minimum in Oct 2017 and Oct 2018 and any changes relating to qualifying earning
thresholds.
Regardless of the basic or more advanced functionality under consideration, we propose that the
tool will not support the following.
Function Not supported
General Calendar-based PRPs (it will use tax based PRP)
Postponement
Contribution Calculation of refunds
calculations Calculation of pro-rated contributions (members joining part way through
a PRP will be deemed to have a zero contribution for that period, whilst
leavers will always make a full contribution based on their pensionable pay
in their final PRP)
Salary sacrifice
Calculation of entitled workers’ contributions, unless they are members of
the same qualifying pension scheme (ie it will calculate the contributions
for an entitled worker on the assumption they are in a qualifying scheme,
so there will be an employer contribution)
Output Automated integration with the BPT
Generation of letters (but the report will show the user when a letter is
required)
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 11Appendix: Proposed tool
User experience
The tool, if developed, would be as similar as practical in its look and
feel to the BPT, whilst bearing our visual brand. Where necessary, the
user will be directed to other tools (eg staging date and planning tool)
and other appropriate information (eg letter templates) on our website.
Prior to staging, the user would be able to:
set up the tool
carry out worker assessments and calculations for test/planning
purposes
At staging, the user could:
input any employer, pension scheme and non-pay related worker
data not already entered (depending on final tool functionality)
the employer will have to input the worker pay related data each
pay cycle
Each pay cycle:
The user would load the file created by the tool in the previous
pay cycle, which would retrieve any worker information entered
(depending on final tool functionality).
The user would have to manually input the pay related worker data
into the tool and other data changes eg details of new workers.
The tool would calculate the worker and employer contributions.
The tool would save all data into a file on the user’s computer at the
end of the pay cycle (for re-import next cycle).
The user may have to:
a. manually enter the pension contribution amounts of any
members and, when a worker needs to be enrolled, the
enrolment information into their pension provider’s system
b. use the worker information to manually create any statutory
letters required (unless the pension provider generates all
worker communications), and/or
c. if it is decided that the tool would create an output file in a
suitable industry format, use a third party supplier for value
added services (eg worker communications and/or upload the
data file to the pension provider)
The user would then have to take our tool’s calculated pension
contributions for any existing or new members and manually type
them into the BPT before completing their gross to net calculation
and RTI return.
Consultation Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations 12How to contact us Napier House Trafalgar Place Brighton BN1 4DW 0845 600 0707 customersupport@tpr.gov.uk www.tpr.gov.uk www.trusteetoolkit.com Free online learning for trustees www.pensionseducationportal.com Free online learning for those running public service schemes Consultation document Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations © The Pensions Regulator March 2015 You can reproduce the text in this publication as long as you quote The Pensions Regulator’s name and title of the publication. Please contact us if you have any questions about this publication. This document aims to be fully compliant with WCAG 2.0 AA accessibility standards and we can produce it in Braille, large print or in audio format. We can also produce it in other languages.
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