Minutes of the Employment Consultation Forum

Wednesday 17 September 2008

Attendees

Don Macarthur (DM) – Co- chair Business Customer Unit
Sue Hunt (SH) – PAYE SA & NICs Product and Processes
Joanne Miller (JM) – Customer Contact
Janet MacKinnon (JMK) – Customer Contact
Georgina Halligan (GH) – DMB Process and Strategy Unit
Paul Braviner (PB) – Large Business Service
Alison Bainbridge (AB) – Business Customer Unit
Val Grant (VG) – Business Customer Unit

Karen Thomson (KT) – Co-Chair –IPP
Anne Redston (AR) – ICAEW
Paul Jackson (PJ) – Payroll Alliance
Jackie Petherbridge (JP) – FSB
Alex Rowson (AR) – BASDA
Mervyn Woods (MW) – CBI
Norman Green (NG) – BC - PG
Abigail Morris (AM) – BCC
Matthew Brown (MB) – CIOT

Presenters

Frances MacDonald (FMD) - PAYE SA & NICs
Amanda Lyne (AL) and Jenny Celaire (JC) – BERR
John Allen (JA) – Home Office

Item 1 Apologies

Steve Dodd – HMRC
Sue Lely – HMRC
Mike Shipp – HMRC
Karl Willes- BERR
John Hampton – CBI
Michael Templeman
Iain Scott-Shore - CBI
Trevor Blackmuir - AAT
Chris Hind – CBI
Linda Pullan – Payroll Alliance

DM started the meeting by welcoming Alex Rowson of BASDA who has taken over from Andrew Dove and by announcing the retirement of Neil Hamper from the FSB Taxation Committee and therefore from this forum. He went on to explain that due to the fact that our presenters needed to get away early, the running order of the meeting had been changed to reflect this so that minutes of previous meeting and action points would be dealt with after the presentations had taken place.

Item 2 – National Minimum Wage – (AL and JC - BERR)

The current exemption has meant that some employers have been including tips as part payment towards the National Minimum Wage .The announcement by the Prime Minister and Ministers of BERR re their intention to remove tips from making up salaries has already been made public .BERR will be contacting employers to determine the extent to which tips, gratuities etc are being used in this way. BERR also want to deal with this issue from the consumers' point of view and are considering how to deal with awareness amongst consumers so that they realise that when they leave a tip, it may become part of the NMW rather than as a reward to an individual for good service. AL asked for some suggestions on ways of heightening this awareness so that the consumer can make an informed decision. A consultation document is likely to be launched within the next four to six weeks and during this time BERR will be talking to many organisations including HMRC about issues relating to the administration of this change. Currently the start date for this new piece of legislation is October 2009 but is not set in stone and will not be confirmed until after consultation has taken place.

AL asked those delegates present what sort of experience they had had so far.

A lengthy discussion followed, the main points of which were:

• Clarification sought that BERR wants nothing else (such as salary sacrifice) to form part of NMW. AL confirmed that Ministers are currently only considering tips, gratuities and service charges.
• Query on how BERR was targeting consultation with consumers .Contact has already been made with WHICH, National Federation of Consumers and that BERR is working with some stakeholder groups. It also intends to talk to the FSB, the British Beer and Pub Association and some hotel groups.
• BERR is also concerned about treatment of tips for National Insurance purposes whether the tips are administered through payroll or through the troncmaster. Ideas would be welcomed on how to enforce legislation without creating extra burdens for employers who will have to be able to identify tips and demonstrate how they have been treated.
• KT proposed that a two tier survey could be carried out much along the lines of the Scottish Tax survey where members of IPP were asked to respond both as a consumer and as an employer.
• Are ministers considering introducing a Code of Practice rather than regulations, for example force employers to adopt the tronc system? AL confirmed that Ministers currently have no intention of introducing a level of bureaucracy to enforce this, preferring to leave the business sector to sort this out itself.
• Concern over what proof employers will be required to keep proving that tips have not been include in NMW. Would some sort of mandation be required to enable employers to demonstrate the amount of tips given, who got them or how were they distributed? There may be a temptation for some to alter conditions of employment in borderline cases and change employment status of employees to self-employed.

Action Point -BERR to advise VG when consultation begins and to send an email link that can be distributed to ECF members for them to send feedback direct to BERR

Item 3 National Insurance number cards - FMD - HMRC

It was made clear that this topic does not affect existing National Insurance number cards (which are a jointly owned asset between HMRC and DWP). However, consideration is being given to stopping issue of future National Insurance number cards and replacing them with something else.
There is evidence that these cards are regularly counterfeited and/or used incorrectly as proof of identity. As an organisation HMRC needs to do more to combat National Insurance number and identity fraud but also has to understand and take into account the impact on customers of any potential changes to the current card carrier.

In March 2008, Individual Customers Unit (ICU) commissioned some research. Customers were presented with a number of options for change including:

• A redesigned card with better visuals and clearer HMRC branding but with no added security or
  
• A smart card with similar visuals and with the National Insurance number itself held securely in a chip or
  
• A revised letter with a prominent National Insurance number and important information about what to do and what not to do with the number but no card.

The majority of respondents supported the idea of a letter notification only especially given the potentially beneficial impacts on fraud and counterfeiting. Even those who wanted to keep the card as proof of their working status (mainly, some younger adults and non English speaking migrant workers) were happy with a redesigned, secure, notification letter. The letter was well received and clearly communicated important information to the young adult audience. It also encouraged adults to consider protecting their personal information. Doing nothing was viewed as unacceptable.

HMRC is now considering the recommendation to discontinue the National Insurance number card. Part of that work will involve consultation with employers and representatives of UK business with Ministers ultimately deciding the future of the National Insurance number card. It is important that stakeholders have an opportunity to share their views in advance of any decisions to implement the change so members of ECF are encouraged to consult with their members and feed back their findings.

Another discussion with members followed. There was a question as to whether, when a replacement letter was required, whether this could be requested through the SEF (structured enquiry form) email route. Members were advised that the functionality did not currently exist for this and the issue surrounding that remote identity security would have to be resolved too. It may be at some point that the request could be sent by email and the replacement letter sent out by post.

Generally, ECF members present supported the idea that a letter rather than a National Insurance number card would be sufficient. However, a request was made that ECF members be consulted on the contents of the letter to ensure that it contained information that would be of help to future employers.

Action Point – All ECF representatives to consult with their members and feedback to Frances Macdonald

Item 4 Identity Cards for Foreign Nationals (JA – Home Office)

The session was arranged to follow up on the discussion at the previous meeting in June.

Identity Cards for Foreign Nationals ( known in the legislation as Biometric Immigration Documents and including biometric residence permits) will be rolled out on an incremental basis from 25 November 2008 with the intention that by 2014-2015 90 per cent of foreign nationals will have an ID card (diplomats, serving overseas military personnel and EEA nationals fall outside the UK Borders Act 2007)

• We have developed a rollout strategy, replacing vignettes over a three year period. By 2011 all new applicants granted leave will have an Identity Card for Foreign Nationals.
• Volumes will start relatively low and ramp up gradually - 50k cards up to April 2009.
• We will keep our rollout strategy under review but will continue to roll out by categories of applicant (ie by form type) as planned.
• The categories for early roll out are students and spouse/civil partnership categories.

As now, there will be postal applications and applications in person (premium). The change is that the migrant will be required to attend in person to have their biometrics (facial image and fingerprints) taken.

The ID card (there will be a family of them, the one for foreign nationals is just one member of the family, as opposed to currently 60 different types of documents that currently give confirmation of leave to remain in the UK) will gradually replace all current documentation that is needed to prove ID and will be a very secure document. It will be produced to really high specifications from a very developed system.

Initially they will be rolled out to students and spouse/civil partners/unmarried couples under Immigration Rules categories but not to work permit cases which will remain as they are for the time being. Further rollouts are planned as follows:

• 2009 - Identity Cards for workers in sensitive roles and locations like airports
• 2010 – voluntary Identity cards to young people
• 2011-12 - voluntary Identity Cards will be offered to large numbers of the British public

Over time (not before 2012 at least) as more ID cards are issued, more card readers will be introduced to confirm ID. The Home Office does recognise that the cost of this sort of technology could be prohibitive – particularly for small employers, and it may be that there will be outlets where card readers can be used for example Post offices or DWP offices.

Those present felt that ID cards might be one way to reduce the risk faced by employers who currently face a £10,000 fine for each foreign worker employed who does not have the right to work. The point was made that the Home Office and the individual to whom the card is issued are responsible for ensuring the card contains accurate information. So an employer would not be held responsible if they knew that an employee who was issued with an ID card on the basis of their marital status had subsequently divorced. However, if an employer is unsure of an employee’s status they may contact the verification service to clarify the employee immigration status.

The ID card will have a chip – which is separated so that one part meets the European Regulation requirements and the other one is for national data. The Government is considering what information it will store on the 'national side' of the chip, one possibility is the holder’s National Insurance number.

Employers can verify they have seen the ID card by photocopying it and the verification service provided by the UK Border Agency to check the validity of the identity cards.

There was concern among the members that the telephone verification service would have sufficient capacity to deal with what could be thousands of phone calls form employers. The presentation finished with two further questions being raised:

• Whether an email service might be introduced where employers can make bulk enquiries as this would help greatly?
• What publicity/advertising is planned to make employers and the public aware of the issue of ID cards?
  

Action Points - John to find out whether an email verification service will be introduced for employers with bulk enquiries and what publicity is planned re the issue of ID cards

Item 5 Minutes and Action Points from 26 June

Minutes of the last meeting were agreed.

APs 2 and 6 - The audit file spec will not include the UAP because it has been developed with some but not all software firms. There is also a question of data security which has become more rigorous following last year's data loss incident.

AP10 - DM reported policy advice that the question of tax/National Insurance liability on employer funded ID cards would depend on the precise arrangements adopted, but that it seemed likely that funding could constitute either meeting the employee's pecuniary liability or providing a taxable benefit. Question arose as to whether there was any way of avoiding charging tax or National Insurance on ID cards that are required by employees in their current jobs for security purposes.

Employer reps were very disappointed at this statement. Reps said that as provision of cards was mandatory, they had hoped that provision of the cards by the employer would not be taxable. If the cost was borne by employers, it would be a significant extra cost. They also pointed out that HMRC were not currently publicising any guidance on this issue and that, if they were going to follow this approach, they would need to advise employers well in advance.

Action Point: DM to take the issue back to the Policy experts.

AP11 - Further update. In addition to new DPS another new service called PDV - PAYE Desktop Viewer - is being developed. Testing of this additional piece of software is planned to begin from October onwards and volunteers are required. Anyone wishing to take part should email: Ian Atkin

Item 6 Update on Employer Strategy

EOY Filing Report

Peter Bickley's response to the above report had been circulated before the meeting today. DM advised that colleagues in HMRC would be reading it carefully as they were keen to learn lessons on how the EOY Filing process could be improved upon. DM would like to baseline this report very quickly so would like any comments as soon as possible. KT on behalf of IPP endorsed all of Peter's comments.

ASE

DM had mentioned the above workshop (Accelerated Solutions Event) at the conclusion of the previous meeting. It was attended by about 40 delegates from across HMRC including four members of the board and three directors all of whom recognise that the service provided to employers falls short of what it should be as HMRC do not perform as well regarding issues that cut across various Directorates within the organisation. The purpose was to look at this issue to see how things could be improved. Progress has been slow due to the leave period that ensued but DM is keen to pick this topic up and deal with it either at the next meeting of the ECF in December or perhaps at a separate meeting altogether (members to be canvassed and a date decided upon should a separate meeting be required).

Ahead of that, we should recognise areas where there has been a shift in attitude from some years ago signalled by publication of HMRC's Ambition statement.

"We know that most people and businesses want to do what is right - to pay what they owe and claim only what they are due"

"We're therefore committed to making it as easy as possible for our customers to get it right "

"We will protect society further by dealing firmly with anyone who intentionally avoids their responsibilities"

The above statements signal that HMRC is prepared to state publicly that it has not always got things right but it is trying now to do. Some changes are already starting to filter through:

• Large Business Service and Local Compliance do now try to give co-ordinated responses
• directorates are trying to work more to determine whether an actual debt exists before wasting valuable time and resource (both on HMRC and employers parts) pursuing debt that is not due

The last statement is strengthened by HMRC's penalties policy as shown in the following diagram.

Penalties - our new approach (PDF 25K)

However, the current organisation within HMRC does not help employers to satisfy their responsibilities.

The work done in the ASE event is being brigaded into four themes:

1. Clean Data: ensuring accuracy of information held with respect to National Insurance numbers
2. Enrol & Engage: how we support new employers ensuring they know where to go for support
3. Ongoing Employer Engagement: how do we ensure they feel they have access to the support and service they deserve? How do they know who to ask when they need help?
4. Debt & Compliance: what we need to do to both collect debt and deal with non compliance more efficiently.

One key question DM wanted to raise was:

What are the main obstacles that prevent customers from getting it right?

DM would like a list of top ten issues. A note will be sent out asking all reps to consult their members to identify these issues which will be discussed at a later meeting which Sue Lely will attend. Various points were thrown up from the floor.

There was a general suggestion that the easier HMRC made the task, the more likely it was that employers would feel motivated and equipped to comply. The other side of the same coin was that complexity could militate against compliance, for example in the realm of which benefits are subject to Class 1 NICs and which are subject to Class 1A: in other words, employers are often surprised that some benefits are to be treated as cash rather than benefits. The employer guidance issue generally was addressed following the PBR last autumn, but HMRC acknowledged that guidance could still be made clearer. This relates to AP3 where the forum did ask members to look at the newly published guidance and feed back their thoughts. The point was made that people do not always look at the guidance because they think they know what the answer is rather than look it up. This particularly seems to be the case with benefits, where it was suggested that some employers might well not envisage the possibility that some items or payments might be treated as if they were cash and would thus see no need to check the guidance. So non-HMRC members felt that it was a much more fundamental issue than guidance – the structure of the system was to blame.

HMRC acknowledged that there were questions of policy and legislation at issue here, and were content that matters of that kind could be put forward in the list of barriers. However reps were urged to focus firmly on questions of process or operational practice as well, as these were often simpler to address speedily.

There followed a discussion around the point about employers mistakes and what the definition was of failing to take reasonable care. KT wanted to know how to help members to get it right.

A summary of the approach - slide (PDF 25K)

DM talked through the above slide. Research has shown that if HMRC make it clear to people that good support and service is available to them, it tends to pull them towards better compliance. Guidance is not always the answer but support is and the relevant Helplines are available and are seen as valuable by those using them.

MB wondered if the Helpline numbers could be moved to the Business Link page which is consulted far more than the HMRC website as it is more user friendly.

Item 7 Penalties

This item was raised by Linda Pullan who queried what the penalty was for late submission online of P45s/P46s. PAYE Regulations apply whether submitted on paper or by online submission - they should be submitted within a reasonable time.

The question was raised about penalties when someone continues to submit returns on paper rather than online despite being mandated to do so. DM responded that no action will be taken during the first nine months of the tax year though the employer will get reminders. If these are ignored then penalties will be applied in the last quarter.

Item 8 – Any Other Business

• Dates for future meetings – Tuesdays (but not following a Bank Holiday) or Thursdays seemed to suit most. However there was a plea that this group and the sub groups try to co-ordinate their dates so that reps are not are not travelling backwards and forwards in same week to attend various meetings. Was there a possibility where there were two half day fora of those taking place, one in the morning and the other in the afternoon to cut down travel? The question was also raised as to whether the different groups could publish their dates in advance and not simply call meetings at short notice as members had their own work to do.
• Open Construction Forum – members would like to know purpose of it and what relationship it has with any other part of HMRC as the Construction Forum claimed not to have heard about it.
• Student Taxation – JP wanted to know where issues surrounding redesign of P38S should be sent. Responses to the consultation have been fed back to Ministers for a decision. Once a decision has been made, HMRC fully intends to meet with the original key stakeholder group to discuss next steps.”

Meeting finished at 2.00 p.m.

Next meeting is at 10.30 a.m. on Wednesday 10 December at 22 Kingsway