Access Accounting - Blog

Salary Sacrifice and Smart Pensions

What is salary sacrifice?

A salary sacrifice happens when an employee gives up the right to receive part of their salary due under their contract of employment, usually in return for their employers agreement to provide them with some form of non-cash benefit, e.g. childcare vouchers. When an employee agrees to a salary sacrifice in return for a non-cash benefit, they give up their right to future cash remuneration. When entering into a salary sacrifice arrangement the employee needs to understand what the sacrifice will mean in practical terms, as the reduction in pay may effect the following:

• Their future right to the original (higher) salary
• Any pension scheme being contributed to
• Entitlement to Working Tax Credit or Child Tax Credit
• Entitlement to State Pension or other benefits such as Statutory Maternity Pay
• Credit rating
• Mortgage applications
• Death in service benefits
• Pay increases, overtime rates, bonuses, etc

In order to safeguard the above, it is advisable that a written agreement is obtained stating that the figure used should be the gross pay (plus any salary sacrifice element) and that payslips should also show this.

If the salary sacrifice does not take the employee's salary below the Lower Earnings Limit (LEL) for National Insurance (NI) then entitlement to benefits will not be affected, although entitlement to State Second Pension (S2P) may well be reduced if the salary sacrifice reduces their annual salary to between the LEL and Upper Earnings Limit (UEL).

When setting up a salary sacrifice scheme, an employer needs to consider the following:

• It will be necessary to change the employee's terms and conditions of employment if they decide to take advantage of the salary sacrifice scheme
• A salary sacrifice must not take an employee's salary below the national minimum wage level
• The effect if an employee takes multiple sacrifices
• The effect of a salary sacrifice on other benefits, e.g. life assurance
• The need to keep HMRC informed of the scheme and the new contractual arrangements

What is a smart pension?

A 'smart pension' is a type of salary sacrifice where an employee's salary is reduced by the amount of their pension contribution, and instead this is paid directly by the employer. The reason for this is that both the employee and employer will benefit from the reduced NI contributions on the lower salary. This can mean that the employee's take-home pay may be increased as compared to the pre-sacrifice situation, and the employer may well add the savings in NI contributions into the pension fund. With the cost of pensions rising, this can be a significant contribution to an employee's pension.

Pip Trowles

Driving for change…but still feeling the pain

The business software market continues to mature - so much so that the reasons and drivers for change sometimes don’t outweigh the fears of failure or limits of prescribed benefit.

Having worked in this industry for over a decade, I'm aware of how complex all software has become. In most sales situations a company is often buying an upgrade to their existing solution on ‘gut feel’ or the confidence the sales person is radiating, rather than a documented process of real benefits.

For a successful system implementation, these three factors are important…

1. The sales person must communicate to you that they understand who you are, what you do and where you are going, listing the immediate and future requirements of your business. Without this information documented, the chances of a working solution that does what it says on the tin is minimal.

2. The product provider must demonstrate a solution to fulfil your entire requirement. The promise of the next version or sexy feature should not influence you decision.

3. You must insist that the provider documents sales and project requirements which deliver on promise. With modern integrated software solutions that fulfil your whole requirement the sales-to-installation process can be lengthy, documented promises cannot be forgotten.

If you follow these guidelines and insist on quality documentation and project planning you are less likely to replace one system with all its problems for another system with a different set of issues. At Access Accounting we, and our Access Specialist Centres, are more interested in understanding your business and how you want to work, before considering which software and features are appropriate.

This is a proven formula for success for the customer and software provider alike. Long term relationships are created and referrals are a natural bi-product - and that’s exactly how it should be.

Steve Ashman

Vista Navigation

This is article 4 of my Vista Blogs. I have spent some time looking at, and working with, Vista, and have separated various new features into several different articles. In this article I am going to talk about the way in which Vista has been updated to make it easier for users to move from application to application.

Flip 3D

Although this isn’t necessarily a very helpful business tool, it is one of my favourite new features in Vista! The user interface is enhanced, and if like me you have many applications open at once, it makes it much easier to navigate around them. As with previous Operating Systems, the standard Alt/Tab functionality is there, however it shows much more information to the user, it shows the actual document not just an icon (a similar feature is available to Win XP users on a download – see the Microsoft website for more information).

Fig 1. Screen shot of the Alt/Tab view on Vista

However, the most impressive way to navigate is using the Windows Key/Tab (and then mouse scroll or use Tab), the windows are placed at an angle in quite a large size. Again all the items are shown with content, and not as icons. If one is music then the music will continue to play, if a video is playing then it will continue to play.

Fig 2. Example of scrolling through the open applications using the Windows key/Tab functionality

Preview from the toolbar

Instead of highlighting an open application in toolbar and just getting the application or document name, Vista gives the user a thumbnail of the application itself, along with a location of the item. Again, this gives the user more information to allow them to make the right choice of application to maximise.

Fig 3. Example of the preview thumbnail from the toolbar

Kirsty Lowe

Work and Families Act 2006

While the new Work and Families Act 2006 only relates to babies that are due to be born or adopted on or after 1 April 2007, the changes brought about by this act could in fact affect employers much sooner than this as a baby due to be born on or after this date could arrive as early as mid to late November 2006. Payroll software will need to have the legislative rules in place so they can be applied as appropriate, but it also needs to be running the existing legislation for any babies due to be born on 31 March 2007 or earlier.

The changes can be summarised as follows:

• The Maternity Pay Period is extended from 26 weeks to 39 weeks.
• The Maternity Pay Period will be able to start on any day of the week in accordance with the date the woman gives in her notice to her employer of the day she wants her SMP to start. This will allow SMP to align with the start of the woman's maternity leave in all cases.
• A woman will be able to work for an employer paying her SMP for up to 10 days in her maternity pay period and to retain SMP for the week in which any such work is done.
• The weekly rate of SMP can be divided by 7 so that it is easier for the weekly payments of SMP to be aligned with the particular pay practice in the employment (if the employer so chooses).
• The extension of the pay period from 26 to 39 weeks, enabling limited work in the pay period and enabling the weekly rate of payments to be divided by 7 also apply to Statutory Adoption Pay (SAP) where the child is expected to be placed for adoption on or after 1 April 2007.
• Dividing the weekly rate by 7 also applies to Statutory Paternity Pay (SPP) for babies due on or after 1 April 2007.
• All women, irrespective of their length of service will now qualify for Additional Maternity Leave, which will allow them to take up to a maximum of 52 weeks off work. The same does not apply for Statutory Adoption Leave, so employees will still only be entitled to Additional Adoption Leave if they meet the 26 week service test.
• If women want to change the date of their return to work they must now give their employer 56 days notice, instead of 28 days.

So if you've been notified by any employees that they are expecting a baby or are going to adopt on or after 1 April 2007, you must ensure that your payroll software can handle the changes to legislation. What's more, it is likely that you'll need to apply these before next April so the time to act is now.

Pip Trowles

Data Fragmentation in SQL Server 2005

Current commands for index management, as supported in SQL 2000 and discussed previously, are still supported in SQL 2005. However, they will be phased out & are unlikely to be supported in future releases.

With this in mind it is probably worth mentioning a few of the successors:

DBCC SHOWCONTIG - this has been replaced by the sys.dm_db_index_physical_stats ( ) function.
e.g.
SELECT * FROM sys.dm_db_index_physical_stats(DB_ID(N'Database Name'), OBJECT_ID(N'Table Name'), NULL, NULL , 'LIMITED')

DBCC DBREINDEX - this is now dealt with using the ALTER INDEX statement.
e.g.
ALTER INDEX ALL ON Table Name REBUILD WITH (FILLFACTOR = 80, SORT_IN_TEMPDB = ON, STATISTICS_NORECOMPUTE = OFF)

As a final point to mention, there are quite a few parameter options and switches that go along with these new methods. It's therefore advisable to do some research into what is actually available so that you can refine your use of these methods accordingly. SQL Server Books Online is always a good one but you'll find generally find detailed information anywhere on the internet.

Oliver Cox

Reverse Charge VAT Go-ahead to Beat Carousel Fraud

Well, last Friday it was reported that HMRC had received the go-ahead from the EU to bring in a significant change to the VAT rules to combat carousel fraud. Carousel fraud is where goods are continually imported and exported from the UK to generate VAT refunds for inter-trading companies who then disappear.

The Government report believes that this is costing the taxpayer £1.9 billion each year. An independent European report estimated that the cost to the UK could be as much as £18 billion! (That equates to around 3p on the basic rate of tax).

For the accounting software industry, there is a significant challenge in changing the software to meet the new VAT rules, which HMRC are bringing into effect from 1st December this year.

Two major software vendors estimated between 7 – 18 months to implement the new changes in their software. I guess that Access is fortunate in that our size means that we can be more responsive to such demands. The new rules bring in a reverse charge for certain small high-value goods. If you are buying these specific high value goods you will be responsible for both claiming back the input tax and paying the output tax on the purchase. If you are selling such goods in a business to business environment then you will not collect the VAT on the sale but will need to detail the tax for the purchaser to pay. The change will mean that the treasury will not be exposed to the carousel fraud – but the complexity of our UK VAT regime will grow considerably.

UPDATE 31/10/06: Since writing this blog we have issued a press release on the forthcoming launch of our reverse charge VAT functionality.

Kevin Misselbrook

Government Green Bike Scheme Will Not Work

Access Accounting has always been keen to promote cycling to work. We have around a dozen staff that use their cycles - including three directors of the company. Over a period of time we've provided shower facilities, and a secure bike lock-up (AKA a big shed with a combination lock!).

When a member of staff suggested that we look at a Revenue scheme where we can provide bikes - and the staff would get a tax benefit - we were very interested. The essence of the scheme appeared to be that the company would fund the purchase of the new bikes and then deduct monthly payments from the staff who use them. The purported benefit is that these deductions from salary would be made before tax. Great - we thought ! But, like all good Government schemes - they are always more complicated than first thought.

These complications included that we would have to be licensed for credit, we would need to apply for a "Salary Sacrifice" scheme, and each employee would have to declare that their use of their bike to work represented more than 50% of it's use. We could, at a push, still handle all of that administrative overhead but the biggest dis-incentive was yet to come.

The scheme is based on a strict credit leasing agreement. This means that at the end of the period our employee would have to give the bike back to us, and we could then dispose of it at current market value. The employee would not get any recognition of the monthly charges that they had made. This killed the adoption of the scheme dead in its tracks. What employee would want to select their chosen machine, pay for it over 24 months, and not have any option of ownership at anything less than second hand market value. Similarly we, as a company, did not fancy entering the second hand bike market. This appears to be another example of the Government trying to play the "Green" card without serious intent.

Kevin Misselbrook

Vista Start Menu

This is article three of my four Vista blogs. I have spent some time looking at, and working with, Vista and have separated various new features into several different articles. In this article I am going to talk about the Start Menu.

Searching

The search bar in the Start Menu can really save a user’s time and reduces frustration when a file cannot be found - trust me it helps! You don’t have to worry about settings lots of options like you do in the Search window in Win XP either, which makes the whole process a lot quicker. The search will look for files, programs and folders, including control panel options. Users can also select whether to search the computer itself, or the internet.

Fig 1. The Start Menu, showing the search bar, screen tip and icon updates.

Pictures on Start menu

This feature sets a picture for each option, which appears in the top right of the menu. Not necessarily a huge leap forward in user interface, but I think it adds to Microsoft’s increase in user information. See Fig 1 for example.

Kirsty Lowe

Age Discrimination Legislation - Don't Get Caught Out

On 1 October 2006 the Employment Equality (Age) Regulations comes into force. The scope is wide-ranging, effecting recruitment, promotion & training opportunities,  as well as long service payments and redundancy payments. Payroll departments, no matter how large or small need to be aware that these regulations will potentially have an immediate effect on the payroll, and check that they can update their current payroll system in order that it is compliant with the changes effective from that date.  I've outlined below a synopsis of what the regulations entail:

Removal of the lower age limit for the payment of statutory payments

Under 16's will be classed as employees and will then be entitled to Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP) and Statutory Sick Pay (SSP), even though they are not currently liable to pay National Insurance contributions. For the payment of SMP and SPP, the removal of the lower age limit will apply to all women with a baby due on or after 14 January 2007. This may mean that average earnings need to be calculated from as early as July 2006. The lower age limit is also being removed in respect of Statutory Adoption Pay (SAP), however as UK regulations prevent anyone under the age of 21 from adopting this aspect is not an issue. As SSP is not currently payable for under 16's prior to 1 October, even if they are midway through a Period of Incapacity for Work (PIW), their entitlement will only commence from 1 October and waiting days will need to be served from the first qualifying day after that date, and all other current rules followed.

Removal of the upper age limit for the payment of SSP

Employees aged 65 or over will be entitled to receive SSP (there is no current upper age restriction for SMP, SAP and SPP). Prior to 1 October there is no entitlement to SSP if the employee is aged 65 or over, unless they reach their 65th birthday midway through a PIW, in which case the entitlement continues until the end of the absence, or linked absences. From 1 October if an employee aged 65 or over is absent which does not link to a previous PIW, and if all other qualifying conditions are met (e.g. average earnings exceed the Lower Earnings Limit for NICs),  then they would have an entitlement to receive SSP. If the employee has been off sick previously which would link to the new period of sickness, then the qualifying conditions as at the start of the first linked PIW must be reconsidered (excluding age). Where an employee is off sick straddling 1 October again the qualifying conditions as at the start of the PIW will need to be reconsidered, and if the employee was excluded on the grounds of age only, then waiting days will be served from the first qualifying day after that date and SSP will become payable.

With the 1st October fast approaching, time is of the essence. If you haven't already done so, it would definitely be a good idea to check your systems now!

Pip Trowles

Standard Audit File (SAF-T) for VAT

Well, we released the Standard Audit File sofware on 10^th August and I was expecting a barrage of complaints in the media along the lines of us supporting a “Big Brother” state. This Standard Audit File is part of an international initiative to allow tax authorities to take data from businesses in a common data format. This will then allow them to run tests and integrity checks on the data electronically to ensure that tax is being properly accounted for.

We are the first software company to release this in the UK and we had been geared up to defend our stance - but so far, all has been quiet. We did get some coverage in Accountancy Age and today we have had our first user enquiry about the facility.

In Holland, this type of system has been in place since the late eighties and is used by both the tax authorities and the accountants in practice.  Here, it’s adoption is likely to be slower with HMRC only just starting to promote the technology as one of the components within their new BSI specification for accounting software. I guess we’ll just wait for the interest to grow.

Kevin Misselbrook