Summary of Measure

The level below which small employers can pay Pay As You Earn (PAYE) and National Insurance Contributions (NIC) to the Inland Revenue quarterly rather than monthly has been increased from 1,000 pounds to 1,500 pounds.

The option of quarterly payments offers small employers an additional cash flow benefit beyond that already provided by the normal PAYE payment arrangements, so going some way towards offsetting the costs of administering PAYE. In addition to the cash flow saving, there is the further benefit in reduced administrative costs from only having to make payments to the Inland Revenue four times a year instead of twelve

An additional 80,000 small employers will benefit from this change.

The new limit will apply to deductions made in periods beginning after 5 April 2000. A consultation exercise is proposed in the Autumn on proposals for payment of PAYE by direct debit, together with a further review of the limit subject to the outcome of the consultation.

Further Details

1. At present, employers whose average monthly payments to the Inland Revenue of PAYE and NIC are less than 1,000 pounds in total can choose to pay quarterly rather than monthly. This limit will be increased to 1,500 pounds for deductions made in periods beginning after 5 April 2000. Payments are required for the quarters ended 5 July, 5 October, 5 January and 5 April, and are due within 14 days of the end of each quarter (by the 19th of these months).

2. From 6 April 2000 the quarterly payments limit will be based on an employer’s average net monthly payment due to the Inland Revenue, for PAYE, NICs and student loans (CSL) recovered, but after taking into account amounts of Working Families’ Tax Credit (WFTC) and Disabled Person’s Tax Credit (DPTC) paid to their employees and funded from the tax, NICs and CSL due to the Revenue.

3. The increase in the monthly limit from 1,000 pounds to 1,500 pounds will give an additional 80,000 small employers the opportunity to pay quarterly, giving them cash flow savings of up to 150 pounds a year. In addition we estimate that, prior to taking into account this year’s increase, a further 15,000 employers will become eligible for quarterly payments from April as the funding of WFTC/DPTC payments from amounts otherwise due to the Revenue will take them below the monthly payment limit. In total nearly 800,000 businesses will be able to benefit from quarterly payments, around 60 per cent of all employers.

4. Contractors in the construction industry can also choose to pay quarterly provided that their average monthly payments of PAYE, NICs, CSL and deductions from payments to subcontractors (after taking into account WFTC and DPTC paid) are less than the same limit of 1,500 pounds.

5. The change does not require legislation in the Finance Bill. It will be made by way of amendments to the regulations for PAYE, NIC and deductions from payments to subcontractors in the construction industry.

6. Employers who wish to find out more about paying PAYE and NICs quarterly instead of monthly should contact the Employer Helpline (0845 7 143 143) or consult the Employer’s quick guide to PAYE (cards CWG1) – card 18. The card will be updated as a result of this announcement and re-issued to employers during April 2000.

7. The Inland Revenue also propose looking at the possibility of introducing direct debit arrangements to make it easier for small employers to pay PAYE/NICs etc. They will be consulting with employers and representative bodies on this in the Autumn.

Background Notes

1. Quarterly payments for small employers were first introduced in 1991. The present limit of 1,000 pounds a month was set last year.

2. The cost of this measure as published in the Financial Statement and Budget Report is zero as the measure does not as such affect the amounts of PAYE deducted from wages and salaries.

3. The proposed changes will not affect the entitlements of employees to National Insurance benefits.

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