Reminder – the Basic Earnings Assessment

As we approach the end of one tax year and the start of another, the Global Payroll Association wants to point employers to the annual task of completing the Basic Earnings Assessment (the Assessment).  This will be for employees who are in a childcare voucher scheme or directly-contracted childcare scheme.  This is called employer-supported childcare (ESC).

For ESC arrangements there is an exempt amount of £55 per week (£243 per month / £2,915 per annum).  By exempt we are referring to the fact that this is the amount that can be provided to the employee without tax or National Insurance Contributions (NICs) implications.  But this tax relief is restricted for higher and additional rate taxpayers who joined an ESC scheme on or after the 6^th of April 2011.  The government at this time said that the tax relief should be the same for these taxpayers as was enjoyed by people paying at the basic rate.  So, employers are required to restrict the tax relief depending on their marginal rate of tax as follows:

Restricting the value means that roughly tax relief is £11 per week for all taxpayers as follows using a weekly example:

• £55 @ 20% = £11
• £28 @ 40% = £11.20
• £25 @ 45% = £11.25

The expected marginal rate of tax for the tax year is calculated by the employer using the Basic Earnings Assessment.  Since 2011 there has always been the need to look at when the employee joined the scheme as the Assessment is only due for employees that entered on or after the 6^th of April 2011.  With the closure of ESC schemes on the 4^th of October 2018, the Assessment is only due for the employees that entered on or after the 6^th of April 2011 up to and including the 4^th of October 2018.

Employers are strongly advised to look at HMRC’s guidance on completing the Assessment at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/368483/employer-qa.pdf.  Unfortunately the document is a bit dated but the information in it remains correct.

The Assessment asks the employer to anticipate the pay, guaranteed bonuses overtime and commissions and benefits on the assumption the employee will be employed on the same terms and conditions for the whole of the following tax year.  The amount of the personal allowance (£12,500 for 19/20) is taken into account when calculating the expected marginal rate of tax as is the amount of the blind person’s allowance (£2,450 for 19/20).  Once the allowances is deducted from the expected pay and benefits, the employee’s pay will fall into one of the following categories and tax (and NICs) relief is restricted:

(The Global Payroll Association reminds employers that you do not have to consider whether the employee is a Scottish or Welsh taxpayer as all of the calculations are done on the bands that apply to the “rest of the UK”.)

Also, there is no reason to wait until the start of the year as long as the employee is expected to be employed on the 6^th of April 2019.  Once it is done, tax and NICs relief are restricted if necessary in the payroll or elsewhere and it stays valid for the entire tax year, even if the employee’s income and benefits situation changes mid-year.  It’s an assessment of information available at the start of the tax year.  If the employee’s situation changes after the Assessment has been completed and this affects their marginal rate of tax then this will only be reflected in the Assessment that is carried out the following year.

Some software providers produce their own tools to perform the calculation so it is worth checking with them.  Some providers will offer to do it for the employer but we recommend caution with this.  They are unlikely to be in a position to know the expected pay and benefits information for the following tax year and can only produce the Assessment based on historical information.

As we approach the end of one tax year and the start of another, the Global Payroll Association wants to point employers to the annual task of completing the Basic Earnings Assessment (the Assessment).  This will be for employees who are in a childcare voucher scheme or directly-contracted childcare scheme.  This is called employer-supported childcare (ESC).

For ESC arrangements there is an exempt amount of £55 per week (£243 per month / £2,915 per annum).  By exempt we are referring to the fact that this is the amount that can be provided to the employee without tax or National Insurance Contributions (NICs) implications.  But this tax relief is restricted for higher and additional rate taxpayers who joined an ESC scheme on or after the 6^th of April 2011.  The government at this time said that the tax relief should be the same for these taxpayers as was enjoyed by people paying at the basic rate.  So, employers are required to restrict the tax relief depending on their marginal rate of tax as follows:

Restricting the value means that roughly tax relief is £11 per week for all taxpayers as follows using a weekly example:

• £55 @ 20% = £11
• £28 @ 40% = £11.20
• £25 @ 45% = £11.25

The expected marginal rate of tax for the tax year is calculated by the employer using the Basic Earnings Assessment.  Since 2011 there has always been the need to look at when the employee joined the scheme as the Assessment is only due for employees that entered on or after the 6^th of April 2011.  With the closure of ESC schemes on the 4^th of October 2018, the Assessment is only due for the employees that entered on or after the 6^th of April 2011 up to and including the 4^th of October 2018.

Employers are strongly advised to look at HMRC’s guidance on completing the Assessment at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/368483/employer-qa.pdf.  Unfortunately the document is a bit dated but the information in it remains correct.

The Assessment asks the employer to anticipate the pay, guaranteed bonuses overtime and commissions and benefits on the assumption the employee will be employed on the same terms and conditions for the whole of the following tax year.  The amount of the personal allowance (£12,500 for 19/20) is taken into account when calculating the expected marginal rate of tax as is the amount of the blind person’s allowance (£2,450 for 19/20).  Once the allowances is deducted from the expected pay and benefits, the employee’s pay will fall into one of the following categories and tax (and NICs) relief is restricted:

(The Global Payroll Association reminds employers that you do not have to consider whether the employee is a Scottish or Welsh taxpayer as all of the calculations are done on the bands that apply to the “rest of the UK”.)

Also, there is no reason to wait until the start of the year as long as the employee is expected to be employed on the 6^th of April 2019.  Once it is done, tax and NICs relief are restricted if necessary in the payroll or elsewhere and it stays valid for the entire tax year, even if the employee’s income and benefits situation changes mid-year.  It’s an assessment of information available at the start of the tax year.  If the employee’s situation changes after the Assessment has been completed and this affects their marginal rate of tax then this will only be reflected in the Assessment that is carried out the following year.

Some software providers produce their own tools to perform the calculation so it is worth checking with them.  Some providers will offer to do it for the employer but we recommend caution with this.  They are unlikely to be in a position to know the expected pay and benefits information for the following tax year and can only produce the Assessment based on historical information.