Pension Auto Enrolment and the Micro Business

If you are a company that operates a PAYE scheme you will by now probably have received your 12-month ‘notice’ letter from The Pensions Regulator (TPR) confirming your staging date and providing key information and advice on preparing to enrol your staff.

These letters go out to every company that runs a PAYE scheme, regardless of its size or set up. This goes for micro businesses as well as companies that have no actual ‘workers’ or ‘employees’, say for example where the only people on the payroll are the business owners themselves. The payroll entries are in place to make sure they can draw funds regularly and protect their state retirement pension, but this is where the extent of the payroll ends.

Are you a ‘Close Company’?

Where there are up to five owners of this type the business is referred to as a ‘close company’. Representative bodies have been asking TPR for clarification on the position of close companies. There was a recent announcement that any business with no workers or employees in the normal sense is except from auto enrolment, but what these businesses have to do in advance of their given staging date is still not clear enough.

Letters are sent to all businesses with no differentiation for those who are exempt, so there could be a great deal of confusion for anyone who does not realise they don’t fall under the regulations.

What to do when you receive your advice notice

TPR says that when a business receives its 12 month advice notice it should write back stating it has no ‘workers’ and is therefore fully exempt from the auto enrolment process. Apparently there is an opportunity to do this online, but we’ve had a look and unfortunately it does not appear to be a straightforward system.

If you are in the dark about what you should be doing concerning auto enrolment, and are worried about your position as a ‘close company’ – a business with only you or up to five other directors or owners on the payroll – then seek the advice of your bookkeepers who will be able to tell you what you need to do and were you stand with the regulations.

Pension Auto-Enrolment Reminder

Pension auto-enrolment started a year ago and over 1,600,000 have been enrolled, with about one in ten opted out. If you have eligible employees, by now you should be well into your planning for this in your business.  

Who Will Qualify? 

To be eligible, employees should be at least 22 years of age and under the State Pension age. They should also be earning more than £9,440 a year from your employment working in the UK. This figure is the current level of the income tax personal allowance and may be subject to change. Other staff may be eligible to opt-in or to join. All businesses which, according to HMRC, had eligible employees at April 2012 have been allocated staging dates by which they must comply. These dates depend on the size of their payroll, but all employees should have been auto-enrolled by 2019. If you don’t know your staging you can find it by entering your PAYE number on the Pensions Regulator website. 

Within four months of your staging date, you must have enrolled your eligible jobholders and registered your scheme online at autoenrol.tpr.gov.uk. The Pensions Regulator website gives a detailed list of all the information required at the time. You must also inform other staff of their options to opt-in or join.  

Even if you currently have no eligible employees to enrol, if you have been given a staging date, you must register. That means you must have a qualifying pension scheme in place. The National Employment Savings Trust has a public service obligation which means it must accept all applications from employers, but many other pension providers will also qualify. To save yourself a lot of time and aggravation, you could ask your outsourced bookkeepers for some help with all this.  

Budgeting for the Extra Expenses 

Once you have completed your enrolments you have to pay at least the minimum contributions, which will start at 1% of the employee’s wage and increase over time to 3%. Depending on the number of employees, this could add up to a significant extra financial burden, so it is important to budget for it, and for all the other associated administrative expenses. Of course the employees’ contributions will have to be included as deductions on your payroll. It will be really important to have up to date software for payroll administration, and to have the right systems and procedures in place for these new regulations. Again you may need to look to your outsourced bookkeepers for assistance. 

Make sure you don’t fall foul of the Pensions Regulator which has already opened investigations into possible non-compliance in over 80 cases, has been issuing warning notices and its first non-compliance notification over a failure to register. The penalties imposed can be very costly to those businesses concerned.