Dear insolvency professionals
We advised you in the November edition of Dear IP that the Insolvency Service is introducing a new Case Management System (CMS) in the first quarter of 2019, currently expected to be at the end of February.
The CMS will bring about changes to the way the Redundancy Payments Service receives information from IPs and their agents about employers and redundancy claims in insolvency cases (the RP14/A forms), and will also modernise and make more efficient the process of calculating redundancy payment entitlements.
This message provides additional detail on these changes and how they will impact the way IPs interact with the Insolvency Service on insolvency and redundancy issues.
RP14/A submissions
The submission process will remain fundamentally unchanged when CMS goes live, but the channel for submission will switch from the portal that IPs currently use to the online Director Conduct Return Service (DCRS). IPs are already be familiar with DCRS as the conduit for submitting information to the Insolvency Service’s Investigation and Enforcement Services Directorate (IES). Changing the RP14/A submission process will offer a more modern, secure and adaptable platform than the existing portal, which was introduced around 7 years ago as a temporary platform. The implementation of our new CMS provides the opportunity to move to a more modern service and connecting to the exisiting DCRS portal offers an immediate and convenient solution.
How will DCRS be adapted to take in RP14/A information?
A new role of “Agent” will be added to the existing group of DCRS users to reflect the widespread use by IPs of third party service providers to submit RP14/A forms. The generation of temporary passwords, and the process for first log on and registration, will then be triggered in the same way that DCRS. Once an “Agent” is registered on DCRS, they will then then be able to submit RP14/A forms via the portal.
Those IPs and IP firms who do not engage third party service providers to submit RP14/A forms will be able to submit this information based on their existing IP / Service Manager / Staff settings within DCRS. The only changefor these users will be that when they log on they will be presented with both options i.e. that of submitting a director conduct report and that of submitting an RP14/A form. The RP14/A upload process itself will not look or feel any different. IPs should also note however that when they and their staff enter the updated service for the first time, there will be an automated password renewal procedure to go through as part of the enhanced security configuration that comes as part and parcel of this change.
When a third party Agent logs on to DCRS, they will be presented with the RP14/A upload option only – the system will ensure that their user journey is kept completely separate and distinct form the IP user journey, and Agents will have no visibility whatsoever on any director conduct material.
Next steps
We will continue to issue updates and ensure that we provide, in good time before the CMS goes live date, the necessary details around the initial creation of Agents on DCRS; password generation; first registration, and the administrative support that will be in place for the updated Service. The published DCRS user guidance will be updated accordingly.
Redundancy Payments calculations
The CMS will integrate with an internally developed calculation engine. The speed, accuracy and consistency of the calculations performed by the Redundancy Payments Service will be improved as a result of this technical development, resulting in a better and more efficient service to one of the Insolvency Service’s most vulnerable stakeholder groups.
Another direct result of the implementation of CMS and the calculation engine will be that it will be far easier and quicker to apply changes to the basis of the calculations in response to legislative changes and / or developments in Employment Tribunal case law.
The Insolvency Service is committed to providing IPs with full details of the basis and composition of all the redundancy calculations that will be performed via the CMS / calculation engine integration, so that they have the opportunity of aligning their own systems with that of RPS. The options for this are currently being explored. At the very least, IPs can expect to receive detailed technical specifications for each of the calculations that have been built into the system before CMS goes live.
In the meantime, and while that more technical detail being worked up, there is useful background and context that can be passed on to IPs now regarding the bases of the various redundancy calculations that will be performed within RPS going forward:
Arrears of Pay Calculation (AP)
Changes to the Arrears of Pay (AP) calculation mean there will now be an automatic selection of the most financially advantageous weeks to the claimant. The calculation therefore will work on the same principle as the Protective Award calculation (see below), where the figure is based on the ‘best weeks’ – up to a maximum of eight – from the financial viewpoint of the claimant.
It is envisaged that this will lead to a reduction in the amount of contact, correspondence and rework between a claimant and the RPS and a claimant and the IP.
Protective Award Calculation (PA)
As there will now be an automatic selection of the most financially advantageous weeks to the claimant, as opposed to basing the calculation chronologically starting with the commencement date of the protective award period.
Historically, PA cases have tended to generate sometimes protracted correspondence and rework involving RPS, IPs and claimants where the claimant has taken the trouble to identify the best weeks from their standpoint. Automatic selection of the best weeks is expected to reduce this administrative burden going forward as well as being a better outcome for the claimant.
Any mitigation by way of jobseeker allowance / income support that needs to be deducted from a PA will now be applied to the whole of the protective award period, not just the first eight weeks.
The calculation will also deduct tax, dependent on whether the claimant’s date of dismissal and the date of the Employment Tribunal Judgment awarding the PA are in the same tax year. This approach will implement the HMRC tax guidance concerning PAs.
PA payments will continue to be subject to deductions of National Insurance Contributions (NICS).
Holiday Pay Taken Not Paid (HPTNP) calculation
Where applicable, HPTNP will calculated and paid net of tax and NI.
Holiday Pay Accrued (HPA) calculation
The amount of ‘Carry Over’ holiday allowed when calculating the claimant’s entitlement will be limited to 1.6 x number of days per week the claimant works (up to a maximum of 8 days carry over), as follows:
1 day worked = 1.6 days maximum carry over
2 days = 3.2 days maximum carry over
3 days = 4.8 days maximum carry over
4 days = 6.4 days maximum carry over
5, 6 and 7 days worked = 8.0 days maximum carry over
Notice Worked Not Paid (NWNP) calculation
This is a new calculation which has not prevously featured as a separate component in the RPS case handling system.
The calculation is in respect of someone who was given notice of dismissal by their employer, then worked their notice period but subsequently was not paid for that period.
NWNP has historically been absorbed into the Arrears of Pay calculation, but it actually arises from a different statutory entitlement – S184(1)(b) ERA – and has different statutory limits (section 86 ERA)
Similar to AP and HPT, NWNP will be calculated and paid net of Tax and NI.
Any NWNP in respect of a period up to four months prior to the date of insolvency will be preferential and subject to apportionment (again similar to AP, PA and HPT). This is because it is classed as remuneration for the purposes of Schedule 6 (Category 5) of the Insolvency Act 1986: https://www.legislation.gov.uk/ukpga/1986/45/schedule/6
Compensatory Notice Pay (CNP) calculation
Due to a change in tax law introduced on 6th April 2018, there is a need to change the way CNP is calculated. Details of the change can be found in HMRC’s guidance which was updated on 16th April 2018.
CNP claims with a dismissal date pre 06/04/2018 will continue to be calculated as they were previously (i.e. subject to deductions of notional tax and mitigated by new earnings and any benefits in the relevant period.)
CNP claims with a dismissal date of 06/04/2018 onwards will now be subject to deductions of tax and NICS, as well as the mitigation relating to any new earnings and benefits.
An additional change to the post 06/04/2018 CNP calculation is the point at which the statutory limit of a week’s pay for S186 ERA is applied:
· in a pre 06/04/2018 CNP claim, the week’s pay limit is applied afterdeducting notional tax
· in a post 06/04/2018 CNP claim, the weeks pay limit is applied before deducting tax and NICs
An example illustration of the difference between a pre and post 06/04/2018 CNP can be seen at Annex A below.
The RPS will not be recalculating any previously assessed post 06/04/2018 claims. Claimants in this category have been made aware that they may have had too little NICS deducted from their payment and that HMRC may decide to approach them directly at some future date to reconcile matters.
Basic Award (BA) calculation
Due to a change in tax law from 6th April 2018, there is a need to change the way Basic Awards (BA) are calculated. Details of the change can be found in the previously mentioned HMRC guidance updated on 16thApril 2018:
· BA claims pre 06/04/2018 are not subject to tax and NIC deductions
· BA claims post 06/04/2018 will be subject to tax and NIC deductions
Because payments of BAs are made in respect of a single, continuous period of time, and because of the relatively high value that can be involved, consideration will need to be given to both the Lower Earning Limit (LEL) and Upper Earning Limit (UEL) when calculating NICs deductions in post 06/04/2018 cases:https://www.gov.uk/national-insurance
ANNEX A – EXAMPLE CNP CALCULATION
Pre 06/04/2018 CNP Calculation:
Number of week’s entitlement x weekly rate of pay
Minus Mitigation new earning and/or benefits
Minus Notional Tax (20%)
= X
Compare to statutory limit (number of weeks entitlement x statutory weekly limit) = Y
Pay lower of X or Y = NET Payment
Example:
10 weeks x £600 weekly pay = £6000
Minus Mitigation of new earning and/or benefits £1000
Minus Notional Tax 20%
= £4000 (X)
Compare to statutory limit (10 weeks x £508 = £5080) = Y
Pay lower of X or Y = £4000 NET Payment
Post April 18 Calculation:
Number of week’s entitlement x weekly rate of pay
Minus Mitigation of new earnings and/or benefits
= X
Compare to statutory limit (no of weeks entitlement x stat weekly limit) = Y
Select lowest of X or Y
Minus Tax (20%) and NI (12%) = NET payment
Example:
10 weeks x £600 weekly pay = £6000
Minus Mitigation £1000
= £5000 (X)
Compare to Statutory limit (10 weeks x £508 = £5080) = Y
Select lowest of X or Y (=£5000)
Minus Tax 20% and NI 12%
= £3400 NET Payment