Is My Business Exempt From Auto Enrolment?

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Introduction

Many smaller companies such as sole traders, single-director companies, and husband-and-wife limited companies think that they do not have any auto enrolment (AE) responsibilities. In many cases they are right, but not always.

There is a fair amount of information regarding this subject on The Pensions Regulator’s (TPR) web site and we have included key links for you. However, as with everything to do with AE, it’s complicated and in this blog we have just tried to simplify the situation a little.

Auto Enrolment and PAYE

TPR gather their information about AE from HMRC, specifically where companies have a PAYE reference. Having a PAYE reference is the main ‘driver’ for AE.

If you have a PAYE reference, it is likely TPR will assume you have to do AE and you will therefore probably get an AE letter from TPR. The exception is if they already know you are exempt, for example if you are a single director company, but don’t assume that TPR will have the correct information. It is not uncommon to receive a letter regarding AE even though you are exempt; that is why they have the “Tell us you’re not an employer” page, which we will come to later.

(Remember, no-one, at any point, said this was simple!)

Who is exempt from Auto Enrolment?

You do not have AE responsibilities if you have:

  • No workers
  • No PAYE scheme
  • No contracts of employment

TPR states the following on their Web site:

“Automatic enrolment duties don’t apply when a company or individual are not considered an employer. You won’t have any duties if you meet one of the following criteria:

  • you’re a sole director company, with no other staff
  • your company has a number of directors, none of whom has an employment contract
  • your company has a number of directors, only one of whom has an employment contract
  • your company has ceased trading
  • your company has gone into liquidation
  • your company has been dissolved
  • you no longer employ people in your home (cleaners, nannies, personal care assistants, etc.)”

Link: “What if I don’t have any staff?” on TPR site

Does The Pensions Regulator think you have Auto Enrolment duties?

Even if you meet any of the above criteria, it is still possible that The Pension Regulator thinks you have Auto Enrolment duties. For example, if you previously did not fall into one of these categories because you used to employ people, or you have a PAYE scheme and TPR doesn’t know that you are exempt.

If this is the case you may still get a letter from TPR and will need to tell them that you are exempt because you now fall into one of the above categories.

How to Tell The Pensions Regulator you are not an employer and are exempt from Auto Enrolment

If TPR thinks you have AE duties but you don’t, you will need to visit The Pension Regulator’s Web site and complete the online “Not an Employer Web Form”. This can be found here:

https://automation.thepensionsregulator.gov.uk/notanemployer

This page has a form for you to complete that looks like this:

Not an employerTo complete the form, you’ll need your letter code as a minimum and your PAYE reference or HMRC Accounts Office Reference. You can get you letter code from TPR, but you will need your PAYE Reference. You can get your PAYE reference from your accountant, whoever runs your payroll, or HMRC. All a bit confusing.

Another option is to just wait and if you don’t hear from TPR, job done. But to be honest, for the sake of a phone call it is worth checking so you can forget about it. (Lucky you!) If you have any doubts at all, take the time to check with TPR. They’re really helpful, easy to get hold of* and it will take about five minutes. However, without your letter reference, PAYE scheme or HMRC Accounts Office Reference, they can’t help you at all.

* At the moment anyway; the lines are likely to get busier as more and more small employers approach their staging dates

If your circumstances change and you are no longer exempt

As soon as something changes to mean you are no longer exempt (the most obvious example being that you take on an employee), you have to let TPR know. This is your responsibility.

If you take on an employee, you will need a PAYE reference in order to pay them and your accountant will help you with this, or you can call your local tax office. Once you get your PAYE reference, you can call TPR and let them know that you are no longer exempt. It is quite likely that TPR will be informed by HMRC that you now have a PAYE reference, but it is best to call them.

TPR take a dim view of people avoiding their AE responsibilities and are likely to take enforcement action. As they say on their Web site:

“If we discover that an employer has provided false or misleading information in order to evade automatic enrolment duties, we will take this into account when deciding whether to take action against the employer in the future.”

Guidelines for whether you will have auto enrolment responsibilities

These are the general rules for whether you are exempt from AE or whether you will have to deal with it! It is always possible for there to be some ambiguity, so if in doubt, give TPR a call.

Automatic Enrolment and Limited Companies

Companies with only one director

AE is pretty straightforward for single-director companies. If you are the sole director of a limited company and there are no other people working for you, you do not have any AE duties or responsibilities. If you are a single director and you do have people working for you, you have to do AE.

Companies with more than one director

If you have two or more directors and there are no other people working for you, the situation can be a little more complicated and largely depends on contracts of employment.

If only one of the directors has an employment contract, the company is exempt from AE.

If you are a couple working together, are both directors and have no contracts of employment, the company is exempt from AE.

If more than one director or all directors have contracts of employment, the company will have AE responsibilities.

If you employ ANYONE who is NOT a director, irrespective of whether the directors have contracts of employment, the company will have AE responsibilities.

Automatic Enrolment and Partnerships

Generally, the rules for partnerships are the same as those for limited companies with more than one director (by definition, there must be at least two people in a partnership).

If none of the partners have contracts of employment, the partnership is exempt.

If only one of the partners has a contract of employment, the partnership is exempt.

If more than one partner has a contract of employment, the partnership is not exempt and has AE responsibilities.

If you employ ANYONE who is NOT a partner, irrespective of whether the partners have contracts of employment, the partnership will have AE responsibilities.

Automatic Enrolment and Sole Traders

Generally, the rules for sole traders are the same as those for limited companies with only one director.

If you are a sole trader and do not employ any staff, you are exempt from AE.

If you are a sole trader and do employ people you will have AE responsibilities.

Self-employed, Subcontractors or Employees?

Many sole traders, partnerships and small companies use sub-contractors or other self-employed people, so it is useful to be clear on the difference between employees and people who are self-employed doing work for you.

Under Auto Enrolment, employees are referred to as ‘workers’. TPR defines a ‘worker’ as follows:

“A worker is defined as any individual who:

  • works under a contract of employment (an employee), or
  • has a contract to perform work or services personally and is not undertaking the work as part of their own business.”

When considering if anyone who does work for you would be classed as a ‘worker’ under AE, remember:

  • A contract does not have to be in writing
  • It can be a verbal contract between the employer and the worker
  • The terms of employment can be implied, rather than explicitly stated
  • Multiple contracts with one individual will require additional assessment to establish if they are separate contracts or if they should be treated as a single employment relationship.

So, generally speaking, if you employ anyone who has their own business (whether a limited company, partnership or sole trader) and who works for you periodically on a sub-contract basis, you do not have to assess them under AE. Of course, the above guidance about whether you are exempt from AE still applies.

As you would expect with AE however, there are scenarios where this isn’t so clear cut. If you employ agency workers or people under a ‘personal contract of services’, you may still have responsibilities under AE. We could write a whole blog on this subject (and probably will!) but for now if you think this applies to you we would suggest you contact TPR for clarification on your AE responsibilities.

You can find information about whether someone is self-employed or a contractor here:

https://www.gov.uk/employment-status/selfemployed-contractor

And finally…

If you are paying people defined as ‘workers’ under AE but not through a PAYE scheme, you will still have duties under AE. We asked TPR what the situation was regarding tax etc. if you don’t have a PAYE scheme and they said that this is a conversation for a company to have with HMRC and not them. Nicely side-stepped TPR!

Theoretically, if you have two directors in a company, both with contacts of employment, but no PAYE scheme, for example if everyone is paid using directors loans and dividends; AE would still apply even though the directors don’t ‘earn’ anything and may have their own pension arrangements anyway. This creates the scenario where you might not have a payroll and therefore no pay on which contributions can be based, but have to carry out Auto Enrolment which workers being assessed as Entitled Workers. Again, just talk to TPR.

(Explanation of Employment Status)

Although not directly related to exemption, it is worth being aware of employment status in relation to AE, particularly where directors are concerned, and many companies who are probably exempt will consist of one or more directors only.

This link is given on The Pension Regulator site and is the government’s guide to employment status:
HMRC Guide to Employment Status

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About Author

Simon Harvey

Simon has been Managing Director of Benchmark Software for nearly 20 years, after taking over from his father who founded the Company back in 1978. Benchmark has been writing payroll software for over 25 years and as auto enrolment is centred around employee earnings and deductions, payroll is the perfect place to manage the auto enrolment process. Benchmark’s latest payroll package lets business owners run their entire auto enrolment process quickly and simply from one program. Simon can be contacted by emailing simon@benchmark-software.co.uk or visit www.benchmark-software.co.uk

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