Millions of employers in the UK have been introducing pension schemes to eligible employees since the previous Government introduced its automatic enrolment legislation in 2012. And with the Pensions Regulator (TPR) predicting at least another 147,000 small businesses having to do the same in the three months to March 2017, now is the time for them to act and avoid stiff penalties if they don’t meet their deadline (staging date).

Since June 2015, smaller businesses with less than 50 employees have begun to reach their staging dates and been required to enrol their relevant staff on a pension scheme.

Although most small and micro businesses are successfully meeting their duties, the TPR’s quarterly bulletin revealed that the number of penalties being issued is rising. This is occurring at the time when the volume of employers is rapidly increasing, as the size of employers needing to have a pension in place is getting smaller.

This may be because unlike larger businesses, smaller firms often do not have the financial resources or staff dedicated to look after their payroll and automatic enrolment commitments.

Not surprisingly, smaller businesses are at greater risk of receiving penalties and fines unless careful planning and budgeting is undertaken with the help of specialist small business advisers such as TaxAssist Accountants.

In its most recent Compliance and Enforcement Bulletin, the TPR reported it issued 3,057 compliance notices, 806 fixed penalty notices and 96 escalating penalty notices from 1 January to 31 March 2016.

The different penalty notices are as follows:

Statutory notices

These include compliance notices, third party compliance notices, and unpaid contributions notices. Other statutory notices include improvement notices, third party warning notices, and third party notices to individuals or companies. These are written notifications requesting action be taken to avoid the next level of penalty, serving as warnings before financial penalties kick in.

Fixed Penalty notice (FPN)

Failing to comply with a statutory notice leads to an FPN, which can also be issued immediately if there is sufficient evidence of
a breach of some duties. The FPN is £400.

Escalating Penalty notice (EPN)

An EPN is issued when an FPN has not been acted upon and states the future date from which an additional daily fine starts accruing. The daily rate is determined by the number of people in a company’s PAYE scheme, with TPR using the most recent data it possesses when it issues an EPN.

Number of        Daily rate

1 – 4                       £50

5 – 49                    £500

50-249                 £2,500

250-499              £5,000

500 or more        £10,000

Third party non-compliance

Third parties, such as a financial adviser, may also be issued
with statutory notices if they do not provide certain information requested by TPR. If they continue not to comply, they
may face an EPN set at £200
per day.

Other penalties

Just as incorrectly processing or neglecting to process income tax and National Insurance (NI) contributions leads to an employer being penalised, failing to apply Automatic Enrolment and general pension processes correctly will also be targeted.

Some other areas in which non-compliance may trigger penalties are:

 Failure to make employer contributions to the pension company – fine of up to £50,000

 Failure to pay over worker’s contributions to the pension company – fine of up to £50,000

  Prohibitive recruitment conduct – minimum fine of £1,000 increasing to £5,000.

Legal proceedings

Repeated failure to comply with the legislation will most likely result in civil and/or criminal proceedings, which will undoubtedly cost a business much more than just money.

Don’t wait until it’s too late

You need to select an appropriate pension scheme in advance of your staging date. Whilst the ultimate decision is the employer’s, there is plenty of assistance out there. An independent financial adviser will be able to lay out a variety of options, and many accountants will have a preferred supplier they can point you towards. An accountant will also be able to help you with the administration of the pension payments once the scheme is up and running. Don’t delay, take action today.

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