Alex Rowson, Technical Director of Qtac Software and Chair of the BASDA Payroll, Pensions & HR Interest Group, comments on this article posted by CIPP’s Karen Thomson on Accountinweb

auto enrolment logo“Well it has taken some time but are we finally nearing the end of a long and painful journey finding out how micro entities and close companies are expected to deal with automatic enrolment,” said Karen.

Recently the TPR’s office made an announcement that a business is exempt from AE where it has no “workers” or “employees” in the normal sense of the word.

But is this enough and will it actually work for micro entities?


Examine the employer guidance on the TPR website, and we can see numerous references to “staff”. This is a bit misleading as the legislation uses the term “workers” and most commentators refer to “employees”.

The terms actually have different meanings as anyone running a PAYE scheme will know. However, in terms of AE compliance we can assume they all mean the same.

Representative bodies have been pressing TPR for clarification regarding the position of a business which has a PAYE scheme, and hence will have been given a “staging date” for the purposes of AE, but whose only participants in the payroll are the business owners themselves.

They have payroll entries to ensure they can draw funds from the business on a regular basis and protect their state retirement pension position but have no other relationship with the business except as owners and probably directors.

Where there is up to five of such owners, referred to as “members” the business is called a “close company”.

The question is whether these “members” are employees, workers or staff for the purposes of AE. At the CIPP we have always believed they are not and we know that this view is supported by all the professional bodies. We have not been able to convince TPR that special rules are needed to deal with such unique businesses, until now that is.

AE for close companies

Recently TPR confirmed that as long as the business has no one on its payroll except for its owners it has no obligations under AE. Since none of the members are “staff” the AE process does not have to apply to them.

It will be up to the owners to determine if they wish to enrol themselves in an eligible pension scheme and it is for this reason the process which has been decided is a little less than satisfactory.

TPR writes to each and every business about 12 months prior to the staging date providing key information and guidance about the need to prepare for the enrolment of its staff. It is unlikely that close companies will receive anything different to other businesses and hence it will be down to the business owners to understand that they have no requirement to enrol anyone.

The AE process

We know the process for complying with AE is fairly straightforward. Firstly, create an eligible scheme ready for the staging date. If the business decides to postpone the actual enrolment it is critical that the scheme is in place and ready by the staging date.

This is because even during the postponement period workers have a right to ask to be admitted, in advance of the mass enrolment.

As with the old stakeholder arrangements the business needs to ensure it creates a suitable scheme and does not just select anything going. Workers will want to be assured that they are receiving the best return for the contributions being made and unless the business does the job properly it may find itself being criticised, and possibly held liable, for shortfalls in pension provision due to poor choice of provider.

Choosing one of the trust schemes, like NEST, will minimise such risks, but it emphasises the need for care even at this stage.

Second, assess the workers and determine which are eligible, non-eligible and entitled. Since it is for a very small workforce this is unlikely to be a difficult task but it still needs to be treated with respect. Once done each person has to be informed clearly and unambiguously of their status and what that means for them. They also need to be able to challenge that decision.

The key question is just how much of that process will the micro entity and close company have to go through before obtaining that all important exemption from the whole process?

TPR has advised that when a business receives its 12 month advice notice it ought to write back immediately to inform TPR that it has no “workers” and therefore is exempt from the AE process in full. There is an option to lodge this online, however the business has to quote the reference number which will appear on the notice, whether the exemption response is made in writing or online.

No doubt the business will then receive a further notice containing dire warnings of the consequences of getting this wrong and will probably have additional work to do to confirm their exemption.


This does not sound good enough and one member of the CIPP who provides payroll services to micro entities and close companies tells us that he already knows all but one of his clients is exempt and ought to have nothing to do, even though the first staging date on record for his client base is late 2016.

What he would like is for HMRC and TPR to liaise and remove close companies from the list of staging dates. HMRC, he says, already knows which PAYE schemes have been set up for business owners so why is it not being sorted out automatically. Why must these business owners, many of whom are already suffering increasing compliance burdens, have anything to do when the information is already there?

Failing that, our member suggests that a simple tick box with the PAYE scheme number on the TPR website is actually all that is needed. Why a separate TPR reference number and why can’t they do it now?

It is clear that while the micro entity has seen an enormous leap forward there is a way to go before the agent community is going to feel the arrangements work correctly. The CIPP and the professional bodies will be continuing to press for developments as they are needed.

AccountingWEB has launched the No-one gets left behind campaign to alert as many accountants as possible to the obligations implied by auto enrolment. Read our simple eight-point statement which sets out the auto enrolment facts you need to know.

Alex Rowson comments:

‘We continue to press the Pensions Regulator for clarification on the process for ‘close’ PAYE schemes, and hopefully a ‘bulk’ solution for payroll service companies that deal with thousands of these schemes.’