The ICB Diploma in Payroll Management allows any size of payroll to be run for a client or employer, and it does not limit you to the number of clients you can take on.
Examiner’s Report - Payroll 2017/2018
This month’s examiner’s report covers the Level III Diploma in Payroll Management. This qualification is open to anyone, rather than only those who are qualified as a Certified Bookkeeper.
This report is based on the 2017/18 tax year papers which will run until September 2019. The papers for 2018/19 are due for release by the end of July 2018 and the 2016/17 papers will be withdrawn at the end of September 2018.
Candidates can attempt up to three papers for each year, and then have to wait for the next available tax year to be released. Please note that candidates must use their own up-to-date payroll software. ICB does not provide software for this qualification.
The pass mark for this paper is 85%, but you do have 24 hours in which to complete the work. The paper is divided into two main sections – an online section with short questions (worth 30% of the marks) and a computerised question which involves the use of a software package and asks you to run a business’ payroll for a period of 8 weeks including 2 monthly payroll runs (worth 70% of the final marks).
ICB would like to point out that this paper is hard to pass! That is intentional as ICB Bookkeepers are the best qualified and tested bookkeepers and tax/payroll agents around, working in the field of small and medium enterprises (SMEs). However, the paper is not meant to trick you in any way and all questions are fully checked and tested before being issued. Before I go into details of the various sections of the paper to explain how they should be answered (which does not mean giving the answers away) there are some general points to make:
- Always make sure that the paper you take is the one you intend to take – we normally offer examinations that test across two payroll years – the ‘current’ year and the ‘previous’ year. However, there is always a delay in bringing out the ‘new’ payroll year until about the end of June. This is because HMRC does not issue its calculators until 6 April each year and the commercial companies are not always ready to update their software until April. So, at the time of writing (June 2018) we currently offer payroll examinations for 2016/17 and 2017/18 with the 2018/19 papers due to be released sometime in July. The 2016/17 papers will then be removed around the end of September. If candidates are not being supported by one of our accredited training providers (ATPs), they must ensure they select the correct year for the software they are using when they book their examination otherwise it will mean an immediate failure as none of the calculations will be correct.
- This may seem obvious but, after years of preparing students to take examinations of all sorts, I can tell you that one of the main reasons for losing marks is that the candidate often does not read the question thoroughly. The warning here is always ‘Answer the question the examiner set, not the one you thought they set or the one you wanted them to set!’ Do NOT make assumptions – all the information you need to answer any question will be given to you. If it is not there you do not need it. Many candidates actually make the question far harder than it needs to be by searching around trying to see if they need anything else.
- Follow the instructions carefully – the computerised question asks the candidate to put their reports into a zip file and upload that – not to upload each report individually. This is because if you upload too many files some may go ‘missing’. Also ensure that you upload your files within the 24 hour time limit for taking this paper. We also check the time that the reports were produced and if this is outside the time frame since you pressed the Start button we will not accept them and you will fail.
Now to the examination itself. There are two main sections to the paper: an online section with short answers which are either multiple choice or which require calculations to be carried out and the resultant answer entered, and a practice section involving the use of a commercial software package with report uploaded at the end.
Online section (worth 30% of the marks)
Questions are randomly generated from banks of available questions at the time the Start button is pressed. There are sufficient questions so that if you need to take a resit paper (or even two resits) then you will not get the same question again. The online section of this qualification is aimed at testing your theory knowledge of the various aspects of payroll. This section of the paper is divided into a number of screens, each covering a different topic. The marks allocated to each individual screen can vary from as low as one mark to as high as ten marks. The number of marks will be identified at the top of each screen.
At the end of the paper you can go back and review your answers, making changes as appropriate.
Calculating gross pay
The calculation of gross pay can take one or more of several forms which can include (but are not limited to):
a) Calculation of pay using given data which could include hourly rates, piece work, commission or bonus calculations
b) Calculation of weekly or daily rates of pay (normally for monthly paid workers) and the balance of pay that is due either when unpaid leave is taken, or statutory payments are due and a balance of salary paid. The examination will state how to answer this, and previous questions have involved the subtraction of the number of day's pay from the total month’s salary
c) The calculation of additional holiday pay to be added to a final month
Generally, this section is well answered, and candidates achieve high marks. Marks are normally lost through either not reading the question properly or through careless calculation and the mis-read of how to round answers.
Identifying tax codes
Although it is generally HMRC who issue a tax code, all candidates should be aware of the ways that tax codes are generated depending on the personal allowance plus other factors. Candidates should also be aware of the codes to be issued when a New Starter Form (P46) is used, or when a P45 is handed in. Candidates should be mindful of the situation when a worker has more than one job and the effect this can have on a tax code. They should also be aware of tax codes such as K Codes, D0 and D1 and the percentage of tax that will be deducted. Finally, awareness should be shown of what happens for a Scottish Resident.
Again, this section is normally well answered.
Candidates must be aware of the minimum wage levels in force for the year for which they are taking their examination. For example, if you are sitting for this qualification in June 2018, but you are taking the paper for the tax year 2017/18 then it is the rates in force as at April 2017 that will be marked correct. Candidates should be aware of the situation for apprentices, and that they may be paid a lower rate for the first year of their apprenticeship, after which it reverts to the minimum hourly rate for their age group. Generally, where marks have been lost in this section it is due to not identifying the correct apprenticeship rate or, when a date of birth is given, the candidate selects the wrong hourly rate. Again, this seems to occur where candidates select the rate in force at the date they are taking the examination and not the date in force for the relevant tax year.
This section does seem to cause more problems than others for candidates. Directors’ NICs can be calculated in one of two ways – the Standard Annual Earnings method (sometimes called the Cumulative Method, to which the ICB examination has referred) where NICs are calculated on a cumulative basis throughout the year, and the Alternative Method where the director takes a regular salary and NICs are calculated as per a ‘normal’ employee and corrected for annual earnings at the year end. This section tests the first method. Although the examination paper is geared towards a particular year, HMRC remove all calculators from previous years on 6 April and it is not always possible to calculate the amounts retrospectively. Once 6 April has passed, ICB will amend the questions accordingly to allow the current calculator to be used and will make allowances in the marking of this section. For the 2018/19 paper, ICB will use the term Standard Annual Earnings Method in its questions.
Questions can ask at which month a director would commence to pay NICs and also how much would be deducted in a particular month. Candidates who lose marks in this section tend to be those who use the Alternative Method to calculate their answers.
This question has caused a few candidates to lose marks where a given salary or wage sits at the boundary of one of the salary bands. On checking the answers given it seems that again, candidates may have taken the student loan repayment due for the date they are taking the examination and not for the relevant year. The question is marked using the HMRC student loan tables that have been issued by HMRC and not the calculation method, or any result taken from a software package.
Statutory Sick Pay
In some cases, questions taken from this bank have been answered very poorly, particularly when linked periods have been involved. Candidates should view the HMRC booklet to check the linked dates and to ensure they keep a careful note of which periods are linked and which are not. Remember also that any period of sickness must fulfil a waiting period (if applicable) and also that only qualifying days attract SSP.
Statutory Maternity Pay
In this section, questions concerning relevant dates concerning maternity leave and pay are answered well. Questions around recognising when SMP is due, and conversely, not due are answered less well with candidates not recognising the reasons for, or what happens if, or when, SMP is not due. In addition, candidates do not always recognise the amounts of SMP that can be recovered from HMRC which differs depending on whether the employer can reclaim the Small Employers Relief which also allows for an additional percentage to be reclaimed to cover the Employer’s NIC.
Benefits in Kind
There are two ways that this topic is tested – working out a tax code that might be issued by HMRC and calculating the amount of tax due on benefits in kind. The only problem that occurs is when the tax code is due to be prefixed by the letter K – i.e. there is a ‘negative’ personal allowance once the benefit has been taken into consideration. A few candidates have forgotten to ‘drop’ one from the final K Code – e.g. a personal allowance of -1250 will leave a K Code of K124 rather than K125 but the highest number of marks is lost from candidates who forget to drop the final digit and present the final answer as K1250.
The tax calculations for benefits in kind is generally well answered with marks normally only being lost for either missing that the tax has to be calculated at 40% (due to the level of income) or forgetting that if a benefit (such as a medical check-up) is offered to all employees, then it does not constitute a benefit in kind and no tax is due.
Generally, the short questions on automatic enrolment are answered well and score high marks. Where this topic seems to cause problems is to do with opting-out, or postponement and the number of times this can take place. These questions test the theory of automatic enrolment as the calculation of the pension itself is tested in the computerised section of this paper.
Construction Industry Scheme
This topic is covered in two parts – the theory of the CIS and calculations of the amount of tax to be deducted in a given situation. The theory questions are generally answered very well with candidates showing a very good understanding of how the scheme works. The only problem with the questions involving the calculation of the amount of tax to be deducted, is that candidates fail to understand that tax has to be deducted on any subsistence or travel shown on the invoice. A worrying percentage of candidates do not include this in their calculations and show the tax to be deducted accordingly at too low an amount.
This section of the paper needs to be completed using a commercial payroll package. Please note that the HMRC Basic Tools software is not considered to be suitable to use for this paper as it does not allow the complete print out of required reports. You are asked to identify the software you are using. This is because different software packages treat areas of payroll differently and we need to be able to identify which differences in answers are caused by the software, or which may be errors on the candidate’s part.
This section of the paper is worth 70% of the marks and there are a few basic areas which, if set up incorrectly, can cause 8-9 marks to be lost and has the potential, if just 6-7 marks were lost in the online section, to cause a fail of the entire paper.
Candidates must set up a payroll system and enter details of five employees, normally two of which are directors and three of which are weekly paid. Marks will be taken off if there are data entry errors in the personal details. A mark will also be subtracted if the candidate fails to spot that an employee is resident in Scotland and does not enter the correct tax code.
There is a pension scheme to be set up and this should be carefully checked to ensure that the deductions are correctly calculated. The pension may be based on the full amount of gross earnings, or on qualifying earnings, which is the pay earned between the lower and upper earnings limits for NICs. The system should also identify if the pension is reclaiming tax at source or based on net pay. If this is not set correctly then all pension calculations will be wrong, and a mark deducted for each payroll run made.
The entering of individual salaries or wages often causes problems. As with the online sections, candidates should recognise the rates that might be applicable given age and/or the status of an Apprentice. They should also be able to calculate the pay of a director who chooses to take a salary at (say) the level at which they start to pay NICs or tax, or even tax at the higher level. Due to rounding calculations an amount of leeway is allowed in the calculation when marking, but not much.
It should be noted that different software packages use different methods for calculating the amount of NICs due. There can be a difference of as much as 10p on a monthly pay run. The marker allows for this and will award correct marks provided the amounts shown are within allowed tolerances.
When running the actual payroll, each payroll run will have at least one entry that has to be amended - for example - SSP, SMP or even paying holiday in advance. Marks will be lost if the balance of any salary or wage over and above statutory payments is not adjusted accordingly. Candidates should also take very careful consideration of the date of the change to ensure it happens in the correct pay week. Care should be taken with notification of changes of tax codes, and the date to be implemented for any start/stop notices for student loan repayments.
Finally, ensure that you produce all relevant reports. You may have run a perfectly correct payroll but if the marker cannot see the required information you will not be awarded the relevant marks for that task. It is important that you save all reports into a file and zip this file for uploading to our system. This ensures that the marker only has to download and unzip a single file for marking which not only makes life a lot easier, but also means that files are less likely to get lost on upload enroute from you to the ICB system.
Payroll is a very useful tool for the bookkeeper. However, payroll changes annually and it is vital to keep up to date with your knowledge and skills. Errors in payroll can cause serious issues if there are any errors leading to incorrect net pay being calculated. The ICB Level III Diploma in Payroll Management allows any size of payroll to be run for a client or employer, and it does not limit you to the number of clients you can take on.
So, if you are considering taking this qualification, or if you have (unfortunately) already taken and been unsuccessful, then the above notes should assist you in carefully preparing to take the examinations.