In April 2004, the Department for Constitutional Affairs (DCA) introduced a new type of Attachment of Earnings Order (AEO) under a year-long pilot scheme that is exploring various ways of improving the collection of fines by magistrates' courts. The legislation for these is set out in Schedule 5 of the Courts Act 2003, in The Collection of Fines (Pilot Schemes) Order 2004 and in The Fines Collection Regulations 2004.

Details of these "Schedule 5 AEOs", as they were understood at the time, were provided in the newsletter of 12 March 2004 and the answers to some follow-up questions were given in the newsletter of 4 April 2004. Deductions under these orders are calculated using the same percentage tables as are used for Council Tax Attachment of Earnings Orders (CTAEOs).

We recently wrote to the DCA to see if some of the earlier issues had been resolved and also to ask about the future of court orders in the UK. There are currently 12 different types of court order, each with its own set of rules, and the burden on employers is considerable. In the following notes we explain the comments of the DCA to our questions and some of the serious issues that they raise.

Written guidance - Court order in general
We pointed out to the DCA that the Earnings Attachment Handbook has not been updated for some time and even now does not provide full guidance on the newer type DEOs that were introduced in March 2003. We suggested that, in view of the complexity of court orders, the maintenance of that Handbook should be treated as a priority by the DCA.

The DCA replied: "Colleagues in the DCA are currently updating the handbook, it is expected that this will be available by the end of September on the Court Service website."

The current version of the Handbook is available to download at www.courtservice.gov.uk/cms/media/a_e_handbook.pdf

Written guidance - Schedule 5 AEOs An earlier reply from the DCA indicated that a guidance booklet for employers was in preparation. We asked if the guidance had been completed and whether, as was earlier suggested, the Inland Revenue would be used to communicate the information.

The DCA replied: "The guidance has been distributed and, a copy is attached. Plans for the national rollout in 2005 are being prepared and will include a communications plan, with media campaign. We will be liaising with Inland Revenue in the future to discuss utilising their existing communication channels with employers."

Once we knew what the booklet was called, we were able to do an Internet search and found it on the Court Service website. There is also a Q&A document in the same location. Both are completely hidden unless you know exactly what to search for. They can be downloaded from

www.courtservice.gov.uk/cms/media/attachment_earnings_mags_0604.pdf
www.courtservice.gov.uk/cms/media/attachment_earnings_mags_faq_0604.pdf

We have asked the DCA to tell us to whom the guidance booklet has been distributed. We suspect that it is only being sent out to employers with new AEOs. It does not seem to have been sent to payroll system developers, who so far have received very little guidance to help them automate these orders.

The booklet contains numerous minor errors and, in the case of the two worked examples, is completely wrong. The guidance is also very confusing in places as it makes constant reference to the different rules for AEOs made under the Attachment of Earnings Act 1971. We have asked for clarification on some points, for example, the booklet suggests that Schedule 5 AEOs can be made for ongoing maintenance, as well as for fines, but the legislation does not appear to allow that.

The two worked examples incorrectly explain how to calculate "net earnings", otherwise called "attachable earnings". For most court orders, an employee's "net earnings" are the same as net pay, but there are situations where this may not be true.

Example 1 gives the following procedure for calculating net earnings:

Using this method, the example then shows that the actual deduction from the percentage tables would be 12% of £;960, i.e. £;115.20, and the employee would receive £;843.80.

The example is clearly wrong because the PAYE tax and NICs have not also been deducted from the £;1000. The attachable earnings would be much lower than the figure calculated and, as a result, the actual deduction would also be much lower.

The same error is repeated in Example 2, but that example also has a different error of its own. It explains how deductions are calculated when a weekly-paid employee receives holiday pay prior to going on holiday, as follows:

Using this method, the example then shows that the actual deduction from the percentage tables would be found by finding £;715 on the percentage tables. The deduction would be 17% of £;370, plus 50% of £;345, i.e £;235.40.

Not only do the net earnings fail to take PAYE tax and NICs into consideration, but the use of the percentage tables treats the three weeks' payments as if it were paid in respect of just one week and the employee has nearly a whole week's wages deducted.

The legislation does not say what to do when two or more weeks' earnings are paid at the same time. We have suggested to the DCA that the correct method, as used for CTAEOs, would be to do the calculation in two stages. Assuming that the net earnings for each of the three weeks pay is £;250:

• the deduction on the normal wages is £;30, i.e. 12% of £;250
  
  
• the deduction on the two weeks' holiday pay is £;60, i.e. 12% of the average of the two week's net earnings, multiplied by 2.

The total deduction is therefore £;90, the same amount as would have been deducted if the wages had been paid for each week separately. If the deduction were calculated using the method in the guidance booklet example, the deduction would have been £;252.90, i.e. 17% of £;370 plus 50% of £;380.

We have suggested to the DCA that, as their guidance booklet is seriously flawed, it should be withdrawn immediately.

Guidance for payroll system developers
We asked the DCA if it was planning to publish technical guidance for developers, even temporary guidance pending final formats in 2005.

The DCA replied: "The guidance we have is the attached leaflet and the Attachment to Earnings handbook for employers. It would not be appropriate for the DCA to provide independent IT developers with specific guidelines." We found it hard to believe that the DCA could make such a statement. The Inland Revenue provides detailed technical guidance for developers on the tax, NICs and other legislation for which it is responsible. The DCA has responsibility for much of the complex court order legislation and, consequently, we have suggested that it is the DCA's responsibility to provide full guidance for developers, including guidance on the almost impossible to understand priority rules.

The DCA's response suggests that the guidance booklet and the Earnings Attachment Handbook are sufficient for developers. The former has serious errors in its examples and the latter is currently out-of-date and is not expected to be updated until the end of September 2004.

Net earnings
The calculation of Schedule 5 AEOs is based on an employee's "net earnings". The term is not defined in the Regulations and the DCA has confirmed that it means the same as "attachable earnings" for 1971 AEOs. However, as computerised systems are currently handling Schedule 5 AEOs as if they were CTAEOs, and the definition of net earnings for CTAEOs is marginally different, it means that, in a minority of cases, a different definition is being used in practice. We have asked the DCA to confirm that they are happy with this situation.

Government policy on court orders There are currently twelve different types of court orders (excluding consolidated orders) that must be handled by employers in the UK, as follows:

• 1971 Attachment of Earnings Orders for maintenance and fines
• 1971 Attachment of Earnings Orders for civil debts
• 1981 Attachment of Earnings Orders for maintenance and fines (Northern Ireland)
• 1981 Attachment of Earnings Orders for civil debts (Northern Ireland)
• Schedule 5 Attachment of Earnings Order for fines
• Deduction from Earnings Orders - up to March 2003
• Deduction from Earnings Orders - March 2003 onwards
• Council Tax Attachment of Earnings Orders
• Income Support Deduction Notices
• Earnings Arrestments (Scotland)
• Current Maintenance Arrestments (Scotland)
• Student loan deductions (treated as a court order when competing with another court order)

These orders have different methods of calculating the deductions, different administrative procedures and different priority rules when they compete with other orders. The handling of court orders is one of the most complex areas of payroll work.

We asked the DCA: "Will the Secretary of State give a commitment to a review of the need for these many different types of orders, with a view to rationalising such a complex and onerous burden on employers?"

The DCA responded by pointing out that, as proposed in the White Paper Effective Enforcement ( www.dca.gov.uk/enforcement/wp/index.htm ), the DCA is currently consulting on changing the calculation method for non-priority 1971 AEOs to a percentage table method. While we welcome any such simplification, the DCA's response does not answer our question. If and when these changes are made, the non-priority 1971 AEO is still a different kind of court order, even if it is simpler to administer. We have asked the DCA to address our question again.

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