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National Insurance, New Starters, & Irregular payment after leaving

National Insurance, New Starters, & Irregular payment after leaving

So the UK (as a union) has voted to leave the European Union with some Scottish politicians hinting of a further independence referendum, and some in Northern Ireland wanting a joint Irish nation! At the same time, Job Centre Plus has run out of National Insurance numbers (NINOs) and decided in June 2016 to start issuing NINOs with prefix ‘KC’. The only problem is that ‘KC’ is not included in the HM Revenue & Customs specification (appendix B) of valid national insurance numbers (NINOs). If used then employers will find that their Full Payment Submission (FPS) filed under Real Time Information is rejected. So we will look forward to receiving the changed specifications on the format of NINOs shortly, may be in the specification for FPS18 & EYU17, plus messages for updating tax codes and National Insurance number verification responses. So not only are we in a planning stage for leaving the EU as a nation, payroll and service provision has confusion on what is happening with national insurance. Valid national insurance number are published by HMRC under what is termed Appendix B – Valid National Insurance Numbers (KC is not one of them!).

As KC are being issued to new individual that potentially have a Right Two Work (R2W) in the United Kingdom, it is also worth considering two standard National Insurance (NI) requirement in relation to New Starters (known as the Mehta case) and as it is a similar calculation theme, irregular payment to leavers after the issue of P45 as outlines in CWG2 Employers Further Guide to PAYE and NICs. This is not off the wall rare payment types, but reasonably regular payroll practice. Your payroll software may or may not do these. Should they? Of course they should, this is common payroll practice and comes under the CIPP education in bred adage of ‘accurate and on-time’.

So the first is section 64 entitled ‘Working Out NICs when you first pay an employee’. Do you operate this legal requirement? It states ‘when you first pay an employee, you must work out NICs based on what will be the normal earnings period for the employment using the contribution rates and limits current at the actual time of payment. Fair enough and straight forward, all payrolls will offer that. But then it goes on to state the following: ‘If the interval between an employee starting work and the first payday spans two or more earnings periods, and each period is in the same tax year, work out NICs on the amounts due for each of those earnings periods separately using the normal earnings period’. And the it also states: ‘If the interval between an employee starting work and the first payday spans two or more earnings periods, and the relevant earnings periods are in different tax years, work out NICs on the earnings due for each period separately using the normal earnings period. Use the contribution rates and limits current at the time the earnings are actually paid.

So if you have, what we might term, a late leaver and they have a portion of pay from a period they were not paid being made in the pay period following, then there is a requirement to operate this special calculation. The reported earnings potentially shows multiplied values. At LEL may be twice the normal amount as with other bands as relevant. And the NI paid this time by both employer will be a combined single figure of the two separate period calculations. Does your software offer that required facility?

The other is in relation to irregular payments (such as accrued holiday, an unexpected bonus, arrear following a backdated pay award) paid after issuing the P45. There is nothing about a six week rule which is myth that circulates, this applies where all the pay is consider irregular. If pay is regular or mixed, then the normal pay period is used even if paid after 6 weeks. The relevant section is 6 ‘Payment made after an employee leaves’ and the operation of National Insurance on irregular payments that are to be based on one week regardless with 0T Week1/Month1 tax applied. Do you comply with this legal requirement?

  • DWP have starter to issue KC NINOs, however, HMRC will not accept them!
  • Are you compliant with the late new starter NI calculation split period?
  • Are you compliant with irregular payment after leaving?

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About the author

Simon Parsons
Director of Payment, Benefits & Compliance Strategies

Simon has been a major contributor to SD Worx’s payroll expertise since 1984. Besides being influential in the development of SD Worx’s payroll services, he is a major presence on a number of HMRC consultative groups and committees.

A fellow of the Chartered Institute of Payroll Professionals and one of the original Masters of Science in Payroll Management, Simon is a regular author and speaker on payroll matters. He is also Chair of IReeN, the electronic exchange with government user network, and was appointed chair of the British Computer Society (BCS) Payroll Group in September 2013.

Simon has won a number of awards in the past including the Strathearn Award for Lifetime Achievement at the 2012 Pay & Benefits Awards, the Payroll Alliance Award for Advancing the Payroll Profession in 2010 and IPP Person of the Year in 2006.

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