25 September 2017
Payroll managers still receive instruction from HR departments and solicitors that a termination payment must be taxed at Basic Rate. Why these continue to be demanded since the rules changed on payment after leaving we do not know.
When the actual HMRC instructions are carried out and the correct action taken then communications and misunderstandings can occasionally occur, referring back to an agreement with an employee which is likely to have not been seen or passed via payroll.
Former HMRC rules and law stated that any payment made after the issue of a P45 was to be taxed at Basic Rate (20%). An element of termination may not be taxable at all, with some elements up to £30,000 being tax free subject to the appropriate contractual or non-contractual conditions being met. However, the excess would be subject to tax and any contractual payments would be subject to tax and NICs.
Often solicitors and HR departments would use the Basic Rate tax position as part of the bargaining tools to exit employees out of a business. If the employee agreed to the pay-off, the amount will only be subject to Basic Rate tax (20%).
The reality was actually something else. The amounts would at the end of year be tallied with the full individual liabilities and potentially an underpayment may have occurred and a tax bill delivered for higher rate (40%) or even additional rate (45%) tax liability on the additional amount. However, some employees would not be receiving paid income for a period of time and equally may have unused personal allowances up until the end of the tax year. So the operation of Basic Rate was never accurate and would create situations of overpayment but more frequently, underpayment.
"If you have already given an employee a form P45 you should deduct PAYE using code 0T (non-cumulatively on a week 1 month 1 basis) using the normal pay
period for the employee”, this includes employment related securities. The employee is requested to “provide the employee with documentary confirmation
of the payment (for example by letter, payslip or other printed/printable document)."
The next bit in CWG2 is where HMRC advice starts to get extremely confusing, is out of date and potentially states an oxymoron:
"It is important that you include a date of leaving on the P14. This should be the date that you made the payment."
In most cases the date of leaving would be the date of leaving, and not the date of payment – and the P14 is no more! Under Real Time Information the guidance is different and contrary to both the E13 (Day-to-day payroll) and the CWG2. RTI guidance on leavers is found on pages titled ‘when an employee leaves or retires’.
Although a P45 is still given to the employee when they leave, actual P45’s are no longer passed to HMRC at all.
Once you start reporting your PAYE information in real time you won’t be able to submit forms P45 and P46 via HM Revenue & Customs’ (HMRC’s) Online Service – this is because you must tell HMRC about people who’ve started working for you, or left, using your real time submissions (Full Payment Submissions, or FPS) through your payroll software.
The guidance states:
"In most cases you must work out, record and deduct PAYE tax as usual on any standard payment you make to your employee, include any leaving details on your final FPS and make sure you give the employee a P45."
What it does not state is anything to do with the judgment point of when the employer is assuming that the P45 is issued to the employee, such as before the final payment or after, or whether the suggestion is a viable option for employers in real life.
What the RTI guidance then goes on to cover is:
"Any further payment made after giving the employee a P45 where the instruction is to Deduct PAYE tax using code 0T, including the payment and the PAYE tax and NICs you’ve deducted on the employee’s payroll record."
On the RTI submission the software or payroll solution is to set the payment after leaving indicator and show the original date of leaving. This is where things start to get really confusing and where HMRC will unfairly claim that employers are getting things wrong, or is it the HMRC that are getting their ‘working correctly’ solutions wrong?
In the case of some termination or compromise agreement payments, there will have been no reporting on the prior FPS of a leave date. So the employee is both a leaver and receiving a payment after leaving on the same FPS submission. Are one or two FPS records required? What about year to date value? The tax code will have also changed from their prior tax code to 0T on a non-cumulative basis.
It treats the employer as having done something wrong (they haven’t) and will treat the payment after leaving as an additional separate payment and employment. As Year To Date totals already include all prior tax and NICs paid along with a second accumulated amount of this time and the prior year to date amounts, HMRC will now double account both the tax and NICs adding both separate records together and be looking for a higher payment amount from the employer. This is the current error of the HMRC systems which are ‘working according to design’!
So the days of operating Basic Rate (BR) have gone on termination payments, this was only allowed to be operated where a P45 had already been issued to the employee, and for some years the correct tax code to operate is 0T non-cumulative. HMRC RTI would claim that the normal tax code should be applied unless the leave date has already been notified on a prior FPS!
However, if HR and employment solicitors are insisting on operating payment after issue of P45 rules, then RTI goes horribly wrong and misbalances occur all over the place. Duplications of records are caused (by HMRC poor design) and double amounts of payment are being expected to be paid across.
HMRC have only in the past understood a corrected tax year end P14 position, a single submission. They have little or poor knowledge of period to period payroll practice and the contradictions of their own guidance between RTI v E13 v CWG2.
As opposed to sweeping issues under the carpet, the pleas from software developers to clarify and correct the process of handling leavers and termination payment must be undertaken. What is not needed is further guidance, what is needed are HMRC systems which work with real life. So Real Time Information for Real Life Payroll.
Provided you’ve done the right research, implementing a new payroll solution will streamline your business and help you save the long run. But put the wrong payroll solution in place, or implement it in the wrong way, and you could end up having a bumpy road as you learn new systems which seem to delay your payroll rather than make it more efficient.18 April 2017
Year on year, Payroll accounts for an ever-increasing contribution to the UK economy through Tax and National Insurance. This week, in partnership with CIPP, we're celebrating the impact of payroll on business.
So, in celebration of National Payroll week, we spoke with Lisa Brew, nominee for CIPP’s Payroll Professional of the Year 2017, to gain insight as to what a day in the life of a Payroll Manager entails.
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In this article, Simon Parsons offers updated advice for employers on how to ensure that the New Starter Checklist (formerly P46 form) is submitted correctly.28 August 2017
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We’ll help you make sense of the government’s advice on Statutory Sick Pay and taking care of your employees during COVID-19.24 March 2020
This week, in partnership with CIPP, we’re celebrating National Payroll Week where we recognise the impact of payroll on business and the contribution it makes to the UK economy - £418 million annually!
To kick off our celebration, we sat down for a payroll-themed Q&A session with Simon Parsons, one of the most influential names in the industry and our Director of Payments, Benefits & Compliance Strategies.
1 September 2017
UK payroll managers have a new year window of 3 months to prepare for the much older UK (and Isle of Man) new tax year start. With the setting of new year resolutions, it is a good time for payroll professionals in the UK to review their preparations on items which are not purely system change, but challenge process and rules within employment.11 December 2017
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This article focuses on the P45(1) Leaver, practices currently undertaken by many payroll offices, the potential challenge of in-year filing requirements and also compliance with the relevant regulations.9 October 2017
Effective from 1st January 2019, The Irish Revenue Commissioners (or Revenue) are set to introduce the biggest change to PAYE reporting since 1944, in the form of PAYE Modernisation / Real Time Reporting (RTR).6 November 2017
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In some tax years, the way pay dates fall for weekly based payrolls means that an employer ends up making one more payment than usual to employees at the end of the tax year.
For weekly payroll this is known as a Week 53, for a 27th fortnightly payroll a Week 54, and for a 14th Lunar a Week 56 payment.18 September 2017
The law requires that a payslip is provided to all employees each time they are paid. The exception to this legal requirement means that for the following there is no obligation to provide a payslip, non-employees: contractors, freelancers and workers. There are additional categories where a payslip is not required: police service; merchant seaman; master and crew of share fishing vessel.15 March 2018
We thought 2013 was busy with the introduction of Real Time Information, but looking back it now seems a doddle! 2016 is proving to be one of the most substantial change years ever for payroll, software and service providers and especially payroll managers. Never before have I seen such a wide, heavy plethora of change. Now seems a good time to start the preparations in earnest and put the brain in gear...25 January 2016
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The COVID-19 virus situation is developing rapidly and affecting us all, both personally and economically. We want to assure you that we are here for you, and that you and your employees can continue to count on our services.20 March 2020
Has your business temporarily closed? Find out how the Coronavirus Job Retention Scheme could support your business.24 March 2020
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GDPR is set to see the biggest shake-up in the way we handle data since the Data Protection Act of 1998. Over the last few years, the processing and control of data has seen many systematic changes. Updated legal obligations set out in the Regulation such as the ‘lawful basis’ of the processing of data is sure to see more changes to data handling.27 November 2017
Retention of the personal data is ‘lawful basis’ where it is necessary, for compliance with a legal obligation, for the exercise or defence of legal claims. For Payroll and HR reasons, employers must hold and retain personal information about their employees and former employees to meet these legal requirements.4 December 2017
Senior professionals predict major changes to the workforce by 2025. According to our research The Workforce of the Future, working part-time, freelance or being able to choose hours/days will be favoured over traditional working styles. Employees will expect more support and advice on financial matters, and Payroll and HR will align more closely to provide this. Payroll will become much more influential in attracting and retaining employees. As a result, 78% of professionals say that payroll needs to evolve and innovate, and technology will be key.2 September 2019
With Christmas upon us, payroll managers will be experiencing some annual adjustment planning with the holiday season. In this blog I explore some of the most common scenarios in December's pay cycle.7 December 2015
A few years ago, what was then Ernst and Young (now EY) reported in its paper Global Payroll: Myth or Reality? that 55% of multinational firms believed that single provider global payroll vendors didn’t exist.2 October 2017
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Employer representatives sitting on the Statutory Payments Consultation Group have been pleading with the various government agencies involved in Statutory Payments to make clearer what employers have to do to comply with Maternity Rights, especially in light of the extension of rights to non-cash benefits.16 October 2017
As an employee, sometimes it’s not clear what everything actually means on your payslip. To help educate the nation, we’ve created a list of some of the most common terms that can appear on your payslip, along with an associated description.14 August 2017
Until recently, payroll has not been given high strategic importance and so has never needed to be particularly innovative. The modern, fast-evolving workforce is now driving significant changes to this status quo however, with both managers and employees looking to embrace disruptive technology that helps the business to innovate and transform.1 October 2019
Step back in time five years and you would struggle to move for articles and white papers on big data and analytics. These were the hottest topics in technology and the excitement surrounding them was at its peak. Last year, analyst Gartner dropped its hype cycle for Big Data, confirming in an article, entitled: The Demise of Big Data, Its Lessons and the State of Things to Come” that “we did it to move the big data discussion past hype and into practice”. Certainly when it comes to the HR arena, big data and the analytics tools that can be built on top of it are now in a maturing phase.14 November 2016
‘Disruptive’ technology is technology that replaces old ways of doing things. For example, the smartphone has revolutionised the way we interact with friends,
family, institutions & media. When SD Worx launched online payslips in 1999 this was met with concern around security & access. Fast-forward
to 2018, and no credible provider is without a mobile payslip. In short the smartphone has disrupted the market and most people have moved on from
8 November 2018