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Payroll: The Old World To The New

With the introduction of PAYE in Real Time (or RTI as many still call it), HM Revenue & Customs (HMRC) are for the first time able to understand what exactly is going on with employee payments, as they are much more visible.

RTI has exposed payroll practices that are actually wrong, which were previously deemed acceptable. Simon Parsons takes us through a couple of scenarios.

Pay Day versus Tax Period

As a result of RTI, HMRC have discovered that a sizeable, but small percentage of employers have been, for some time, operating the incorrect tax period against their payment dates.

For example, 1 April is not in the new tax year but forms part of the former tax year (month 12 or week 52). The 31 March payment is not the payment for April, neither is 8 May and so on.

Since the information submitted under RTI determines how much PAYE and NIC HMRC expect to receive from an employer for each tax month, it is now important that payrolls correctly align with tax months.

On 29 April 2013, HMRC published guidance for employers on what to do in this situation – Correcting payroll reports misaligned with payment dates and tax periods [pdf].

The guidance states that “You should not record the date you ran your payroll as the payment date” and that “Your Full Payment Submission (FPS), and Employer Payment Summary (EPS), must also align to tax rather than calendar periods”.

Employers could see themselves being pursued for underpayments, penalties and fines if they get this wrong, as the expected receipt of tax and NICs will be allocated to the wrong month. Their RTI submission would in effect be wrong and making false declarations on fiscal values, and therefore ‘not operating PAYE according to the regulations’.

Negative Statutory Values – recovering across tax years

All payroll managers know that you cannot recover statutory values across tax years. Don’t they? If there is an over collection of Student Loan, or an overpayment of Statutory Maternity Pay or other statutory payment, the correct method of correction is to submit an amendment P14 and P35 to undertake the prior year correction. The amounts are accounted in the new year as miscellaneous payments or debts for collection. After all, it is impossible to overpay SMP.

Such carry overs may have been the practice of the past prior to RTI, but they are not, and never have actually been allowed.

Simon Parsons

Director of Payments, Benefits & Compliance Strategies

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