On 12 November, HMRC published proposals explaining the circumstances where employers will be allowed extra time to send real time PAYE information to HMRC. The following information has also been updated as per draft regulations published 19 November.
Under RTI legislation, an employer must submit a Full Payment Submission (FPS) return covering the payment of employment income to employees “on or before” the date of payment.
For the majority of employers this doesn’t pose a problem as they will be processing their payroll ahead of paying employees and part of that processing will include the submission of the relevant FPS return online to HMRC.
But there are situations where it is just not practicable to submit an FPS “on or before” the date of payment. For example, casual employees are paid in cash at the end of a late shift, or it is agreed that a harvest worker will be paid at the end of their working day based on the amount they have harvested.
Therefore, HMRC is introducing an number of amendments to the RTI legislation that would allow employers, in the above situations, to submit the relevant FPS return within the earlier of seven calendar days, or the next time they submit a regular FPS return.
This relaxation will be allowed where:
- The employer could not reasonably have calculated the payment in advance; and
- The time or location at which payment is made means the employer could not reasonably be expected to meet their FPS obligation on or before the date of payment.
HMRC do allow in their 12 November announcement that the seven-day rule will also be available to cover an FPS return made in relation to an employee for whom the employer has no legal requirement to keep a payroll record (on a P11 Deductions Working Sheet, or equivalent). This would apply to an employee who is always paid below the lower earnings limit for Class 1 NICs, e.g. for the tax year 2012/13, always paid less than £107 a week, but one pay period has an increase in pay that takes them over the LEL.
HMRC is also proposing to allow employers a relaxation in the time limit for reporting the payment of benefits and expenses subject to Class 1 NICs but not taxed under PAYE. For example, if an employee wasn’t paid any cash earnings but only provided with just non-cash vouchers (e.g. retail gift vouchers), the provision would be liable to Class 1 NICs although not taxed directly through PAYE (the provision would be returned on a P11D after the end of the tax year in which the provision was made).
Amendments to the RTI legislation will allow the reporting of the relevant RTI information to be made at the earliest of the time at which the employer makes a deduction of Class 1 NICs, or 14 days after the end of the tax month in which the payment is made.
In addition, HMRC intends to issue further guidance on the reporting of what they call “ad hoc advances of pay”. HMRC has already published guidance on some of these situations and it is based on the application of tax law as to when a PAYE liability arises, which will govern whether an FPS should be submitted.
For example, a new employee starts too late in the payroll run to be included; so they are given an ‘advance’ on their wages which will be taken into account the next time the payroll is run.
Where a situation like this arises, HMRC state: “A loan from the employer to the employee is not subject to PAYE and not does need to be reported to HMRC. A loan is an amount of money given by an employer to an employee with the expectation that this amount is repaid to the employer.” Therefore, an FPS would not be required to report the payment of a “loan” by way of an advance, such as that given a new employee to tie them over to the next pay day.
Another example will explain the principle. Monthly paid employees are paid overtime in arrears. One particular month, by mistake, the employee’s overtime is missed off their pay. As the amount is considerable, the employer agrees to make an “ad hoc” payment which will be accounted for when the next monthly payroll is run. It seems HMRC are prepared to accept that such a payment does not need to be reported on an additional FPS.
However, what about the situation where employees are routinely paid overtime payments on pay days other than their normal pay day?
HMRC state: “Payments are not considered to be ad hoc where it is established practice for some earnings to be paid outside the normal payroll cycle – e.g. where overtime is always paid more frequently than the basic salary or wage payments. Such payments must be reported on or before the time they are made, via a separate FPS if necessary.”
For all employees other than company directors, the PAYE liability always arises on the earlier of entitlement or payment. Therefore, where a PAYE liability arises, an FPS return will be required to include the payment, even if this is returned on an additional FPS return. If there is no PAYE liability, there is no need for an FPS return.
HMRC are stating that the payment of a loan is not a payment of employment income on which a PAYE liability arises. However, this does not give an employer carte blanch to class every payment made to employees outside of the normal payroll run as a “loan”, if in fact it must be treated as a “payment on account of earnings” for which a PAYE liability does arise and for which an FPS return is required.
How “ad hoc” payments are dealt with, and whether the employer has dealt with them correctly, is bound to be a subject to be examined on PAYE compliance visits.
As a final point, HMRC state that later on in November 2012, they will also be delivering a statement of operational practice on reporting of payments made by expat employers and those operating share schemes.