An understanding of how and when HMRC processes Full Payment Submissions and Employment Payment Summaries will help employers understand why the amount they say they owe HMRC is not necessarily the same amount as shown on HMRC records.
To help employers understand how FPS and EPS returns are processed and when, HMRC have recently updated their guidance on PAYE/National Insurance payments and deadlines.
How you calculate the amount of PAYE to pay
Calculate your payments to HMRC by taking these steps:
1) Add together all of the:
- tax that you have deducted from your employees
- employees’ and employer’s NICs due
- student loan deductions taken from your employees
2) Subtract any tax refunded to your employees
3) Add deductions from payments made to subcontractors under CIS, as shown on your CIS return (CIS300)
4) Subtract any:
- statutory payments and NICs compensation you are entitled to recover
- NICs holiday you are entitled to deduct under the Regional Employer NICs Holiday for New Businesses (no longer applicable)
- CIS deductions you have suffered (only applies if you are a limited company acting as a subcontractor)
The amounts listed at (1) and (2) above are what you reported on the Full Payment Submissions (FPS) for the tax month (6th of one month to the 5th of the following month) or tax quarter (periods ending 5 July, 5 October, 5 January or 5 April).
The amounts listed at (4) above are what you reported on the Employer Payment Summary (EPS) during the tax month or quarter.
But look out… HMRC state: “The timing of the submission of an EPS, with the amounts you want to recover, determines which payment HMRC will adjust in that tax year…” What does that mean?
The ‘window’ for submitting FPS returns
The ‘window’ for submitting an FPS is from the 6th of the month to on or before the 19th of the month following.
Therefore, for example, where an employer runs a monthly payroll, the FPS for tax month six (6th September to 5th October) should be submitted to HMRC between 6th September and on or before 19th October.
Identifying an FPS for tax month six is also helped by the inclusion of two data items in the FPS:
- Payment date (which will be between 6th September and 5th October)
- Tax week or tax month number (in this case tax month 6)
These two data items DO NOT appear in an EPS. Which tax month HMRC processes an EPS for is strictly dependent on the date it is submitted to HMRC. You probably think that it would make sense that the EPS should include the tax week or tax month number it refers to, but it doesn’t.
The ‘window’ for submitting EPS returns
The ‘window’ for submitting an EPS is from the 20th of one month to on or before the 19th of the following month.
Where, for example, an employer is recovering statutory payments for the tax year to date, an EPS for tax month six should be submitted to HMRC between the 20th September and on or before 19th October.
If the EPS for tax month six is submitted before 20th September, HMRC will treat it as overwriting any EPS submitted for tax month five; if the EPS for tax month six is submitted on or after 20th October, HMRC will treat it as being submitted for tax month seven.
Hence you can see why an employer could end up thinking they owe HMRC one amount, and HMRC expecting a different amount all together. Granted, the payments may well balance out over a following tax month, but think of the confusion in the meantime?
For example, a small employer runs their monthly payroll for tax month six (6th September to 5th October) on 21st September. On the 22nd September they submit their monthly FPS. As they also have statutory payments they are recovering for the tax year to date, they also submit an EPS on the 22nd. So far, so good. However, as the person who looks after the payroll is going on holiday, they decide to run the payroll for tax month seven (6th October to 5th November) early. Therefore, on 28th September they submit their FPS for October as well as an EPS for the same month.
HMRC process their payment due records twice a month – around the 6th and 19th.
When HMRC come to process the FPS/EPS returns, the FPS for September will be accounted to tax month six; the FPS sent for tax month seven accounted to tax month seven. However, as both EPS returns were sent during the tax month six ‘window’ they will both be processed against tax month 6. This means the employer’s payment for tax month six will be incorrect. Although, when HMRC processes the employer’s FPS for October, the payment the employer makes for October will balance out what is due.
Another example will illustrate the problems. An employer submits their FPS for September on time. Later they realise that they need to adjust their payment for month six by an amount of statutory payment recovery. However, instead of submitting an EPS on or before 19th October, the employer sends HMRC their remittance for September, deducting the recovery, and follows this up with an EPS submitted after the 19th.
As far as HMRC is concerned they are expecting the employer to pay by 22nd October at the latest the amount as per the FPS the employer submitted for September, excluding the recovery, whereas the employer actually remits a lesser amount due to their including statutory payment recovery. Agreed it will balance out when the employer makes their October payment. But if this occurred in the tax year 2014/15 onwards, being ‘late’ in paying in full would give rise to a penalty notice.
The latest HMRC guidance on ‘payments and deadlines’ is well worth reading through. There is a useful table of dates for each tax month to help an employer ensure they submit any EPS on time for the tax month in question. There is also guidance on correcting FPS/EPS returns in-year and/or after the tax year has ‘closed’.