The rules and regulations surrounding payroll are forever changing so it’s important to ensure you’re up-to-date with all the latest developments. Below is a helpful guide which details all the latest payroll issues.
In July 2017, PAYE tax codes became more refined. Under the new system (dynamic coding), HMRC will issue an updated tax code once they become aware of a change which will affect the tax an employee pays – such as a new benefit.
HMRC was previously seldom aware of changes to benefits until the employer submitted the P11D forms. As a result, they would collect the resulting underpayment through an adjustment to the employee’s tax code for the following tax year.
Under the new system, HMRC adjusts the employee’s tax code to collect the right amount of tax for the current tax year. They do need a ’trigger’ such as the employer submitting a full payment summary (FPS) or a P46 form before they change the tax code however.
Once HMRC is aware of the change, it will recalculate the employee’s annual tax bill and include any underpayment of tax.
They will then issue an amended code to collect all the PAYE tax owing for the current year. This calculation will be based on the employee’s estimated pay for the year, which is based on the pay-to-date figure, as reported on your most recent FPS.
HMRC will then send an employee tax code notification to you, as well as a copy of the new notice of coding to the employee. Once you’ve received a new code from HMRC, you should update your payroll to reflect the code change.
Late filing penalties
It’s important to give HMRC the details of staff pay and deductions on or before the day the payment is made and this should be done by submitting an FPS.
If you fail to make any payments to your employees in a tax month, you will need to send an employer payment summary (EPS) to HMRC.
HMRC may charge a late filing penalty if:
- The FPS or EPS was submitted late on more than one occasion in a tax year
- You did not send the required number of FPS where there is more than one payment day in the month
The amount you are fined will depend on the number of employees you have in your PAYE scheme. This can range from £100 for schemes with between one and nine employees to £400 for schemes with 250 or more employees.
A further penalty of 5% of the tax and national insurance due may be charged if your report is submitted more than three months late.
Penalties are charged per tax year and are sent to employers on a quarterly basis. The first quarter for 2017/18 came to an end on the 5th of July 2017. If you receive a penalty notice, you need to check it is correct and if it is, pay within 30 days.
Making an appeal
If you don’t think the penalty is due, or believe the amount of the penalty is wrong, you have 30 days to lodge an appeal with HMRC, either online or by post.
If you filed late, but had a reasonable excuse, you can appeal the penalty on these grounds. The following is the list of reasons which HMRC may accept as providing valid grounds for appeal:
- Data on the returns was incorrect
- Filing expectation was incorrect
- Filed on time
- Fire, flood or natural disaster
- Ill health
- IT difficulty
- Missed correction/easement
- No longer have any employees
- No payments made to employees
- Crime (such as theft)
There may also be other grounds for an appeal where the reason for filing late does not fit into any of the above categories.
Student loan deductions
As an employer, you may need to make deductions from an employee’s pay to cover student loan repayments.
You should start making student loan deductions either when you have received a start notice from HMRC or when you take on a new employee and the student loan deduction box on the employee’s form P45 is ticked.
Deductions are made only where the employee’s income exceeds the threshold for their loan type. For 2017/18, the threshold for Plan 1 loans is £17,775 and the threshold for Plan 2 loans is £21,000. The SL1 start notice will tell you which type of student loan your employee has.
Where you have taken on a new employee, the starter checklist contains questions to enable you to determine the correct plan type for the employee.
If HMRC receives an FPS from you which does not include a student loan deduction where one was expected, they will send a reminder to your online services mailbox via the generic notification service. The reminder acts as a confirmation that HMRC has sent an SL1 start notice for the employee and may cover more than one employee.
In this incidence, you should start making student loan deductions from the next pay day for all relevant employees.
If student loan deductions are due, but are not shown on the second FPS, HMRC will issue a further reminder. If the loan deductions are not shown on the third FPS, you may be contacted and asked to make student loan deductions.
Most employers have now reached their staging date for auto-enrolment and should be complying with their workplace pension duties. This includes:
- Setting up a workplace pension scheme
- Identifying staff who qualify for auto-enrolment
- Enrolling those staff in the workplace pension scheme
- Deducting employee contributions from their pay
- Paying those deductions and your employer contributions into the pension scheme
In order to be in a position to meet your obligations under auto-enrolment, your staff records must be accurate and up-to-date.
Your payroll software must also be equipped to adequately manage the employer’s duties under auto-enrolment on an ongoing basis.
In addition, you need to ensure your payroll system works with your chosen pension system and allows for an easy transfer of data.
You should check your systems are in place for paying your contributions into the pension scheme by the due date, such as by the 22nd day of the month after deduction where payments are made electronically or by 19th day where payments are made by cheque.
It’s important that you keep and maintain records of auto-enrolment activity, including details of the staff enrolled in the pension scheme, details of their contributions, as well as details of which staff have opted out and those who have left the company.
Please don’t overlook your duties under auto-enrolment as the penalties charged for non-compliance can be very high. For more information about how we can help you with our payroll services, please feel free to contact PKB Accountants and we will be more than happy to help.