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employers of when and for which employees a C prefix code is to be operated. You should have received P9 notices for current employees indicating if the prefix is to apply. However, for a new employee you should use the code provided in form P45 but if no P45 is received and a new starter declaration has been submitted, you should use the tax code in relation to the statement chosen. If a prefix C code is to be applied, you will receive notification directly from HMRC. Remember that you as an employer cannot make the decision to apply prefix C, you must wait for notification from HMRC before you make the change. If your employees contest this addition to their code, they will need to log into their personal tax account and ensure that their address details are up to date. Q: Should a payroll bureau or department adjust an employee’s tax code if their earnings exceed £100,000? A: This is referred to as ‘adjusted net income’ and it is only HMRC that can change the tax code. It isn’t just the income that falls within pay as you earn (PAYE) that is considered, so the employer would not necessarily know when the employee would breach the threshold. HMRC would include income from the employment both cash and benefits, profits from self-employment, some state benefits and pensions, to name but a few. Q: One of my clients had been deducting class 1 National Insurance contributions (NICs) from an employee until August last year but the deductions have ceased as the employee is now on ‘C’ category for NICs. Can you think of any reason why the employee should have been placed onto C rate category as he is only 58 years old? A: In answer to your query if this is for employment earnings then there would be no reason to apply NICs table letter C at this stage. This needs to be corrected before the end of the tax year if an error has occurred. Usually, the NICs category table letter is only changed to C when the employee reaches state pension age. If the employee becomes a pensioner of the company then the table letter
would change to X, as pension paid by the employer from an approved pension scheme is not subject to NICs. You may find the following two links to HMRC’s National Insurance Manual helpful; the first link explains that you have to correct the error as soon as possible and the second link explains how you can recover NICs from employees: http://bit. ly/2HTSNQt and http://bit.ly/2CRCDmt. Q: If we have a new employee who has signed statement B in the starter checklist we are to operate ‘week 1/ month 1’, but what does this mean? A: ‘Week 1/month 1’ means that if the employee is paid monthly apply month 1 to the tax calculation (known as tax basis) or if the employee is paid weekly then apply week 1. Normally, the tax basis of an employee is cumulative which means (if they are paid monthly) they are receiving 1/12th of their personal allowance. So, based on £11,850 the first month’s allowance would be £987.50; as it is cumulative in the second month the total would be £1,975.00 (adding the previous month’s allowance to the current month); and in the third month it would be their allowance for that month of £987.50 plus the previous two months’ cumulative total of £1,975.00 which is a total of £2,962.50 for month 3; and so on. A non-cumulative basis means that previous pay and tax are ignored and in effect their earnings are taxed as if it was either week 1 or month 1 each pay period. This non-cumulative tax basis means that the employee will not be due a tax refund until HMRC changes the tax code. Where HMRC sends you a P6 notice with this tax basis during the tax year it means that if the tax code is lower than the current one you are operating the employee will not face a huge tax deduction but have the tax due spread over the remaining tax year. Q: Is there a set time for providing information on payrolling benefits to employees? A: The deadline the employer must provide information to the employee is 1 June. It should show: type of benefit; cash equivalent; amount which is subject to optional remuneration arrangements; and details of benefits not payrolled. n
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| Professional in Payroll, Pensions and Reward |
Issue 50 | May 2019
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