MEMBERSHIP INSIGHT
‘Replacement’ or issue a letter which is a statement of earnings for the whole of the tax year. Q: Where a student loan is in place for an employee who has sadly died, should a student loan deduction be made from a final payment of salary? A: Student loan deductions are based on the same earnings as Class 1 NICs. Therefore, as the earnings are not subject to Class 1 NICs due to death, the student loan deduction is not applicable. This link explains that student loan deductions cannot be made from the pay of a deceased employee: https://goo.gl/ we33iY. Q: The chief executive officer of the company uses the company credit card for personal purchases, with the cost of the personal purchases then deducted from earnings after pay as you earn (PAYE) tax and Class 1 NICs have been calculated and deducted. Are there any tax implications for using the company credit for personal purchases? A: The guidance in regard to using a company credit card for private goods is that you should deduct Class 1 NICs via the payroll on the value of the bill and that an entry should be made for income tax purposes in a P11D return at box C. Though the employee has made good (i.e. reimbursed to the employer the cost of the purchase), and there will be no NICs liability, for clarity an employer may wish to get a ruling from HMRC. It would still go in the P11D (at box C) for tax purposes along with the amount that the employee has reimbursed to the employer, so there will be no tax liability. The following two links illustrate the tax and NICs position. The first – https://goo. gl/Ta9JJM – to HMRC’s National Insurance Manual explains that where the employee reimburses the employer then there is no Class 1 NICs liability. The second – https:// goo.gl/FWyp3W – explains the process if the employee/director does not reimburse the company. Q: The company has two payrolls which have separate PAYE schemes and operate as separate companies. The employment bill for one company is approximately £4 million and the other is £2.5 million.
Advisory Service is available 9a.m. to 5p.m. Mondays to Thursdays, and 9a.m.
to 4.30p.m. on Fridays. It is free to all CIPP members * , students and attendees of approved CIPP courses and conferences in the last six months. Call 0121 712 1099 , email advisory.service@cipp.org.uk or visit cipp.org.uk for frequently asked questions.
Advisory
*please see summary at cippmembership.org.uk for details.
Q: We have a new employee who has received a letter from HM Revenue & Customs (HMRC) which has a National Insurance number (NINo) on it, which does not conform to normal NI numbers. Should I report this in the full payment submission (FPS)? A: This is not a NINo, but a reference that the employee can use if they need to contact HMRC. If the employee has not already applied for a NINo they should be encouraged to apply via the Jobcentreplus. Until the employee receives the NINo from the Department for Work and Pensions the employer should leave the NINo field blank but ensure the name, address, date of birth and gender are recorded in the FPS. Q: An employee was made redundant during statutory maternity leave (SML). The remaining statutory maternity pay (SMP) was paid in a lump sum (as requested by the employee) alongside statutory redundancy pay. Due to this lump sum payment going through the payroll, the individual was hit with a large student loan repayment deduction. The former employee thinks that the large deduction for student loan would not have occurred if the payment had been made after form P45 was issued. Is that correct? A: As student loan deductions are calculated using the same earnings and method used to calculate National Insurance contributions (NICs), and a lump sum payment of SMP would be classed as a normal payment (rather than an irregular payment) then it would make no difference to how the payroll system has treated the student loan deduction on this occasion.
Although an employer can choose to make a lump sum payment of SMP to employees in circumstances where the employment contract has been terminated, it is not best practice. A lump sum payment can only be paid if both the employer and employee agree to this; neither party can impose it on the other. When considering making a lump sum payment of SMP one of the first questions an employer should ask is whether a student loan is in place. Where a lump sum payment of SMP is made, then a potentially large student loan deduction will occur because the SMP is subject to NICs. The student loan deduction will use the earnings which are subject to NICs to calculate the deduction amount in that pay period. The following link is useful when deciding what earnings should be used when calculating student loan deductions: https://goo.gl/aDI845. The other reason it is preferable to pay SMP on a pay period by pay period basis is that both parties pay lower NICs, and the employee pays less income tax. Unfortunately, this will have to stand as there is nothing the employer can do to change this. The system has operated the student loan deduction in the correct manner. Q: Where an employer has corrected the year to date figures in an earlier year update (EYU) would an employer have to give the employee an amended certificate P60? A: On correcting the payroll and the EYU, the employer must inform the employee of the correct figures and can choose either to produce another P60 marked
| Professional in Payroll, Pensions and Reward | December 2016/January 2017 | Issue 26 8
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