Payroll insight
Checklist
Tax code to use
calculating income tax under pay as you earn (PAYE) and NICs. If the payment is the final payment of salary or wage, NICs are calculated using the usual earnings period and category letter. NICs on any ‘irregular’ payments (such as holiday pay, unexpected bonus, arrears of pay following a backdated pay award) must be calculated using a weekly earnings period, regardless of how the employee was normally paid, and the usual NICs category letter. The NICs rates and limits in force at the time of payment are used. In cases where employment has ceased but form P45 has not yet been issued, any outstanding payment is subjected to PAYE as normal. If form P45 has been issued, the following rules must be observed: ● Use tax code 0T, so all taxable payments are subject to tax at the employee’s marginal rate without applying any pay adjustment. Note that the calculation is non-cumulative. ● However, If the payment was a ‘standard’ type payment (such as final payment of salary, bonuses, and so on), then the employer should write to the ex-employee giving details of the date and the amounts of the payment and tax deducted. Use the tax rates and bands in force at the time of the payment. Therefore, if an employee leaves in March but a payment is made in the following May, the tax rates and bands in force in May are used. There are some additional procedures where a payment comprises one or more ‘termination’ payments, such as redundancy pay – but this is a topic which justifies a whole other feature to itself.
Emergency tax code on cumulative basis
Statement A ticked
Emergency tax code on non-cumulative basis
Statement B ticked
BR on cumulative basis
Statement C only ticked
whether deductions are required and, if so, whether they are under plans 1 or 2. As form P45 identifies whether the previous employer was making deductions, but not which plan applied, the new employer may need the new employee to complete a starter checklist in addition to any P45. ● NI certificates – a new starter may bring an age exemption certificate (CA4140), a certificate of election (CA4139) or a deferment certificate (CA2700) as proof of nil or reduced rate liability for NI contributions (NICs). These certificates need to be checked to ensure they are valid and not expired. A point to remember is that even though HMRC no longer issues certificate CA4140 as proof of state pension age, employees can obtain them from the Department for Work and Pensions. In the absence of this certificate, an employer can view and take a copy of the employee’s birth certificate or passport. Certificates CF383 or CF380A are acceptable alternatives to CA4139 for the married women’s reduced rate liability. Leaver notification The payroll department will usually receive a pro-forma notification of leaving from either HR or directly from the line manager. The notification should detail the information required to pay all final monies to the employee, and contain the following: ● full name ● payroll number ● date of leaving ● address to which final payment, payslip, P45, etc, should be sent ● reason for leaving (such as resignation, termination, redundancy, death) ● payment due at time of leaving ● additional payments to be made ● annual leave outstanding or overtaken ● loans outstanding ● special circumstances ● special instructions including deductions from pay in respect of lost property, and so on. It is important that the payroll system is updated as soon as possible so that
the person is recorded as a leaver and no further payments generated (other than the final pay due) to prevent over- or underpayments. ... the person is recorded as a leaver and no further payments generated... Leaver documents There will be certain forms and documents that would need to be given to the employee on termination of employment. HMRC will be notified that the employee is a leaver as the information will be submitted via the FPS. However, the employer will still need to produce parts 1A, 2 and 3 of form P45 so that the leaver can take their tax history to the next employer and in case the individual needs to complete a self-assessment tax return. The details to be shown in the P45 include the date of leaving, the tax code last operated and figures of earnings and tax (this employment or year to date). Note, however, that where a tax refund had been withheld because the employee had been involved in an industrial dispute, the amount of tax to date to be shown is as though the refund had been made. If the employee has provided a valid certificate of election for reduced rate NI liability, then it should be duly completed as appropriate and given to the employee on termination of employment. It is advisable to retain a copy. Leaver types A point to note is that there are different kinds of leavers and where the employee has died any earnings due will be taxable but not NICable. If an employee is retiring and is receiving a pension from the employer, the employee is also treated as a leaver. If the employee has already left the employment and there is a payment due there are special rules to follow when
For all things PAYE, go to GOV.UK https://goo.gl/1Kr7VF.
Apportionment of salary Apportionment of salary may be
necessary if the employee is not entitled to pay for the whole of the pay period which generally occurs when either the employee’s start date does not coincide with the start of the pay period or the employee’s leaving date is earlier than the last day of the pay period (e.g. the month). Apportionment is normally based on a day’s pay derived from the employee’s annual salary. n
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| Professional in Payroll, Pensions and Reward |
Issue 41 | June 2018
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