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View the related Tax Guidance about P45

Real time information

Real time informationReal time information (RTI) is the method by which employers communicate employees’ earnings and PAYE deductions to HMRC, unless an exemption from electronic filing can be claimed. See the Setting up a payroll guidance note.The term ‘employers’ in the RTI context also includes pension payers. Thus, employers who pay their own pensioners (possibly via a specific pensioners’ payroll) need to comply with the RTI regulations, as does the Department of Work and Pensions (DWP).Similarly in the RTI context, ‘employees’ includes pensioners. This includes pensioners paid by their ex-employers, pensioners paid by financial institutions such as insurance companies on behalf of the ex-employers and pensioners in receipt of the basic and additional state pensions and the new single tier state pension.There are penalties for failure to file the necessary RTI returns. See the RTI penalties guidance note.RTI replaced the previous year-end process and also changed the previous P45 / P46 in-year processes. Using the old terminology, RTI can be described as ‘P14+’ in that the main RTI return contains all the details previously found on the year-end P14 plus extras; the main extras are the details of the payments made to employees in the current pay period.The main RTI returns are described below.Full payment submissionThe full payment submission (FPS) is the normal return that employers must make to HMRC. It needs to be sent in respect of each pay period to be received by HMRC shortly before or at the time that payment is made to the employees.

Payroll for pension schemes

Payroll for pension schemesSTOP PRESS: This guidance note may be affected by the changes to the taxation of pensions made by FA 2024, Sch 9 from 6 April 2024 onwards. The commentary below covers the rules that apply prior to that date. Before continuing your research, see the Abolition of the lifetime allowance guidance note.IntroductionIn general terms, running payroll for pension schemes is no different than running PAYE for employees. Pensions are treated as income for PAYE and so pensioners are issued with a tax code (see the PAYE notices of coding guidance note) and tax is deducted accordingly.The major difference between a ‘pensioner payroll’ and an ‘employee payroll’ is that no NIC is due on pensions (this is on the assumption that the pension is being paid from a pension scheme registered with HMRC).Deductions from pensionsApart from NICs, other deductions, with one further exception, can be made from pension payments in the same way as they are taken from earnings.Attachment of earnings orders (AEO)Pensions are treated as earnings for AEO purposes. Thus, AEO may be received in respect of pensioners.Voluntary deductionsThe pension payer needs authorisation from the pensioner in order to take voluntary deductions from the pension, see the Income and deductions guidance note.Student / postgraduate loansThe calculation for a student loan deduction (SLD) / postgraduate loan deduction (PGLD) is based on the earnings that are used to determine the amount of Class 1 NIC due (see the Student and postgraduate loan deductions guidance note).As a pension is

PAYE obligations

PAYE obligationsComing to work in the UKAn employee is subject to income tax if he is resident or carrying out employment duties in the UK. Just one day of work in the UK can result in a UK tax liability for the individual. It can also result in pay as you earn (PAYE) obligations for the employer. See the Setting up a payroll and Employees starting and leaving ― payroll consequences guidance notes.PAYE obligationsUnder normal procedures an employer is required to consider the status of any individual performing work on their behalf. See the Employment status ― why it matters guidance note. Payments to employees are required to be made under the PAYE regulations. However, registration is not required for an employer PAYE scheme if all employees are paid below the national insurance threshold (lower earnings limit) and do not have another job. Under real time information (RTI) reporting, an employer is required to operate PAYE, where at least one employee is earning at least the lower earnings limit, in which case all payments of earnings to all employees must be reported to HMRC, including those employees earning less than the lower earnings limit.If an individual has a contract with an overseas employer it may not be possible for HMRC to enforce the operation of UK PAYE regulations. In order to be liable to operate a PAYE scheme an overseas employer must have a presence in the UK (see the Non-resident employers and liability to PAYE in the UK

Termination payments ― overview

Termination payments ― overviewTermination payments are payments made to an individual relating to the loss of their job. They can take the form of cash, benefits or both. Termination payments will either be fully taxable, partially taxable or fully exempt depending on the nature and the amount of the payment. Although widely referred to as termination payments, this also applies to payments in relation to a change in the duties of employment or a change in the earnings of that employment. This note therefore covers payments related to retirement, redundancy, dismissal, death, resignation, the nature of the role being changed or a change in pay for the employment. A termination payment may also be referred to as a ‘golden handshake’.Depending on the circumstances, termination payments can be categorised as one of the following, each with their own tax and NIC treatment:•earnings ― see the Taxation of cash employment termination payments guidance note•benefits ― see the Taxation of non-cash employment termination payments guidance note•restrictive covenants ― see the Taxation of payments for restrictive covenants guidance note•benefits from an employer-financed retirement benefits scheme (EFRBS) ― see the Employer-financed retirement benefit schemes (EFRBS) ― overview guidance note•termination payments (this includes benefits) within ITEPA 2003, s 401The PAYE treatment of the various payments made on termination is discussed in more detail in the How could a termination payment be taxed? guidance note. It is the employer’s responsibility to correctly operate PAYE for termination payments and they, therefore, bear

RTI ― reporting ‘on or before’ time of payment

RTI ― reporting ‘on or before’ time of paymentMost employers have to report payroll information to HMRC electronically in real time under real time information (RTI). See the Real time information guidance note. The most usual report made to HMRC under this system is the full payment submission (FPS) which has to be transmitted to HMRC shortly before or at the time the employer makes a payment to employees. This is commonly referred to as the ‘on or before’ rule.Although the RTI system at large represented a huge change for employers, requiring changes in their software systems and payroll practices, the ‘on or before’ rule is probably the one aspect of RTI that causes most ongoing difficulties for many employers.This guidance note looks at the number of the problem areas that employers regularly encounter in trying to apply the ‘on or before’ rule and draws together exceptions to the rule and HMRC’s concessions and guidance.Exceptions to ‘on or before’ ruleSome of the exceptions listed below derive from the PAYE regulations and others relate to HMRC statements about what it will accept. The main exceptions are listed in a table on the GOV.UK website.Payment to employees where deductions working sheet not requiredThe PAYE regulations require employers to maintain deductions working sheets in respect of most employees, but this requirement does not apply to employees who do not present a P45 and are either casual employees who work for the employer for less than a week or to longer term employees

Termination payments ― overview

Termination payments ― overviewTermination payments are payments compensating an individual for the loss of their job. They can take the form of cash or benefits in kind. Termination payments will either be fully taxable, partially taxable, or fully exempt depending on the nature and the amount of the payment.Depending on the circumstances, termination payments can be treated for tax purposes as:•earnings•benefits in kind•restrictive covenants•benefits from an employer-financed retirement benefits scheme (EFRBS)•termination payments (as within ITEPA 2003, ss 401–416)The taxation of termination payments is discussed in more detail in the How could a termination payment be taxed? guidance note. You are recommended to read that guidance note before continuing. For the purposes of this guidance note, it is assumed that ITEPA 2003, s 401 applies.It is the employer’s responsibility to correctly tax the termination payment and therefore the employer bears the risk of tax and penalties if the treatment is wrong. This is an area where HMRC sees frequent mistakes in the tax treatment and it has targeted such payments in the past.Termination paymentsThe provisions in ITEPA 2003, s 401 apply to cash payments and benefits in kind received in connection with the:•termination of an individual’s employment•change in duties of an individual’s employment, or•change in the earnings from a person’s employmentITEPA 2003, s 401(1)This guidance note deals with payments received on termination of employment.The payment does not need to be received by the employee / former employee. Any payments or benefits from

A–Z of payroll

A–Z of payrollUnderstanding payroll terminology and establishing the correct tax and NIC treatment of paymentsThis note provides an alphabetical summary list of many of the common terms encountered by those operating a payroll. It also provides appropriate signposting, showing where additional guidance may be found Additional published official guidance, includes HMRC’s CWG2 further guide to PAYE and National Insurance contributions, which summarises the department’s technical views of how most payments should be treated.For additional reading on payroll matters, please refer to Simon’s Taxes, division E4.11.For new or smaller employers the Employer obligations for those running a small payroll guidance note may also be of use.Navigation tip: press ‘Ctrl + F’ to search for a particular term within the table.Payroll term or paymentFurther detailsReferencesAAbsences ― holiday payAn employer has a statutory obligation to pay holiday pay, and the general expectation is that this should be made at the employee’s normal pay rate. The statutory minimum in the UK is 5.6 weeks holiday pay per year, including bank holidays (pro-rated for part time staff). However employees may have additional rights, eg under their employment contract Holiday pay ― legal pointsAbsences ― statutory payments, maternity pay, paternity pay, adoption pay, shared parental leave pay and parental bereavement pay (SMP, SPP, SAP, SSPP and SPBP)An employer is obliged to make statutory payments to employees, if they fall within certain qualifying criteria covering parenthood or child bereavement. All statutory payments are paid

Transferring employees between payrolls

Transferring employees between payrollsOperating more than one payrollAll payroll reporting of an employer will usually be encompassed within the same PAYE reference (PAYE scheme). However, sometimes an employer will prefer to have more than one PAYE reference to cover its various payroll obligations. There may be a variety of reasons for doing so, including the following:•having different pay frequencies, eg monthly and weekly•to group employees by location, eg a retailer having a payroll for each store•to group employees by occupation, eg a hospital may have all its doctors on one payroll and its nurses and other staff on another•in a larger group situation it may be that the business can divide employees for payroll purposes, more efficiently, by business unit than by legal employing group entity•employers may wish to run a separate payroll for senior staff for reasons of confidentiality•an international employer may wish to run separate payrolls for expatriate staff recognising their bespoke PAYE or NIC obligations (see the Modified payrolls for inbound employees guidance note)•in a merger situation (see ‘Mergers and successions’ below) it may be more appropriate to retain more than one payroll especially if the legacy payrolls or HR processes, etc are dealt with under different IT systemsSingle employer operating two or more PAYE referencesGenerally speaking, HMRC will be happy to accept division of PAYE responsibilities along the above lines, so long as there are legitimate business reasons requiring such a division, and that all employer payroll and

Suspended penalties for inaccuracies in returns

Suspended penalties for inaccuracies in returnsBackgroundUnder the penalty legislation introduced by FA 2007, Sch 24, where an inaccuracy has occurred on a return or other document which leads to an understatement of tax, the taxpayer is exposed to a penalty.The rate of the penalty is based on the behaviour of the person and whether the disclosure of the error was prompted by HMRC. If a business has formed a VAT group then the representative member is treated as the person, for purposes of applying the penalty regime. Once the rate has been determined, this is then applied to the potential lost revenue (PLR), which is the extra tax due as a result of correcting the inaccuracy or under-assessment, in order to calculate the amount of the penalty due.The behaviour of the taxpayer is covered in more detail in the Calculating the penalty for inaccuracies in returns ― behaviour of the taxpayer guidance note. The PLR is discussed in the Calculating the penalty for inaccuracies ― potential lost revenue guidance note. The quality of the disclosure made to HMRC is covered in the Penalty reductions for inaccuracies guidance note.If the penalty is due because of a careless inaccuracy HMRC has the discretion to suspend all or part of a penalty for up to two years. HMRC will stipulate conditions to be fulfilled over a period of suspension under FA 2007, Sch 24, para 14. If, at the end of this period, the conditions of suspension are satisfied, then HMRC will

Outbound employees ― payroll issues

Outbound employees ― payroll issuesKey points•the default position for individuals leaving employment under the RTI regime is to include their date of leaving in the FPS submission and provide the employee with a form P45•for employees leaving their UK employment to start overseas work under a new employment con-tract with an overseas entity, or for individuals transferring to a new payroll scheme within the UK, they should be marked as leavers in the same way as the basic position.•where an employee will remain on UK payroll but is expected to perform all of their employment duties overseas, a No Tax (NT) code can be applied for from HMRC in order to exempt their earnings from PAYE•where an employee will continue to have some UK employment duties but will otherwise be expected to be non-resident in the UK, a s 690 arrangement can be agreed with HMRC in order to restrict PAYE to portion of their earnings in line with an estimated percentage of UK employment duties•where some of the individual’s employment duties will be performed overseas and some in the UK but the individual is likely to remain UK tax resident, it may be appropriate to apply for an Appendix 5 arrangement with HMRC whereby foreign taxes paid can be claimed as a credit in a real time basis on monthly UK payroll•national insurance is not subject to the same rules as income tax and social security should only be paid in one