As 2021 draws to a close, we turn our thoughts to 2022 and maybe some New Year’s resolutions. HMRC have come up with some suggestions on the subject to help Real Time Information (RTI) run more smoothly.
Some of these suggestions are included in the December issue of the Employer Bulletin, but let’s take a close look on how we can use RTI to make everyone’s life easier.
Of course, your payroll system will steer you towards entering the correct and required information however, it is useful to examine what the implications are if we were to submit incorrect or incomplete data.
Providing HMRC with an employee’s Payroll ID on a Full Payment Submission (FPS) is optional (FPS item 38). The Payroll ID is usually defined as the employee’s payroll number or works number. It can however, be a number used by your payroll software product that as a customer you do not see, so you may need to check with your software provider.
Reporting the employee’s Payroll ID on an FPS helps HMRC identify the individual on their system, so they have encouraged employers to report them. It is particularly useful if the employee has more than one job with an employer.
Don’t reuse Payroll ID
However, there are a couple of pitfalls to including the Payroll ID on a FPS. The first is that you must never reuse the Payroll ID for a new employee if the original employee on that payroll number leaves your employment.
Furthermore, if an employee returns to work for you, do not give them their original Payroll ID. This situation is perhaps a little tricky, as some employers prefer an employee to retain the same payroll number throughout their working life with the employer, even if they have had several periods of employment.
Temp agencies often keep their temporary workers on the same payroll number even if the temp is not working for them continuously. However, as this is a common issue for temporary payrolls, they often resolve this problem by adding an extension to the payroll number/payroll ID. For example, they may allocate payroll number 1234 to Charlotte James on the temp payroll and if Charlotte returns to work for them again later in the year, they will allocate payroll number 1234A and so on. In that way, they can retain Charlotte’s records in one place, but each period of work is kept separate and avoids any confusion.
Changing payroll numbers
If you report the Payroll ID numbers on the FPS and you change payroll numbers, then you need to take particular care. You may be changing the payroll number because you are changing payroll systems or for some administrative reason.
As we mentioned above not all payroll software products show the Payroll ID number, they report on RTI to the customer. Therefore, if you are changing payroll software, you may need to check with your old provider. HMRC advise employers that when they change payroll products if they are unable to check with their previous provider to set the indicator on the FPS anyway (item 38 see next).
Item 38 on the FPS is used for Payroll ID and if that changes then items 39 and 40 also need to be completed. Item 39 indicates there is a change to the payroll number and 40 is used to show the old payroll number. If fields 39 and 40 are not completed, HMRC systems will then interpret the change as a second employment and create a second record and issue tax code BR.
HMRC has observed that not all the required personal data is entered onto the payroll when an employee joins. Prior to the introduction of RTI, it was possible if we received late notification of a new starter and we didn’t have all the relevant information, providing we had their name and salary, we could probably pay them. We could then add other information as and when it arrived.
However, RTI has now changed all that. There is certain information that must be entered onto the system the first time you pay someone. Much of this information can be verified when an employer carries out pre employment checks using official documents to ensure that the employee has the right to work in the UK. But of course, that is dependent on the relevant information then being passed to Payroll.
Proof that these checks have been made are required as part of an employer’s records and the incentive to do this, is a fine of up to £20,000 per worker if you don’t. So, it is a big incentive!
The information you will need to obtain about your new employee is as follows:
- Employee’s name
- date of birth
- full home address
- their start date
Employee’s Full name
Employee’s full name needs to be correctly spelt. Do not use nicknames e.g., Jim instead of James.
Do not utilise this field to add other notes such as “temp”, “contract” or “staff”.
Date of birth
The employee’s date of birth should be taken from official documents, such as the employee’s passport or birth certificate. HMRC has observed that some employers are using a “nominal” date of birth instead of the employee’s actual date of birth. There are two important reasons as to why the correct date of birth must be used.
Firstly, if the date of birth indicates that they are under the age of 21, then the employer pays Secondary NI contributions of zero percent up to the Upper Secondary Threshold (UST) and then 13.8 percent on earnings above the UST. The right to pay category M (or category Z if you hold a deferment certificate CA 2700 for them) arises when the payment is made i.e. payday, so once the employee reaches the age of 21, the employer must amend their NI category to A (or category J if they are deferred) for the payday that they reach age 21. It is not necessary to split the NI contributions. For example, if the employee reaches age 21 on 19th of the month and is paid on 20th of the month for the whole month. On pay day they are aged 21 and therefore must pay category A for the whole of that month.
The second reason that an accurate the date of birth has been used is that once HMRC has received the FPS they sent the Pensions Regulator confirmation of the date of birth for auto enrolment purposes.
Employers are required to enter an employee’s gender as either male or female on an FPS. Although an individual can opt to choose their gender for GDPR purposes or in fact register as neutral, for HMRC purposes there are specific rules.
If an employee has changed their gender, you will need sight of either their new birth certificate or a Gender Recognition Certificate (GRC). However, if this happens whilst they are already working for you, then you will need to register their new name and gender on a separate FPS otherwise HMRC will create a duplicate record for them.
RTI requires employers to enter an employee’s full home address. Sometimes employees, for whatever reason, are reluctant to provide this information to their employer. However, it is important that this is included in the first FPS as HMRC require it to determine the employees tax status. For instance, do they qualify as a Scottish or Welsh taxpayer? This is determined by HMRC based on where the employee’s main residence is, plus other factors, such as which country they spend the most time. The Low Income Tax Reform Group provides a good overview of who would qualify as a Scottish taxpayer in their guide.
Gov.uk provides comprehensive guidance on who qualifies as a Welsh taxpayer.
It is perhaps worth mentioning here, that employers are not required to assess a new employee’s tax status regarding Scottish or Welsh income tax via the Starter Checklist. In the absence of form P45, a Starter Checklist should be completed. Depending on which statement the employee ticks, will determine the tax code you operate:
- Statement A, operate 1257L on a cumulative basis
- Statement B, operate 1257L on a week 1/month 1 basis
- Statement C, operate BR cumulative
- Does not tick or sign the form or return it, operate 0T on a week 1/month 1 basis
The above tax codes should be operated even if the employee has indicated that they live in Wales or Scotland. HMRC will determine their tax status and issue a new tax code if necessary.
Incidentally, it is good practice to ask a new employee to complete a Starter Checklist even if they give you a P45. Although you would normally operate the tax code on the P45 (plus any adjustments if applicable from form P9X) the Starter Checklist provides other information that is useful, such as do they have a Student Loan to repay and the plan type.
If a P45 arrives after the FPS has been submitted, you may still be able to use the P45 providing HMRC has not sent you a new tax code.
The date an employee joins also needs to be reported on the FPS as it opens a record on HMRC’s system.
It is important that if you are informed that an employee’s start date has changed after you have submitted the FPS with their details. But under no circumstances should you amend the start date on a subsequent FPS submission. The reason is this will be interpreted by HMRC’s system as a second employment, and they will open a second record for this employee and issue tax code BR.
The correct course of action would be to amend your records with the new start date but do not include it on the next FPS.
Throughout this article we have referred to employers making innocent errors which then result in duplicate records on HMRC’s system and incorrect tax codes being issued as a result. So, what does a duplicate record mean? It means that HMRC has interpreted the employer’s actions that the employee has two jobs with the same employer. This can result in the tax code being amended to BR.
It can also mean that any tax and national insurance paid on the original record is also duplicated. This in turn can result in the employer being unable to balance their PAYE payments against the values that HMRC holds.
National Insurance Number (NINO)
An employee is required by law to provide their employer with their NI number if they have one. Any NI contributions that the employee pays are set against this record on HMRC’s and the DWP’s systems. If the NI number is missing, then any NI contributions deducted go into a government holding account until they are claimed. This may be because an individual is trying to claim a state benefit but finds that their record has NI contributions missing for certain years.
If an employee does not know their NI number and it is not on their P45, they will find it on an old payslip or P60. An employer can try and trace it via the National Insurance Verification Request service (NVR). For example, if an employee has come from abroad and therefore does not have an NI number, they will need to contact the DWP to register for one.
Raising a dispute
If a situation arises where an employer does not agree with the amount of PAYE that HMRC state that they owe, this could be because of duplicate records or another reason. The employer should contact the Employer Helpline on 0300 200 3200 and raise a disputed charge until they are able to resolve the matter with HMRC. A disputed charge will freeze the outstanding amount until the issue can be resolved. This means that in the meantime, Debt Management and Banking (DMB) will not actively pursue the employer for the debt.