02 March 2015
With the new tax year falling over Easter we have a timely refresher on payment dates from HMRC’s recently published Employer Bulletin.
When is a payment made for PAYE purposes?
Although Real Time information (RTI) has not changed when a payment is made, it is more important than ever to understand when a payment is made for PAYE purposes, what date should be included on your Full Payment Submission (FPS) and when the return should be sent.
The law says that for PAYE purposes, a payment is treated as made the earlier of,
- The time when the payment is made
- The time when the person becomes entitled to the payment.
The intention behind the legislation is to ensure that PAYE is operated at the right time and in the correct tax year.
If the tax rate goes down, as happened when the additional rate was reduced from 50% to 45%, PAYE is still operated following these two rules. So the employee cannot ask to be paid in the later tax year and pay less tax, if they were legally entitled to be paid in the earlier one.
What date should go on the Full Payment Submission (Payment date: Data Item 43)?
The payment date on the FPS should be the employee’s regular payday. For most employees this will be the date the employee is entitled to be paid and when they actually do get paid.
So, if the employee is paid late, the employer should still use the regular payday on the FPS where the employee is entitled to be paid on that date. If you pay the employee early, then this will bring the payment date forward and the employer should use this date on the FPS.
In addition, for PAYE purposes payment is made when the employee has control of the money and can use it for their own benefit, and this should happen on the date the employee is normally paid.
So if you pay by electronic means (such as Bacs), payment is made when the money is in the employee’s account and they can use it. Again, it is expected that that the employee will have control of their money by their regular pay date and this is the date that should be entered on the FPS. To ensure that the funds are in the employee’s account by their regular payment date, you may have to prepare a Bacs transfer instruction on an earlier date.
However, you should enter the date the funds will reach the employee’s bank account on the FPS and it is expected that this will happen on the regular payment date.
If paying by cash or cheque, payment is made when they are given to the employee, the date the cheque is cashed or put into the bank does not matter. Therefore, the date to be entered on the FPS is the date the cheque is given or the cash paid.
The regular payment date falls on a non-banking day
An easement applies if the employee’s regular payment date falls on a non-banking day. This is currently on page 9 of the CWG2.
It explains when you should make your submissions if the regular payday falls on a non-banking day (Saturday, Sunday or bank holiday) and as a result, you make payment:
- on the last working day before the regular payday; or
- on the next working payday after the regular payday.
This is to ensure that PAYE operates as normal so the employee receives the allowances they are entitled to and the payment is allocated to the correct payment period or tax year.
For PAYE purposes, the payment can be treated as if it had been made on the regular payday and this is the date that should be reported on the FPS as the ‘payment date.’
An important example of where this might apply is the end of this tax year, which falls over the Easter bank holiday.
For example if the:
- regular date of payment is the 3, 4, 5 or 6 April but
- the actual date of payment is the 2 April
report the payment as being made on the 3, 4, 5 or 6 as appropriate.
Remember that a regular payment date of 6 April falls in the following tax year.
Similarly, if the:
- regular date of payment is the 6 April, but
- the actual date of payment is the 7th April
you can report the payment as being made on the regular payment date.
As the actual date of payment is on the 7 April, then if you are sending your FPS on that date, remember to use late reporting code G.
There’s further information on using late reporting codes in the Late reporting reason section of the What Payroll Information to report guidance.
For National Insurance contributions, the payment must be treated as if it had been made at its regular time, if the actual and regular payment days are in the same tax year.
If the actual payment date and the regular payment date fall in different tax years the payment may also be treated as having been made at its regular time.
HMRC has updated the Employer Further Guide to PAYE and NICs - CWG2 (2015) to reflect information for the 2015-16 tax year.