Reporting PAYE ?on or before? paying employees: common misunderstandings

22 October 2015

There are a number of misunderstandings about what reporting PAYE in real time ‘on or before’ paying employees actually means.

HMRC’s latest Employer Bulletin provides details of the misconceptions from recent feedback:

All employers with nine or fewer employees (micro employers) can always report on a monthly basis

There are two misconceptions here:

a. The current relaxation isn’t a permanent ‘easement’ of the PAYE reporting obligations and is due to come to an end on 5 April 2016.

b. It is not open to all micro employers. To use the relaxation in the 2015 to 2016 tax year, employers must have been operating a PAYE scheme at 5 April 2014 and had nine or fewer employees at 6 April 2015. Where these conditions are met, the easement permits employers who pay their employees on a more frequent basis than monthly (for example weekly), to report their PAYE monthly ‘on or before’ the last payday in the tax month, rather than ‘on or before’ each time they pay their employees.

Some micro employers may be using this relaxation without realising it, assuming that this is how reporting PAYE in real time works. However, there are some permanent exceptions to real time reporting which do permit you to report certain payments in specific circumstances later than when employees are paid. These are when payments are made on an ad hoc basis or exceptional basis and further details are listed in our Running payroll: sending an FPS after payday guidance under ‘Situation’ and ‘When to report’.

RTI software won’t allow weekly submissions to HMRC

RTI software should support PAYE being reported on the basis of your pay frequency e.g. if you pay weekly your software should enable you to report the PAYE weekly ‘on or before’ the day you pay your staff. Although some commercial software products may only allow monthly PAYE reporting, others (including HMRC’s free Basic PAYE Tools) will allow more regular reporting. So if you do pay your employees more frequently ensure your software is able to support your reporting obligations.

You report your PAYE to HMRC at the same time as you pay HMRC

When you must report PAYE and when you must pay over the tax/NICs and other deductions you make from earnings are two separate obligations with two different deadlines. You report your PAYE to HMRC ‘on or before’ the date you pay your employees, not the date you pay HMRC. This latter obligation depends on the amount of the deductions and the method by which you pay HMRC. Further details can be found in our guidance Pay employer’s PAYE on GOV.UK.

Delaying reporting PAYE means you can delay paying HMRC

Delaying reporting PAYE does not mean you can also delay your payment to HMRC and vice-versa. Delaying reporting your PAYE to coincide with when you pay over the deductions could mean you face a late filing penalty and if you don’t pay on time you may also face a late payment penalty. So not meeting your PAYE reporting and HMRC payment deadlines will not offer more flexibility in managing cash flow and can lead to penalties.

Looking critically at your business practices and processes and then making some appropriate changes can be an effective way of ensuring that you report in real time. Here are some hints and tips which you might find helpful:

  • Ensure your software and business processes are capable of being able to report ‘on or before’ paying employees. One of the reasons for RTI is to assist with timely information for Universal Credits so it is important that your employees understand the need to get time sheets and overtime records submitted in good time. If they don’t, it may affect any Universal Credit payments to your employees
  • Review your payroll software if it is unable to meet your reporting obligations e.g. it won’t let you report on the same basis that you pay your staff
  • Consider consulting with your employees to move from weekly paid to monthly paid. Although you don’t have to change when you run your payroll, it may ease administration and help reduce the cost of processing your payroll
  • Set up your own reminders (e.g. in Outlook or on your mobile phone) to help you report on time
  • Report your PAYE early if you know you may not be around on the reporting date e.g. if you’re going away on holiday – but don’t report too early or you may need to send corrected PAYE reports to update HMRC
  • Use direct debits and set up advance payments as soon as your final FPS submission for the month is made so that payment to HMRC isn’t forgotten and is made by the deadline
  • Guidance on ‘Paying employees’ and using the right ‘payment date’ was provided in the February 2015 edition of Employer Bulletin Issue 52.