2022 to 2023: Employer further guide to PAYE and National Insurance contributions

Question 1

Introduction

Accepted Answer

Real time information

The following guidance is for all employers. Guidance for reporting Pay As You Earn (PAYE) in real time is also available.

About this guide

This edition replaces the CWG2 (2021).

All examples in this guide show tax calculated using the tax tables, not the Scottish rate or Welsh rate tables — you must use the Scottish rate tables for an employee with a prefix S code and the Welsh rate tables for an employee with a prefix C code.

Read PAYE and paying National Insurance contributions for more information about the day-to-day tasks in operation.

This guidance gives more detailed information and covers some less common situations.

HMRC may ask you to produce evidence of how you have worked out PAYE and National Insurance contributions. It’s important that you keep your records either in paper form or on a computer. In either case, these records must be made available to HMRC on request.

There are legal requirements that mean employers must comply with their obligations. At the time of writing, this guidance sets out HMRC’s view on how these legal requirements can be met.

The guidance was last updated in November 2022.

The operation of PAYE is based on the Income Tax (PAYE) Regulations 2003 and the payment of National Insurance contributions is based on the:

Social Security Contributions and Benefits Act 1992
Social Security Administration Act 1992
Social Security (Contributions) Regulations 2001, as amended
Social Security (Categorisation of Earners) Regulations 1978, as amended

For more information, read PAYE guidance or contact the Employer helpline.

Employers in Northern Ireland

In this guidance, references to Department for Work and Pensions (DWP) should be read as Department for Social Development (DSP).

The operation of PAYE is based on the Income Tax (PAYE) Regulations 2003 and the payment of National Insurance contributions is based on the:

Social Security Contributions and Benefits (Northern Ireland) Act 1992
Social Security Administration (Northern Ireland) Act 1992
Social Security (Categorisation of Earners) Regulations (Northern Ireland) 1978, as amended

If you cannot find the information you need in this guide, more help is available in PAYE guidance and from the Employer helpline.

If you’re unhappy with our service

If you’re unhappy with our service, phone the person or office you have been dealing with to allow us to put things right quickly. Their phone number will be on any papers they have sent.

If you’re still unhappy or you’d like to deal with someone else, you can:

complain to HMRC
contact the Complaints Manager at the office you have been dealing with

Terms used in this guide

Gross pay

The amount the employee is due to receive before any deductions are made. What counts as gross pay for PAYE and National Insurance contributions purposes is defined in more detail in section 5.

Income Tax year (tax year)

A tax year is a period starting on 6 April in one year and ending on 5 April in the following year. For example, the 2022 to 2023 tax year starts on 6 April 2022 and ends on 5 April 2023.

Income Tax weeks (tax weeks)

Tax weeks are periods of 7 days which follow on from each other starting on 6 April each year. The first tax week is 6 April to 12 April inclusive, the second tax week is 13 April to 19 April inclusive, and so on.

The odd day or days at the end of the last complete tax week in the year, (5 April or in leap years, 4 April and 5 April) are treated as a whole tax week, which is tax week 53.

Income Tax months (tax months)

Income Tax months are periods following on from each other in an Income Tax year. They start on the sixth of one month and finish on the fifth of the following month. The first Income Tax month is 6 April to 5 May inclusive, the second Income Tax month is 6 May to 5 June inclusive, and so on.

Read running payroll for details of relevant dates within a tax year.

Pay interval

The period of time between one payment and the next. Pay intervals can be:

‘regular’, that’s every week, month and so on
‘irregular’, that’s with no fixed period of time between — for example, an employee is paid after working for 10 days, then again after a further 25 days and again after a further 40 days

Payroll record

A payroll record shows PAYE and National Insurance contributions deductions for each of your employees. It’s important that you keep payroll records, either in paper form or electronically.

Recorded gender

This refers to the gender which a transgender person was registered with at birth.

Acquired gender

This refers to the gender which a transgender person presents to the world. It’s not the gender that they were registered with at birth.

Full gender recognition certificate (GRC)

A certificate issued by the Gender Recognition Panel, that shows a person has satisfied the criteria for legal recognition in their acquired gender. From the date of issue, the person is recognised in their acquired gender and will benefit from any rights and responsibilities that are associated with that acquired gender.

Interim GRC

A certificate issued by the Gender Recognition Panel that shows a person has met the criteria to be recognised in their acquired gender subject to them annulling their marriage. A full GRC will be issued following the annulment of the marriage.

Transgender female

A person who at birth was recorded as male but chooses to live as a female, should be referred to in female terms (‘she’, ‘her’, ‘Ms’).

Transgender male

A person who at birth was recorded as female but chooses to live as a male, should be referred to in male terms (‘he’, ‘him’, ‘Mr’).

Online filing

There are a wide range of PAYE notices, forms and returns that can be sent and received online.

Online filing is a fast, convenient and secure way of exchanging information with HMRC. It cuts down on time, administration and errors, and it means that you’ll get up to date PAYE information, such as updated employee tax codes, much faster.

As part of operating PAYE, almost all employers must report their payroll information online using a full payment submission (FPS) for each pay period.

There are a small number of employers who may be:

exempt from submitting this information online
unable to submit information online due to exceptional circumstances

For more information about the exceptions, read which employers are exempt from online payroll reporting.

Read PAYE Online for employers for more information about online filing and sending starter and leaver information.

PAYE Online — your filing options

You report your payroll information by submitting an FPS and an employer payment summary (EPS). You also use an EPS to tell HMRC if you have not paid any employees in a pay period and have no return to make. These submissions and other returns and reports are sent electronically by your payroll system to HMRC.

You can send forms and returns online using:

PAYE Online for employers internet service, choosing either:
- our free ‘Online Return and Forms — PAYE’ product (this is designed for small employers who have up to and including 49 employees and do not send large numbers of forms)
- third party (commercial) payroll software
an agent or payroll bureau who can file online on your behalf, using the HMRC online services for reporting PAYE and Construction Industry Scheme

PAYE Online — expenses and benefits

In addition to these filing options, we provide a service that allows you to send your expenses and benefits information, if your software does not do this automatically.

For more information on completing your expenses and benefits forms, read expenses and benefits for employers.

PAYE Online — Direct Debit payment

When you sign up for the PAYE Online for Employers service, you’re given instant access to the Direct Debit Online service. This allows you to set up a Direct Debit Instruction which you can use to pay your monthly or quarterly PAYE and National Insurance contributions payments.

Read pay employers’ PAYE for more information on how to pay:

PAYE
Class 1 National Insurance contributions
Construction Industry Scheme

Internet

Forms and returns that can be sent online are:

Full Payment Submission (FPS)
Employer Payment Summary (EPS)
generic notification service
National Insurance number verification request
P35: employer annual return, used for a tax year during which you did not operate PAYE in real time
P38A: employer supplementary return, used for a tax year during which you did not operate PAYE in real time
P14: end of year (EOY) summary, used for a tax year during which you did not operate PAYE in real time
form P11D: return of expenses and benefits
form P11D(b): return of Class 1A National Insurance contributions on expenses and benefits
form P46(car): notification of car made available for private use

Forms and notices you can get online are:

P6: employer coding notification
P6(B): employer coding notification (budget)
P9: annual coding notification
SL1: Student Loan Start Notice
SL2: Student Loan Stop Notice
PGL1: Postgraduate Loan Start Notice
PGL2: Postgraduate Loan Stop Notice
P11D(b) notification

Businesses involved in the Construction Industry Scheme can file online monthly returns (CIS300) and carry out verification of subcontractors over the internet.

For more information, use the Construction Industry Scheme online service.

For online end of year expenses and benefits forms, read expenses and benefits for employers.

Commercially available or privately produced payrolls

The notes tell you how to get information to allow you to use and run a computerised payroll.

Commercially produced programs

We work closely with commercial software developers and provide free National Insurance guides to help them create products and services suitable for use with HMRC services online.

HMRC will accept forms and returns sent using any of the commercial software products listed on find payroll software.

Privately produced programs

If you design and operate your own computer program, we provide Real Time Information support to help you keep computerised payroll systems up to date with changing legislation.

Substitute forms P60, ‘EOY certificate’

All substitute forms P60, ‘EOY certificate’, paper or electronically, must be submitted annually for HMRC approval.

Our guidance RD1: Specifications for P60 substitutes, gives guidelines to anyone producing a new substitute P60 design or amending an existing design. We revise the guidance annually to publish any changes for the current tax year.

Substitute forms P60 provided by a supplier of business stationery or by a computer bureau will normally have been approved by HMRC for general use and bear a unique imprint agreed between HMRC and the supplier or manufacturer.

To apply for HMRC approval, email a draft of the proposed form (for example, PDF) to: hmrc.substituteformsapproval@hmrc.gov.uk.

Form P45 for use on computer printers

We supply 4 versions of form P45 for computer use:

P45 (Manual): for manual completion
P45 (Continuous): suitable for completion by impact printer
P45 (Continuous)(E): suitable for completion by impact printer
P45 (Laser-Continuous): suitable for completion by high-speed laser printers
P45 (Laser-Sheet): suitable for completion by cut-sheet laser printers

You can get these forms from the Employer orderline.

Question 2

1.  General procedures

Accepted Answer

The following guidance applies to all employers. The PAYE section has guidance on reporting PAYE in real time.

1.1 Who’s an ‘employee’ for the purposes of PAYE and Class 1 National Insurance contributions

In this guide, ‘employee’ means anyone who’s gainfully employed in the UK and is:

engaged under a ‘contract of service’, where you pay somebody to work for you, that arrangement will normally amount to either, a contract of service (employment) or a contract for services (self-employment), almost everyone who works for an employer will be employed under a contract of service, including full-time, part-time, casual or temporary employment, a contract need not be written, but can be a verbal or implied working agreement
an office holder with earnings chargeable to tax, an office holder is someone appointed to hold a titled office including an elective office, for example, a company director
engaged through an agency or some other third party — for more information, read paragraph 4.2

For PAYE purposes

In addition, ‘employee’ includes, for most PAYE purposes, pension recipients and others who get PAYE income (for example, ex-employees).

Similarly ‘employer’ includes, for most PAYE purposes, agencies, pension-payers and others who make payments of PAYE income.

For National Insurance contributions purposes

In addition to the previous examples, if certain conditions are met, a person in any of the following occupations is treated as being an employee. The conditions are set out in the Social Security (Categorisation of Earners) Regulations 1978, as amended. The occupations are:

office cleaners
ministers of religion
people employed by their husband or wife or civil partner for the purpose of his or her employment

If you’re not sure if someone is an ‘employee’ or if you’re an ‘employer’ for PAYE or National Insurance contributions purposes you can:

use check employment status for tax and use HMRC calculators and tools
phone the Employer helpline

1.2 National Insurance numbers

1.2.1 What a National Insurance number is

A National Insurance number is the unique reference number used by HMRC and the DWP to identify an individual’s National Insurance contributions record. It makes sure that contributions paid by, and credited to, an individual are put on the right record so that whenever a claim to benefit is made, the correct amount can be paid.

You must record an employee’s National Insurance number on payroll records. It’s important, therefore, that you ask employees for their National Insurance number as soon as possible after they start working for you.

Your employees are required by law to give their National Insurance number to you, although they can start work before providing the number.

For each employee, you must:

record their date of birth, gender and address including postcode
arrange for them to let you know of any change of name, gender or address

Your employee remains accountable for their own records, but receiving this information from you will help HMRC keep records up to date.

Temporary National Insurance numbers

Do not use temporary National Insurance numbers on employer returns. In all cases you should try to get the National Insurance number (read paragraph 1.2.4) and enter it on your payroll record.

If you’re unable to get the National Insurance number you must:

leave the National Insurance number field blank
enter the:
- date of birth and gender
- address including postcode

1.2.2 How to get an employee’s National Insurance number

To find out how to get an employee’s National Insurance number, or if you want to check an employee’s National Insurance number before including it on the employee’s payroll record, read PAYE guidance.

Employees can get confirmation of their National Insurance number from their personal tax account, HMRC App, or by contacting HMRC. If your new employee does not know their National Insurance number and you’ve not yet included them on an FPS, you should ask them if they have an old payslip or form P60, you’ll usually be able to find it there.

If you cannot get a National Insurance number for a new employee, you must:

still send their details on the first FPS that includes a payment to them
leave the National Insurance number field blank for that employee
not use an incorrect or ‘dummy’ National Insurance number

When you submit the FPS, HMRC will try to match the employee’s details to their National Insurance number, and where HMRC are able to match the employee’s National Insurance number with the details you provided, you’ll get a message through the FPS submission route telling you the correct National Insurance number.

If you do not receive a message from HMRC telling you the correct National Insurance number, continue to leave the National Insurance number field blank for that employee until notified.

1.2.3 When the National Insurance number used by HMRC differs from the one you already hold

If the National Insurance number used by HMRC for an employee differs from the one you already hold, use the National Insurance number given to you by HMRC. If your employee disputes this is the correct National Insurance number, advise them to contact HMRC.

1.2.4 National Insurance number and identity

The National Insurance number card or letter should not be accepted by anyone as proof of identity.

The fact that a person has a National Insurance number does not mean that the person has the right to work or live in the UK. It’s not a passport to employment.

For more information on a person’s right to work in the UK:

1.3 When to work out National Insurance contributions and PAYE

As a general rule, both National Insurance contributions and PAYE are operated when a payment of earnings is made to an employee.

For PAYE purposes

If the employee is not a director, operate PAYE on the earlier of when:

you actually make the payment
the employee is entitled to be paid, even if the pay is not drawn until later

If the employee is a director, operate PAYE on the earlier of when:

you actually make the payment
the director becomes entitled to be paid
the payment is credited in the company accounts or records, even if the:
- director cannot draw the money straightaway because there’s a block on the right to payment
- credit is not specifically in an account in the director’s name
the remuneration is fixed or determined if the amount:
- for a particular accounting period is determined before the end of that period, take the date as being when the period ends
- is determined after the period ends, take the date as being when the amount is determined

For National Insurance contributions purposes

The point of payment is that at which the earnings are placed unreservedly at the disposal of the employee. If the employee is a director, read CA44: National Insurance for company directors.

Phone the Employer helpline for advice on what to do for PAYE and National Insurance contributions purposes.

Late notification of marginal items of pay

Occasionally, payroll sections do not get to know about certain marginal items of pay, for example, expenses, until sometime after they have been paid or treated as paid. They include the item in a later earnings period because it’s time-consuming to have to revisit the correct earnings period and recalculate the National Insurance contributions due.

HMRC will allow you to use a later earnings period when calculating the National Insurance contributions due, even on the rare occasions when such payments are notified late and the most convenient earnings period falls within the next tax year. But the marginal item of pay must be included in the gross pay for the purposes of calculating National Insurance contributions without any undue delay.

Marginal items of pay included in a later earnings period do not have to be reported to HMRC when paid. They should be reported when they’re included in the later earnings period.

You must allocate marginal items of pay to the correct earnings period and recalculate the National Insurance contributions where the deferred calculation may have a material effect on an individual’s benefit entitlement. For example, where an employee earns around the lower earnings limit (LEL).

HMRC will also ask you to include the marginal item of pay in the correct earnings period and recalculate the National Insurance contributions due where it appears that you’re deferring the calculation to avoid or reduce National Insurance contributions.

If you must allocate the marginal item of pay to the correct earnings period and recalculate the National Insurance contributions, you’ll need to make sure that the year to date National Insurance information submitted on a FPS reflects the correct values.

‘Marginal items of pay’ do not include amounts paid, or treated as paid, by way of securities, for example, shares or share options.

If an item of pay is not marginal and your payroll section does not find out about the item in time to include it in the correct earnings period, the pay records must be adjusted to allocate the item to the correct earnings period.

1.4 National Insurance contributions

Abolition of Class 1 National Insurance contributions contracted out rebate

From April 2016 the primary and secondary Class 1 National Insurance contributions contracted-out rebate is no longer available due to the abolition of contracting out for Defined Benefit schemes, known as contracted out salary related (COSR) schemes.

Abolition of secondary National Insurance contributions for apprentices under the age of 21

For more information, read paragraph 3.9.1.

Abolition of secondary National Insurance contributions for apprentices under the age of 25

For more information, read paragraph 3.9.2.

Zero rate of secondary contributions for employers of armed forces veterans

For more information, read paragraph 3.9.6.

Zero rate of secondary rate contributions for employees working in a Freeport tax site

For more information, read paragraph 3.9.7.

The Health and Social Care Levy Act 2021 introduced a 1.25 percentage point increase in Class 1, Class 1A and Class 1B National Insurance contribution rates from the start of the 2022 to 2023 tax year.

The Health and Social Care Levy (Repeal) Act 2022 reversed the 1.25 percentage point increase in Class 1, National Insurance contribution rates for payments of earnings from 6 November for the remainder of the 2022 to 2023 tax year, and changed the rate of Class 1A and Class 1B National Insurance contributions for the 2022 to 2023 tax year (see paragraph 1.6 for more information about Class 1A National Insurance contributions).

The Class 1 National Insurance contribution rates for the 2022 to 2023 tax year are split as follows:

6 April 2022 to 5 November 2022

main primary percentage —13.25%
additional primary percentage — 3.25%
married women and widows reduced rate — 7.1%
secondary percentage — 15.05%

6 November 2022 to 5 April 2023

main primary percentage — 12%
additional primary percentage — 2%
married women and widows reduced rate — 5.85%
secondary percentage — 13.8%

These rates do not apply to directors — See CA44 for information on the blended rate and calculating directors Class 1 National Insurance contributions.

1.5 Employment allowance

The Employment Allowance for certain employers may be offset against employer Class 1 secondary National Insurance contributions. Eligible employers may claim the Employment Allowance if the earnings they pay give rise to secondary Class 1 National Insurance contributions liability.

Service companies have limited eligibility for Employment Allowance — they’re not able to claim in respect of deemed payments of employment income.

From April 2015 the Employment Allowance was extended to be available to certain individuals employing carers.

From April 2016 the Employment Allowance was restricted so that single director companies, where the director is the only employee paid above the Secondary Threshold (ST) were no longer eligible.

Subject to parliamentary approval, from April 2020 the Employment Allowance will not be available to employers who had qualifying Class 1 secondary National Insurance contributions liabilities of £100,000 or more in the previous tax year.

You’ll need to determine your eligibility. For more information, read Employment Allowance on details of eligibility and how to claim.

1.5.1 Apprenticeship Levy

From April 2017 employers have a liability to pay the Apprenticeship Levy. The levy is charged at a rate of 0.5% of an employer’s annual pay bill. Pay bill is defined as earnings which are liable to Class 1 secondary National Insurance contributions, including earnings below the ST. Employers have an annual allowance of £15,000 with which to offset their levy liability. You’ll need to determine your levy liability. For more information, read paragraph 3.8.7.

1.6 Class 1A National Insurance contributions on taxable benefits

Class 1A National Insurance contributions are due on most taxable benefits in kind. Details of when liability for Class 1A National Insurance contributions arises and how they’re calculated, reported and paid are included in CWG5: Class 1A National Insurance contributions on benefits in kind.

For the 2022 to 2023 tax year the Class 1A National Insurance contribution rates for annually reported benefits in kind is the same as the blended Secondary Class 1 NICs rate for directors, see CWG5 for more information.

You should also read the Expenses and benefits for directors and employees — a tax guide: 480.

1.6.1 Class 1A National Insurance contributions on termination awards and sporting testimonial payments

From April 2020 Class 1A National Insurance contributions are due in real time on payments of termination awards above £30,000 and sporting testimonial payments made by an independent Testimonial Committee above £100,000.

For the 2022 to 2023 tax year, the Class 1A rate for termination awards and sporting testimonial payments paid in real time (RTI) is the Secondary Class 1 National Insurance contributions rate in force on the date of payment.

More details can be found in Class 1A National Insurance contributions on benefits in kind (CWG5) parts 9 and 10.

1.7 How to work out National Insurance contributions and PAYE for various pay intervals

The following information will help you work out National Insurance contributions and PAYE for most pay intervals.

You can use the Online calculators for pay intervals marked * .

If you use the Basic PAYE Tools to calculate all payroll deductions and carry out real-time reporting, it’ll handle the pay intervals marked ^.

How to manually check your payroll calculations has examples of how to calculate National Insurance contributions using the exact percentage method.

Pay interval — weekly *

For the weekly pay interval the earnings period is weekly.

To work out the National Insurance contributions, use either the:

appropriate weekly table
exact percentage method

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, use the table for the tax week that includes the date of payment.

If a payday is in week 53, use the table for week 1 again on a non-cumulative basis.

If you’re using a code on a week 1 or month 1 basis, use the table for week 1 on each payday.

Pay interval — fortnightly *

For the fortnightly pay interval the earnings period is 2 weekly. To work out the National Insurance contributions, use either the:

appropriate weekly table
exact percentage method

If you use the tables:

Divide the earnings on which National Insurance contributions are payable by 2.
Look up this figure in the appropriate weekly table.
Multiply the National Insurance contributions shown in the table by 2.

This will give you the amount of National Insurance contributions due.

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, use the table for week 2 for the first payment after 5 April, even if the payment is made in the first week of the tax year.

Use the table for week 4 for the second payment and so on up to week 52.

If the payment occurs any time between:

6 April and 19 April — it should be reported on the FPS as week 2
20 April and 3 May — it should be reported on the FPS as week 4

If there’s a 27th payday in the tax year use the table for week 2 again on a non-cumulative basis.

If you’re using a code on a week 1 or month 1 basis, use the tables for week 2 on each payday.

Pay interval — 4 weekly *

For the 4 weekly pay interval the earnings period is 4 weekly. To work out National Insurance contributions, use either the appropriate weekly table or the exact percentage method to calculate National Insurance contributions.

If you use the tables:

Divide the earnings on which National Insurance contributions are payable by 4.
Look up this figure in the appropriate weekly table.
Multiply the National Insurance contributions shown in the table by 4.

This will be the amount of National Insurance contributions due.

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, use the table for week 4 for the first payment after 5 April, even if the payment is made in the first, second or third week of the tax year.

Use the table for week 8 for the second payment and so on up to week 52.

If the payment occurs anytime from:

6 April to 5 May — it should be reported on the FPS as week 4
6 May to 5 June — it should be reported on the FPS as week 8

If there’s a 14th payday in the tax year, use the table for week 4 again on a non-cumulative basis.

If you’re using a code on a week 1 or month 1 basis, use the table for week 4 on each payday.

Pay interval — monthly *^

For the monthly pay interval the earnings period is monthly. To work out National Insurance contributions, use either the appropriate monthly table or the exact percentage method to calculate National Insurance contributions.

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, use the table for the month that includes the date of payment.

If you’re using a code on a week 1 or month 1 basis, use the table for month 1 on each payday.

Pay interval — quarterly ^

For the quarterly pay interval the earnings period is quarterly. To work out National Insurance contributions, use either the:

appropriate monthly table
exact percentage method

If you use the tables:

Divide the earnings on which National Insurance contributions are payable by 3.
Look up this figure in the appropriate monthly table.
multiply the National Insurance contributions shown in the table by 3.

This is the amount of National Insurance contributions due.

When working out PAYE using Tax Tables A, if you’re using a code on a cumulative basis, use the table for month 3 for the first payment after 5 April, even if the payment is made in an earlier month.

Use the table for month 6 for the second payment and so on up to month 12. If the payment occurs anytime from:

6 April to 5 July — it should be reported on the FPS as month 3
6 July to 5 October — it should be reported on the FPS as month 6

If you’re using a code on a week 1 or month 1 basis, use the table for month 3 on each payday.

Pay interval — half-yearly ^

For the half-yearly pay interval the earnings period is half-yearly. To work out National Insurance contributions, use either the:

appropriate monthly table
exact percentage method

If you use the tables:

Divide the earnings on which National Insurance contributions are payable by 6.
Look up this figure in the appropriate monthly table.
Multiply the National Insurance contributions shown in the table by 6.

This is the amount of National Insurance contributions that are due.

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, use the table for month 6 for the first payment made after 6 April and before 5 October, and the table for month 12 for the second payment.

If the payment occurs any time between:

6 April and 5 October — it should be reported on the FPS as month 6
6 October and 5 April — it should be reported on the FPS as month 12

If you’re using a code on a week 1 or month 1 basis, use the table for month 6 on each payday.

Pay interval — annually

For the annually pay interval the earnings period is annually.

To work out National Insurance contributions, use either the:

appropriate monthly table
exact percentage method

If you use the tables:

Divide the earnings on which National Insurance contributions are payable by 12.
Look up this figure in the appropriate monthly table.
Multiply the National Insurance contributions shown in the table by 12.

This is the amount of National Insurance contributions that are due.

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, use the table for month 12.

If the payment is made any time between 6 April and 5 April it should be reported on the FPS as month 12.

If you’re using a code on a week 1 or month 1 basis, use the table for month 12.

Pay interval — less than a week ^

For pay intervals of less than a week the earnings period is one week.

To work out National Insurance contributions, add together all the payments made in an Income Tax week and if the total goes over the LEL then the earnings need to be recorded and reported but the Class 1 National Insurance contributions are not yet due.

If the total goes above the Primary and Secondary Thresholds then National Insurance contributions are due.

Use either the:

appropriate weekly table
exact percentage method to calculate National Insurance contributions from the employer and employee respectively

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, use the table for the tax week that includes the date of payment.

If a payment is in week 53, use the table for week 52 again.

If you’re using a code on a week 1 or month 1 basis, use the table for week 1 for each payment. Add to each payment any payments made earlier in the same Income Tax week when working out the tax to be deducted.

Pay interval — irregular pay intervals of more than a week but not multiples of weeks or months

For irregular pay intervals of more than a week but not multiples of weeks or months, the earnings period is the interval the payment covers.

To work out National Insurance contributions due, you must use the exact percentage method. To do this:

Work out the daily LEL by dividing the weekly limit by 7.
Multiply the answer by the number of calendar days in the period which the payment covers.
Work out the daily Primary Threshold (PT), Secondary Threshold (ST) and Upper Earnings Limit (UEL), Upper Secondary Threshold (UST) and Apprentice Upper Secondary Threshold (AUST) by dividing the annual figures by 365.
Then, multiply the answers for the PT, ST, UST and AUST by the number of calendar days in the period which the payment covers.

In all cases the resulting figures should be calculated to the nearest penny. Amounts of £0.005p or less should be disregarded. National Insurance contributions are due on earnings in each interval if the earnings exceed the PT and ST for employees and employers.

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, use the table for the week that includes the date of the payment. If a payment is made in week 53. Use the table for week 52, unless you’re given written instructions by us.

If you’re using a code on a week 1 or month 1 basis, use the table for the week that includes the date of payment (where employment started after 5 April, deduct from that the number at the date of commencement).

After that, take into account the time elapsed between payments to the employee to work out the correct basis to use. For example, if the first payment is in week 4, use the table for week 4.

If the next payment is made in week 10 use the table for week 6 (10 minus 4). If the payment is made in week 10 but the employment started in week 6 use the table for week 4 (10 minus 6). If the payment is made in week 16 use the table for week 6 (16 minus 10).

Pay interval — employees paid once only, or employees paid once only where the earnings period is one of those marked *^

For this pay interval the earnings period is the length of time you employ them or one week whichever is longer.

To work out the National Insurance contributions due, follow whichever rule applies.

When working out PAYE using tax tables A, if you’re using a code on a cumulative basis, if you employ your employee for:

less than a week — follow the roles in the first row above for intervals of less than a week
more than a week — use the table for the week the employment ends

If you’re using a code on a week 1 or month 1 basis, use the table for the week the employment ends if the employment started before the start of the tax year.

If the employment started after the end of the tax year use the table for the length of the employment. For example, if the employment starts in week 5 and ends in week 9 use the table for week 4 (9 minus 5).

1.8 Operation of PAYE and Class 1 National Insurance contributions when the regular date for payment is a non-banking day

When a regular payday falls on a non-banking day (Saturday, Sunday or bank holiday) and because of this, payment is made on the:

last working day before the regular payday
next working day after the regular payday

For PAYE purposes the payment may be treated as having been made on the regular payday. This is also the date that should be reported on the FPS as the ‘payment date’ even if the actual payment is made slightly earlier or later. There’s a weekly and monthly chart at paragraph 1.14.

For National Insurance contributions purposes 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. The payment may also be treated as having been made at its regular time when the payment dates cross a tax year.

When a regular payday falls on a non-banking day but payment made on the last working day before the regular payday

Pay due on Sunday 1 January 2023 (tax month 9) but paid on Friday 30 December 2022, should be treated for PAYE purposes as being paid on 1 January 2023.

For National Insurance contributions purposes the payment must be treated as having been paid on 1 January 2023. The ‘payment date’ on the FPS should be 1 January 2023 and payments should be reported on or before 1 January 2023.

When a payment is made on the first working day after the regular payday

Pay due on Sunday 1 January 2023 (tax month 9) but paid on Tuesday 3 January 2023 (tax month 10), should be treated for PAYE purposes as being paid on 1 January 2023.

For National Insurance contributions purposes the payment must be treated as having been paid on 1 January 2023. The ‘payment date’ on the FPS should be 1 January 2023 and in these cases you should either:

report the payment on the FPS sent in advance of the actual payment date (on or before 1 January 2023)
send the FPS on the actual payment date (3 January 2023) and complete the ‘late reporting reason code’ G on the FPS, this is because if the FPS is sent on 4 January showing a payment date of 1 January, it’ll appear to be late and a penalty may be charged

When a regular payment is made early at Christmas

Regular monthly payday on Friday 23 December 2022 (month 9) but paid Friday 16 December 2022, should be treated for PAYE purposes as being paid on 23 December 2022.

For National Insurance contributions purposes the payment must be treated as having been paid on 23 December 2022. The ‘payment date’ on the FPS should be 23 December and should be reported on or before 23 December 2022.

Regular weekly payday on Friday 23 December 2022 (week 38) but paid Friday 16 December 2022 (week 37), should be treated for PAYE purposes as being paid on 23 December 2022. You will need to report the regular payment on 16 December (week 37) as usual and report the early payment for 23 December (week 38) on a separate FPS.

For National Insurance contributions purposes the payment must be treated as having been paid on 23 December 2022. The ‘payment date’ on the FPS should be 23 December and should be reported on or before 23 December 2022.

Doing this will help to protect your employee’s eligibility for income based benefits such as Universal Credit, as an early payment could affect current and future entitlements.

When a regular payday and actual payday cross a tax year

Regular payday on Friday 1 April 2022 (tax year 2021 to 2022) but paid on Wednesday 6 April 2022 (tax year 2022 to 2023) may be treated for PAYE and National Insurance contributions purposes as being paid on 1 April ,with a ‘payment date’ on the FPS showing 1 April 2022. In this case the employer should either:

report the payment on an FPS sent in advance of the actual payment date (on or before 1 April 2022)
send the FPS on the actual payment date (6 April 2022) and complete the ‘late reporting reason code’ G on the FPS, this is because if the FPS is sent on 6 April, showing a payment date of 1 April it will appear to be late and a penalty may be charged

All other payments you make on regular paydays that fall on banking days and the deductions due must be reported on or before the date of payment unless an exception applies, read running payroll.

For more National Insurance contributions information and examples, read section 3.

1.9 Change of pay interval to a shorter interval

If the interval between the payments of an employee’s earnings changes to a shorter interval, for example, monthly paid to weekly paid, take the following action.

For National Insurance contributions purposes

Work out National Insurance contributions from the first payment after the change based on the new earnings period. Do this even if the first weekly payday falls within the same tax month as the previous monthly payday. Use the National Insurance contributions calculator.

Example

A monthly paid employee changes to being weekly paid on the first day of the month, after receiving a monthly salary the day before. The first weekly payday is the fifth. Although this payment is in the same tax month as the monthly salary, treat it completely separately and work out National Insurance contributions on the payment using a weekly earnings period.

For PAYE purposes

Work out PAYE using the weekly table on the first payment after the change if you have not already paid the employee in the month.

If you have already paid the employee in the month of change, use the same monthly table for the rest of that month and then use the weekly table from the beginning of the next tax month. For both PAYE and National Insurance contributions purposes use the same payroll record as before.

1.10 Change of pay interval to a longer interval

If the interval between the payments of an employee’s earnings changes to a longer interval, for example, weekly paid to monthly paid, take the following action.

For National Insurance contributions purposes

Work out National Insurance contributions from the first payment after the change based on the new earnings period. If you have already made a payment using the old shorter earnings period in the first of the new longer periods, the payment you have made, and National Insurance contributions worked out on it, should be taken into account when working out National Insurance contributions for the new period as a whole.

Example

A weekly paid employee changes to being monthly paid on 9 July and receives their last 2 payments on 29 June and 6 July. The new earnings period is a month and will coincide with the tax month which always starts on the sixth of every month. The first monthly payday is 31 July.

Work out National Insurance contributions due on the first monthly pay taking into account the earnings and National Insurance contributions worked out on the payment made on 6 July. The total National Insurance contributions payable must not exceed that which would have been payable had the 2 payments been added together and monthly National Insurance contributions worked out on the total. Amend the payroll record.

The weekly payment made on 29 June is not in the new earnings period and is not included in the calculation.

For more information, read running payroll.

The rules for contracted-out occupational pension schemes changed from 6 April 2016. Read the new State Pension for more information.

Where, exceptionally, it’s not practicable for you to aggregate the earnings in the first new earnings period, calculate the National Insurance contributions due on payments made before and after the change separately, in the normal way.

For PAYE purposes

Work out PAYE using the appropriate monthly table on the first payment after the change. For both PAYE and National Insurance contributions purposes use the same payroll record as before.

1.11 Employees’ payday changed but same pay interval kept

Take the following action if you change your employees’ payday but keep the same pay interval. For example, you change from making monthly salary payments on the 15th of the month to the first of the month.

For PAYE purposes

To find out the correct tax week or month see paragraph 1.14. If the month or week number in which you’re making the payment follows on from the tax month or week of the previous payment, complete your payroll record and operate PAYE in the normal way.

Your next FPS should reflect the payment and tax month is the same as the tax month or week of the previous payment.

If it is you should:

treat the first ‘new date’ payment as an extra payment for the month or week
note that only one amount of free pay can be given in a pay period used when the first payment was made
complete your payroll record and operate PAYE in the normal way and send a further FPS for paydays after the first ‘new date’ payment

For National Insurance contributions purposes

Work out National Insurance contributions using the normal earnings period on each of the paydays.

1.12 Extra payments made on a separate payday from normal pay

Where you make extra payments (such as overtime, commission, bonuses and so on) on a separate payday from other pay, take the following action.

For National Insurance contributions purposes

Treat extra payments as part of the total pay at the time they’re paid, no matter when they were earned. If you have paid an employee and then make another payment to them in the same earnings period, National Insurance contributions have to be worked out again on the total payment.

Example

An employee who’s normally paid on a Friday receives a payment of £200 on Thursday 3 November and National Insurance contributions have been worked out on that sum.

On Friday 4 November the employee is paid a normal weekly wage of £300 making a total of £500 paid in that week.

National Insurance contributions must be recalculated based on £500.

If the FPS has already been sent on 3 November send a further FPS on 4 November to report the revised data.

For PAYE purposes

It’s important to remember that only one amount of free pay can be given (or in a K code case one amount of additional pay can be added) in any pay period.

If PAYE was operated in the normal way at the time any additional payment is made it could result in an employee receiving a tax refund and then (in effect) repaying that refund on the normal payday.

To prevent this, there are special rules if you:

normally pay an employee weekly or at longer regular intervals
make an extra payment before the normal pay for the week, month or other pay period
use the employee’s code on the cumulative basis

For cumulative suffix codes — extra payment:

enter the extra payment for the tax period in which you pay it
calculate the tax using the tax tables for the tax period taking account of the regulatory limit if necessary:
- if there’s tax to be deducted, then deduct it from the payment
- if there’s tax to be repaid do not repay it when you make the extra payment
- the repayment should be added to the total tax due and used as your starting point when you next pay the employee

For cumulative suffix codes — main payment:

enter the main payment for the tax period in which you pay it
calculate the tax in the normal way but using the same figure of ‘free pay’ used for the extra payment taking account of the regulatory limit for the payment if necessary

For K codes:

enter the extra payment for the tax period in which you pay it
the ‘additional pay’ should be added and tax worked out on this payment, taking account of the regulatory limit for the payment if necessary
when you pay the employee their main pay do not add the ‘additional pay’ for the week or month, add their main pay to the total taxable pay you used when the previous payment was made, work out the tax on this amount using tables B to D and complete your payroll record in the normal way
if the K code is being operated on a week 1 or month 1 basis the tax already deducted on the extra payment should be deducted from the tax due for the week or the month

From 6 April 2015 remember that the regulatory limit ensuring employees have no more than 50% of their pay deducted has been extended to all tax codes.

1.13 Payments made in week 53

Where you pay an employee weekly:

they will have 53 weekly paydays instead of the usual 52
the extra payday is called week 53
use ‘53’ as the tax number when you make a ‘week 53’ payment to HMRC on an FPS

Where you pay an employee fortnightly:

they will have 27 fortnightly paydays instead of the usual 26
the extra payday is called week 54
use ‘54’ as the tax number when you make a ‘week 54’ payment to HMRC on an FPS

Where you pay an employee 4-weekly:

they will have 14 paydays instead of the usual 13
the extra payday is called week 56
use ‘56’ as the tax number when you make a ‘week 56’ payment to HMRC on an FPS

Do not change the final tax code to week 1 if the only reason you have used the week 1 table is to calculate a payment on week 53.

1.13.1 Week 53 and suffix codes

For employees on a week 1 coding, simply treat the extra payday as another week 1 payment.

For employees on a cumulative code, take the following action. If the total free pay to date at week 52 is:

equal to or more than the total pay for the year (that is the week 52 total plus the extra payday amount) — do not deduct any PAYE from the payment to the employee
less than the total pay for the year — work out how much PAYE to deduct by reference to the pay for week 53, 54 or 56 less the amount of pay adjustment (that is, free pay) shown in tax tables A

Use tax tables A for:

week 1 if the employee is weekly paid
week 2 if the employee is fortnightly paid
week 4 if the employee is 4-weekly paid

1.13.2 Week 53 and K codes

Work out how much tax to deduct by reference to the pay for week 53, 54 or 56 plus the amount of pay adjustment (that is ‘additional pay’) shown in tax tables A using the table for:

week 1 if the employee is weekly paid
week 2 if the employee is fortnightly paid
week 4 if the employee is 4-weekly paid

If after following this guidance you’re approached by an employee who has been advised by HMRC that they have underpaid PAYE, you should confirm to them that you have not made an error in your payroll and advise the employee to read:

the notes enclosed with the calculation
Tax overpayments and underpayments for more information

1.14 Standard payments made when, or after, an employee leaves

For the purposes of this guidance, ‘standard’ payments mean such items as:

the final payment of salary or wages
holiday pay
week-in-hand payments
bonuses

It does not mean additional one-off payments such as retirement, redundancy, lump sums and so on, these payments are dealt with in section 2.

Arrears of pay such as those arising from National Minimum Wage or equal pay reviews must be dealt with in accordance with the guidance in paragraph 1.19.

PAYE and National Insurance contributions deductions are due on any standard payments you make to employees when they leave or after they have left. The payments should be submitted on the FPS along with the year to date figures.

If the payment is made in a later tax year to the one in which the employee left, an FPS is required in the later tax year for the tax period that payment is made. The year to date figures on the FPS should reflect only that payment.

For PAYE purposes

If you have already given an employee a form P45 you should deduct PAYE using code 0T (non-cumulatively on a week 1 or month 1 basis) using the normal pay period for the employee (for example, monthly or weekly), at the time you make the payment. This payment should be submitted on an FPS.

Payments in connection with employment related securities, including cash payments arising from those securities, made to an employee after leaving should also be taxed using code 0T for England and Northern Ireland, S0T for Scotland and C0T for Wales (week 1 or month 1 basis non-cumulatively).

In such cases, you should provide the employee with documentary confirmation of the payment (for example, by letter, payslip or other printed or printable document) giving the following details:

the date of the payments
the taxable amount of each payment
the amount of PAYE tax deducted from each payment
confirmation that the payment is a post-leaving payment

Include the details, set the ‘Payment after leaving’ indicator and show the original date of leaving on the FPS when you make the payment. You must not give the employee another form P45.

For National Insurance contributions purposes

Payment made when an employee reaches the age of 21 or an apprentice reaches the age of 25

If the payment is made on or after the employee reaches their 21st birthday or the apprentice reaches their 25th birthday, work out National Insurance contributions using the:

usual earnings period
contributions rates and limits current at the time of payment
correct National Insurance category letter for an employee over the age of 21 or an apprentice over the age of 25

Payment made before an employee reaches the age of 21 or an apprentice reaches the age of 25

If the payment is made when the employee is under 21 years of age or the apprentice is under 25, work out National Insurance contributions using the:

usual earnings period
contributions rates and limits current at the time of payment
correct National Insurance category letter for an employee under the age of 21 or an apprentice over the age of 25

The category letters for those under the age of 21 and apprentices under 25 are:

H apprentice under 25
M standard rate for under 21
Z Under 21 deferred rate

You’re responsible for making sure you hold the employee’s correct date of birth and making sure they use the correct National Insurance category letter.

Payment made when an employee leaves

If the payment is made when the employee leaves, work out National Insurance contributions using the:

usual earnings period
contributions rates and limits current at the time of payment
usual category letter

Payment made after an employee leaves

If the payment is made after the employee has left, that is after their contract has ended, the earnings period to use is dependent on whether the payment is a regular or irregular payment.

A regular payment such as a final payment of salary or wage including, for example, an employee who’s required to work a week-in-hand and receives their last pay after the contract has ended, or an expected bonus, work out National Insurance contributions using the:

usual earnings period
contribution rates and limits current at the time of payment
usual category letter

Example

The final salary to a monthly paid employee leaving in the middle of the month is paid at the usual time at the end of the month. Work out National Insurance contributions using a monthly earnings period even though the payment is only for part of the month.

Work out National Insurance contributions for an irregular payment such as:

accrued holiday pay
an unexpected bonus
arrears of pay following a backdated pay award

You should work it out using:

a weekly earnings period
the contributions rates and limits current at the time of payment
the usual category letter

If the employee has turned 21 or the apprentice has turned 25 or the apprenticeship has ended, category letters M, Z or H are not appropriate. Category A must be used.

Example

A 20 year old apprentice terminates the apprenticeship and receives an irregular payment after leaving the employment. Category H cannot be used as the apprenticeship has ended. Whether category M, Z or A should be used depends on whether the ex-apprentice is still 20 or has turned 21.

Two or more payments together

If an employee gets 2 or more payments together after leaving, the earnings period is dependent on what those payments are.

If all the payments are salary or wages (including one which may be a ‘week-in-hand’ payment) work out National Insurance contributions on each payment separately using the usual earnings period.

If some payments are salary and others are irregular sums, add the payments together and work out National Insurance contributions on the total using the usual earnings period for the payment of salary.

If all payments are irregular sums, add them together and work out National Insurance contributions using a weekly earnings period.

Weekly chart

Weekly chart period	Week number	Weekly chart period	Week number
6 April to 12 April	1	12 October to 18 October	28
13 April to 19 April	2	19 October to 25 October	29
20 April to 26 April	3	26 October to 1 November	30
27 April to 3 May	4	2 November to 8 November	31
4 May to 10 May	5	9 November to 15 November	32
11 May to 17 May	6	16 November to 22 November	33
18 May to 24 May	7	23 November to 29 November	34
25 May to 31 May	8	30 November to 6 December	35
1 June to 7 June	9	7 December to 13 December	36
8 June to 14 June	10	14 December to 20 December	37
15 June to 21 June	11	21 December to 27 December	38
22 June to 28 June	12	28 December to 3 January	39
29 June to 5 July	13	4 January to 10 January	40
6 July to 12 July	14	11 January to 17 January	41
13 July to 19 July	15	18 January to 24 January	42
20 July to 26 July	16	25 January to 31 January	43
27 July to 2 August	17	1 February to 7 February	44
3 August to 9 August	18	8 February to 14 February	45
10 August to 16 August	19	15 February to 21 February	46
17 August to 23 August	20	22 February to 28 February	47
24 August to 30 August	21	1 March to 7 March	48
31 August to 6 September	22	8 March to 14 March	49
7 September to 13 September	23	15 March to 21 March	50
14 September to 20 September	24	22 March to 28 March	51
21 September to 27 September	25	29 March to 4 April	52
28 September to 4 October	26	5 April (Use the week 1 table)	53
5 October to 11 October	27	—	—

Monthly chart

Monthly chart period	Month number
6 April to 5 May	1
6 May to 5 June	2
6 June to 5 July	3
6 July to 5 August	4
6 August to 5 September	5
6 September to 5 October	6
6 October to 5 November	7
6 November to 5 December	8
6 December to 5 January	9
6 January to 5 February	10
6 February to 5 March	11
6 March to 5 April	12

1.15 Payments made when an employee has died

Death of an employee

For National Insurance contributions purposes

No National Insurance contributions are due on the earnings of an employee who dies before payment of those earnings is made.

1.15.1 For PAYE purposes

When you learn of the death of an employee you should enter a leaving date, this will be the date of death, on the FPS with the last payment for the deceased, do not issue a P45.

PAYE should be deducted using the employee’s code, from any payments which were due to the deceased employee after the date the employee died but before you have completed the FPS, if they’re paid in the tax year the employee died. You must provide a date of leaving on the FPS, which in this case will be the employee’s date of death.

If you make a further payment after notifying HMRC of the date of death on an FPS, PAYE should be deducted using code 0T (on a week 1 or month 1 basis). You should record the deduction on the employee’s payroll record as follows if the payment is made in:

the same tax year as the one in which the employee died, record the details on the employee’s payroll record, the date of leaving on the FPS should be the date of death and the ‘Payment after leaving’ indicator should be set, make sure the revised year to date figures include the additional payment
a later tax year, record the details on the payroll record in the name of the deceased employee and include details on the FPS, the date of leaving should be the date of death and the ‘Payment after leaving’ indicator should be set, the year to date figures should only reflect the additional payment

Check with your software provider whether the package you use will complete these calculations automatically for you. Use HMRC’s online PAYE tax calculator to help with your calculations.

1.15.2 Death of pension recipient

When you learn of the death of a pension recipient you should enter the leaving date, this will be the date of death, on the FPS with the last payment for the deceased, do not issue P45.

PAYE should be deducted using the pension recipient’s existing code, from any payments which were due to the deceased pension recipient, if they’re made in the tax year the pension recipient died. Record details of the payments on the pension recipient’s FPS.

If such payments are made in a later tax year to the one in which the pension recipient died, refer to the following 2 examples, if the payment is made in a later tax year than the date of death:

but before you have notified HMRC of the date of leaving on the FPS:
- use the tax code for the new year that you would have used if the pensioner had still been alive — record the payment details on the payroll record in the name of the deceased pensioner
- complete the FPS using the new tax code only showing payments made in the new tax year, payments made in the earlier tax year will be recorded on the employee’s FPS for that year
and after you have notified HMRC of the date of leaving on the FPS:
- use the code 0T on a week 1 or month 1 basis
- record the details on the payroll record in the name of the deceased pensioner
- set the ‘Payment after leaving’ indicator on the FPS

1.16 Joint wages to spouses and civil partners

Where you pay a joint wage to spouses or civil partners, you should:

prepare separate payroll records for each spouse or civil partner
divide the wage between them for both PAYE and National Insurance contributions purposes
ask us to let you have individual tax codes

1.17 Change of gender

Transgender people can legally change their recorded gender and benefit from any rights and responsibilities associated with their acquired gender. In order to gain legal recognition in their acquired gender, transgender people must apply to the Gender Recognition Panel. If their application is successful, the panel will grant a GRC which will allow the individual to get a new birth certificate.

No verification is needed to change an employee’s name, but where you’re aware that an employee has changed gender (by providing you with a GRC or a new birth certificate) you can update your records to show the employee’s acquired gender and the title by which they want to be known. If they provide you with a copy of their new birth certificate, you’ll need to take a copy of the certificate and update the employee’s gender and title on your records, if you have not already done so. You can then operate National Insurance contributions and PAYE to reflect the acquired gender (for example, a transgender female with a full GRC will pay National Insurance contributions up to the State Pension age for women).

Do not review the National Insurance contributions and PAYE position of the employee until you’re presented with a new birth certificate or GRC. It’s only following the issue of the full GRC that the person can obtain a new birth certificate and is accepted as having satisfied the criteria for legal recognition in their acquired gender.

For those born between 6 April 1960 and 5 March 1961, State Pension age is 66 years of age plus a specified number of months for both men and women. For people born after 5 April 1961 the State Pension age is currently 67 years of age.

For more information and the State Pension age calculator, read check your State Pension age.

For detailed guidance on how a change in gender may affect the operation of National Insurance contributions and PAYE, including a list of frequently asked questions, read what to do if an employee changes gender.

1.18 Mistake in the amount of National Insurance contributions or PAYE deducted

For guidance about when and how to tell us about correcting errors, read fix problems with running payroll.

1.18.1 Mistake in the amount of National Insurance contributions or PAYE deducted during the tax year

If, during the tax year, you discover that a mistake has been made in the amount of National Insurance contributions or PAYE deducted, take the following action, if:

you have deducted too much National Insurance contributions or PAYE tax from your employee, simply refund the extra amount on their next payday
your employee paid too little National Insurance contributions or PAYE tax you must pay the underpayment to HMRC as soon as you know you have paid too little

However, there are special rules which allow you to recover underpayments of National Insurance contributions from your employees where the error was made in good faith. This is done by making extra deductions from any later earnings you pay that employee. There are 2 conditions that apply to these recoveries relating to the amount and the time in which you can recover.

The first condition is that the extra deduction you make from further payments of earnings can be no greater than the employee’s contribution due on that further payment of earnings.

Example 1

An employee is due to pay primary contributions of £20 on their next payment of earnings. The maximum extra deduction that can be made is £20, making a total deduction on those earnings of £40.

The second condition is that the extra deduction can be made during the remainder of the tax year in which the error occurred and the whole of the following tax year. If at the end of the second tax year you have been unable to recover the full amount under deducted, then you may not recover any more from the employee and you must bear the cost of the loss yourself. If the employee leaves your employment after the error occurred you must bear the cost of the loss yourself.

Example 2

An error occurred and was made in good faith on 30 April 2021. The employer may make extra deductions from any earnings paid to the employee during the period 1 May 2021 to 5 April 2022 until the underpayment is recovered.

For guidance about when and how to tell us about correcting errors, read fix problems with running payroll.

Correcting payroll reporting errors — current tax year

You must send an FPS every time you pay your employees to let HMRC know who has been paid, how much they have been paid and the deductions made for PAYE tax and National Insurance contributions. If you have made a mistake in the current tax year or you discover that information you have already reported is incorrect, the action you need to take depends on when you discover the error.

If you need to correct an error in a previous tax year, read fix problems with running payroll.

If you discover the error before you submit your next FPS

You can either:

correct the error by using revised year-to-date figures on your next regular FPS — this is often the easiest way to handle the correction
show the adjustment by submitting an additional FPS for the pay period for the employees the error relates to how you report a correction may depend on the payroll software you use

For PAYE purposes

You should try to recover the underpaid tax by making extra deductions from any later earnings you pay that employee by the end of the tax year. You should do this by agreement with the employee. Where you’re unable to recover the under deduction by the end of the tax year you can ask us to make a direction that your employee should pay the PAYE tax. We’ll issue a direction if an explanation is provided which demonstrates that reasonable care was taken to operate PAYE and that the under deduction was an error made in good faith.

For more information and examples of errors, read fix problems with running payroll. If you’re still unsure and you need advice, contact the Employer helpline.

1.18.2 Mistake discovered after the end of the tax year

For National Insurance contributions purposes

Errors in FPS submitted in the previous tax year, if you discover that you’ve not submitted an FPS or you’ve reported incorrect year to date figures, you should submit an additional FPS with corrected year to date figures as at 5 April for the previous tax year.

You can submit to corrections to the original FPS information for up to 6 years after you filed your original FPS or EPS. Read more about fixing problems with running payroll.

Where you discover that you’ve over-deducted National Insurance contributions by mistake for a tax year when you reported information using forms P35 or P14 you can ask us for a refund by writing to:

HM Revenue and Customs
PT Operations North East England
BX9 1AN
United Kingdom

You’ll need to include a full explanation of the over-deduction, with revised earnings and National Insurance contributions details, for each employee affected. HMRC will refund any overpayment of primary National Insurance contributions direct to the employees.

You must also tell any affected employee:

by letter showing the amendment
giving them a new P60 marked ‘Replacement’

Sending amended information means that your original return was either incomplete or inaccurate and could mean that you may be charged a penalty. As a general rule, you as the employer have to pay any underpayment of National Insurance contributions arising from an error.

Guidance on how you can recover under deducted primary National Insurance contributions from your employees is as at paragraph 1.18.1.

For PAYE purposes

Where you discover that you have under deducted PAYE by mistake you can ask us for a direction — see the advice for ‘Mistake in the amount of National Insurance contributions or PAYE deducted during the tax year’ at paragraph 1.18.1.

1.19 Overpayments or underpayments of salary or pension

Unintentional overpayments

If you unintentionally overpay wages or pension, the following guidance explains what to do under real time information. For payments prior to real time information read paragraphs 1.22.3 and 1.22.4.

Examples of unintentional overpayments are:

an employee’s pay was recorded incorrectly, resulting in them receiving higher wages than they were entitled to
an employee gets a payment of wages for the period after leaving as your payroll office does not know they left
a pensioner dies, but pension payments continue because the pension payer had not been informed
an employee is paid for work or overtime they did not do

Adjustments during the tax year

When an unintentional overpayment is made and the employee or pensioner continues to be entitled to employment or pension income, the mistake must be corrected in your next FPS by reporting the correct total payments to date and correct net tax to date. This means that the PAYE tax deducted on the overpayment can be set off by reducing your next monthly remittance to HMRC, you:

should make sure you make a note in your records to explain the reason for the adjustment
must keep a record of the method used to recover the net pay or pension from the individual — for instance, the individual may pay you directly or you may have agreed with the individual to recover the overpayment as a post-tax deduction in their future pay or pension

Adjustments after the end of the tax year

Where an unintentional overpayment is discovered after the end of the tax year, you can submit a revised final FPS. You should:

report the correct total payments and net tax for the tax year
make a note in your records to explain the reason for the revised final FPS
have proper arrangements in place to recover net pay or pension from the individual and have evidence to demonstrate how the recovery was made or is being made

You must give your employee, pensioner or representative details of the amendment either in a letter showing the amendment or in a new P60 marked ‘Replacement’.

Once HMRC has processed the FPS subject to any security checks, the overpaid tax will be available to be either set off against future liabilities or be repaid.

1.19.1 Deliberate under deductions of National Insurance contributions and PAYE

In certain circumstances where we identify that an employee has received pay knowing that the employer has deliberately failed to deduct tax, a direction can be made for the employee to pay the underpayment. This will usually be where we cannot recover the PAYE from the employer. Where we also identify that an employee received pay knowing that the primary contributions had not been deducted or paid over, a decision can be made for the employee to pay those contributions.

1.19.2 Arrears of pay for closed years

Arrears of pay are earnings paid after the date that an employee should have received them and are usually paid as a lump sum. Arrears of pay are earnings and are treated just as if they had been paid at the right time.

Where you’re obliged to pay arrears of pay to employees in respect of closed tax year (for example, where a court orders an employer to pay arrears under equal pay legislation) you should for:

National Insurance contributions purposes enter the full amount of the arrears paid on the current year payroll record at the time of payment and work out National Insurance contributions in the normal way, include on your next FPS
PAYE purposes:
- submit an FPS
- calculate and deduct tax for each closed year as if the additional pay had been paid at week 53 for that year (read paragraph 1.13)
- use the employee’s tax code for each closed tax year, we’ll supply the appropriate tax codes for each of the closed tax years if you no longer have them
- give each employee a letter showing the revised pay for each tax year and the tax and National Insurance contributions deducted, each letter should also contain the following message: ‘If you think that you’ve overpaid tax or National Insurance contributions for any of the years concerned you should contact HMRC National Insurance contributions and Employer Office.’

1.20 Paying a refund of tax when no payments are due to your employee

If an employee on a cumulative code is due a refund of tax but is not entitled to receive any payment from you in a pay period because:

they’re absent on unpaid leave
they have no further entitlement to:
- Statutory Sick Pay (SSP)
- Statutory Maternity Pay (SMP)
- Statutory Paternity Pay (SPP)
- Statutory Shared Parental Pay (ShPP)
- Statutory Adoption Pay (SAP)
- Statutory Parental Bereavement Pay (SPBP)
they’re not absent as the result of a trade dispute you must operate PAYE or run your payroll as if making a nil payment as long as the employee or their authorised representative has asked you to do so

1.21 Different employer PAYE references for separate groups of your employees

You may choose to have different employer PAYE references for separate groups of your employees. For example, for wages and salaries or for separate branches of your organisation.

To do this you make an election by:

using the online service
filling in the form on-screen, printing it off and posting it to HMRC

An election can be made at any time before the beginning of the tax month immediately before the month in which the election is due to start. For example, an election received in May 2022 to start from June 2022.

Making the election means each employer PAYE reference will be treated separately for all PAYE and National Insurance contributions purposes, with separate payroll records needed for each one.

Where you have an election:

you must take into account the total Class 1 National Insurance contributions for all your schemes when working out whether reimbursement for small employers is appropriate for SMP, SAP, SPP, SSP and Statutory Parental Bereavement Pay
if you’re eligible to claim Employment Allowance, you can only claim the allowance against one particular PAYE scheme in a specific year
you’re liable to pay Apprenticeship Levy each month if you have an annual pay bill of more than £3 million, or are connected to other companies or charities for Employment Allowance, which in total have an annual pay bill of more than £3 million

If you want to make an election fill in form PAYE: Employer Annual Return election (P350).

1.22 End of year final submission

At the end of the tax year, submit your final FPS and, or EPS for the pay period as normal. You must indicate on your last FPS or EPS for the year that it’s your ‘final submission for the tax year’. You must do this even if you have not made any deductions of PAYE tax or National Insurance contributions from your employees in that pay period.

Your final submission is the last FPS or EPS you submit for the tax year, regardless of whether it relates to weekly or monthly payroll.

If you run more than one payroll under the same PAYE employer reference, ensure you report the total year to date figures for all payrolls operated under the employer scheme.

1.22.1 No payments in final pay period

If you have not made a payment to any of your employee’s in the final pay period for the tax year then you’re not required to submit an FPS. Instead you must submit an EPS indicating the following:

no payment for period
final submission for the tax year

If you’re a limited company and wish to claim for Construction Industry Scheme (CIS) deductions suffered, you’ll need to complete 2 EPS submissions.

The first should indicate ‘No payment for period’, and the second should indicate ‘Final submission for the tax year’ and report ‘CIS deductions suffered for the tax year’.

1.22.2 Correcting a current or previous year’s payroll entry for real time information tax years

If, during a tax year, you submit an FPS containing information that later needs correcting, you can make the correction upon your next regular FPS or by submitting an additional FPS before your next regular FPS is due.

After the tax year has ended, the correction must be done by submitting a final revised FPS.

If you have reported incorrect information on an EPS, you must submit another EPS to report the correct total year to date figures for all recovered payments within that tax year.

For more information and guidance, read payroll: annual reporting and tasks.

1.22.3 Making amendments for years prior to real time information (RTI)

Exceptionally, you may need to send an amended P35 return where you discover that an employee or pensioner received a payment that they were not entitled to and you wish to make a claim from HMRC for overpaid tax. For example:

you discover that your employee was overpaid for work or hours they did not complete
a pension payment was made to a pensioner for a period after they died

If you need to make a claim for the overpaid tax you must send this information on a P35 and P14. We will not accept it in any other format. In all cases:

you must send a letter explaining the reason for the amendment
you should keep evidence of how recovery of the net pay or pension was made from the employee or pension recipient
there’s a 4 year time limit after the end of the tax year
you must give your employee, pensioner or representative details of the amendment either in a letter showing the amendment or in a new P60 marked ‘Replacement’

1.22.4 Sending amendments for years prior to RTI

You can make amendments:

online using your software
by using the HMRC Online Returns and Forms — PAYE product
on paper using approved stationery

You must show only the amount of any amendment. For example, if your original P14 showed £100 too much tax, your amended P35/P14 must show minus (-) £100.

Employers who must file online will not get a non-filing penalty if an amendment is sent on paper and the original return was sent on time.

Question 3

2.  Special procedures

Accepted Answer

The following guidance applies to all employers. PAYE has guidance on reporting PAYE in real time.

2.1 Pension contributions

All employers must now provide a workplace (occupational) pension scheme for their employees. The Pensions Regulator’s guidance on automatic enrolment for employers tells you what you need to do and when to do it.

The Regulator’s guidance also gives information about additional criteria for non UK pension schemes.

If you choose to establish a new auto-enrolment pension scheme in the UK for your employees, it must be registered with us before tax relief can be given. Only contributions made after the scheme is registered can be given tax relief.

If you want to know more about registering a pension scheme read pension scheme administration.

Tax relief for employee contributions to registered pension schemes is given by either the ‘net pay’ arrangement where you deduct employees’ contributions from gross pay before working out their tax, or the ‘relief at source’ method where you deduct employee’s contributions from net pay. The scheme then claims the tax relief from HMRC. The Pensions Regulator provides guidance on which tax relief method may be best for your employees.

You can use the net pay arrangement if:

the pension scheme you’ve established is registered by us as an occupational pension scheme
an existing group pension scheme you’ve chosen as your pension provider is registered by us as an occupational pension scheme and the scheme will not reclaim relief from us by ‘relief at source’
you use the net pay arrangement in respect of all of your employees who pay contributions to the scheme that are entitled to relief

In all other circumstances you must not use the net pay arrangement.

You can only give your employees tax relief on pension contributions (including additional voluntary contributions) if the scheme is registered with us. If you reduce their taxable pay in respect of contributions to a pension scheme that is not registered you may be liable for any tax that you have failed to deduct from their pay.

Where you deduct contributions under the net pay arrangement, remember that an employee is entitled only to tax relief, and not relief from National Insurance contributions.

When completing your payroll records for:

PAYE purposes deduct the pension contributions from the employee’s gross pay
National Insurance contributions purposes do not deduct the pension contributions from the employee’s gross pay

Take the following action for each employee who’s in the scheme.

Deduct the total employee pension contributions paid into the scheme in the tax year to date from the employee’s gross pay figure. You can only deduct contributions which are paid after the pension scheme is registered.
If pension contributions have been paid in a previous tax year, send us a list showing the names of the employees and the contributions each employee has paid.

Occupational pension scheme contributions deducted from employees’ pay must be with the pension scheme within 19 days of the end of the month that the deductions were made.

Failure to meet this deadline could lead to civil proceedings by The Pensions Regulator.

For the employee’s tax purposes, the contribution is treated as being paid on the date it was deducted from their pay.

2.2 Pension payments

Pension payments, either to former employees or dependants of deceased employees:

are usually included in gross pay for PAYE purposes
for National Insurance contributions purposes:
- are not included in gross pay if paid out of a registered pension scheme (use category X if software requires a category)
- may need to be included in gross pay if paid out of an employer-financed retirement benefits scheme (use appropriate category)

Pension payments that may be wholly or partly exempt from tax are payments which have both:

been awarded because an employee has ceased to hold an employment because of disablement attributable to the performance of the duties of the employment
not been paid out of a registered pension scheme, contact us before you make any such payments

2.2.1 Lump sum payments from pension schemes

Registered pension schemes

PAYE does not apply to lump sums paid under or out of a registered pension scheme, except:

trivial commutation payments, which are paid to members when small pension or annuity rights are fully commuted for a lump sum
winding up lump sums
uncrystallised funds pension lump sums (UFPLS) where a person receives a lump sum payment from a pension scheme from rights that have not previously come into payment, this may be either the fund in its entirety or part of the fund
serious ill-health lump sum paid to members aged 75 or more
taxable lump sum payments made to a beneficiary of a deceased member

Normal PAYE rules apply to all such payments.

Where the payments relate to benefit rights that have not previously crystallised (typically started to come into payment), PAYE is due on only 75% of the lump sum but not on the remaining 25%.

Where the payments relate to benefit rights that have already been crystallised, PAYE is due on the entire amount. Where the payment relates to a mixture of benefit rights in payment, PAYE applies to the amount paid less 25% of the value of the benefit rights that have yet to come into payment.

If an UFPLS is paid to a member aged under 75, PAYE applies to 75% of the amount paid. Where the member is aged 75 or more and the lump sum exceeds their available lifetime allowance, the 25% tax free element only applies to the portion of the lump sum that is within the member’s available lifetime allowance. The remainder of the amount is subject to PAYE.

PAYE is due on 100% of a taxable serious ill-health lump sum and on 100% of a taxable lump sum death benefit paid to the beneficiary of a deceased member.

For National Insurance contributions purposes, do not include in gross pay any lump sum from a registered pension scheme. The Pensions Tax Manual has up-to-date guidance, including recent legislative changes.

Employer-financed retirement benefit schemes

Most lump sum payments made under or out of an employer-financed retirement benefits scheme (essentially, an unregistered scheme) should be taxed in full under PAYE. Exceptions and reductions include situations where the value underlying the sums in question was previously taxed, either at the contribution stage or when ‘earmarked’ for a specified employee or employees in the scheme.

You can find more information about these schemes in the Employment Income Manual and the National Insurance Manual, read sections on:

employer-financed retirement benefits schemes at EIM15000 onwards
employment income provided through third parties at EIM45000 onwards
foreign pensions at EIM74500 onwards, where a lump sum payment is made from an employer-financed retirement benefits scheme based outside the UK
retirement benefit schemes from 6 April 2006 — payments out of employer-financed retirement benefits scheme at NIM02760 onwards

Read the guidance on paying a company pension or annuity through your payroll to find out more.

2.2.2 Procedures for employer of either an employee retiring or a deceased employee whose beneficiary is entitled to a pension

Pension to be paid by you as the employer

If you’re to pay the pension to a retiring employee:

do not treat the employee as leaving your employment — continue paying them using the existing payroll record
give the former employee a retirement statement, showing their previous employment details up to the date of their retirement
indicate ‘Yes’ in the occupational pension indicator field on the first and every payment of pension
include the annual amount of the occupational pension with the first pension payment do not pro rata it from the start date
include the tax code
use a different payroll ID for the pension payments and indicate on the FPS that the payroll ID has changed, including details of the previous payroll ID
no National Insurance contributions are payable

When you start to pay the pension, use the employee’s existing tax code on a week 1 or month 1 basis until you hear from us. If we have not contacted you by 5 April, (or the employee retires so late in the tax year that the first pension payment is made after 5 April), carry forward the existing tax code to the new tax year but use it on a cumulative basis.

If you’re paying the pension to a beneficiary of a deceased employee, follow the procedures under ‘Pension recipient does not give you form P45’ in paragraph 2.2.4.

Pension to be paid by the trustees of a pension fund

If an employee retires and you’re not going to be paying them a pension, you need to include the leaving details on the FPS when making their final payment, as you would for any employee who’s leaving.

If an employee dies

If an employee dies, you must pay any final payment due to the deceased’s personal representative, who’s usually the executor of their will. You should only show the deceased’s personal details on their last FPS, not those of their representative.

There’s no specific date of death field on the FPS, so you must provide a date of leaving on the last FPS for the deceased, which in this instance will be the employee’s date of death. There’s no need for you to tell us that your employee has died as we’ll receive notification of this from other government sources. You do not give the personal representative a form P45.

2.2.3 Procedures for employer of an employee starting to receive a pension whilst continuing to work for the same employer

Pension to be paid by you as the employer

If you’re to pay a pension to an employee who continues in employment:

do not treat the employee as leaving your employment
set up a separate payroll record for the pension
indicate ‘Yes’ in the occupational pension indicator field on the first and every payment of pension
include the annual amount of the occupational pension with the first pension payment, do not pro rata it from the start date
include the tax code
use a different payroll ID for the pension payments on the FPS from that used for their employment income

When you start to pay the pension, deduct tax using code 0T on a week 1 or month 1 basis until you hear from us. Continue to use the same code as before on the employment income.

2.2.4 Procedures for other pension and annuity payers

Most pensions and annuities from, or in respect of, a registered pension scheme are PAYE pension income. Where the pension or annuity is for a dependant, nominee or successor, they may be exempt from tax. See paragraph 2.2.7.

Pension recipient gives you form P45

When a pension recipient gives you a form P45:

set up a new payroll record for them
include the date the pension started with the first pension payment
indicate ‘Yes’ in the occupational pension indicator field on the first and every payment of pension
include the annual amount of the occupational pension with the first pension payment, do not pro rata it from the start date
include the tax code
include the payroll ID, if you want to use one
use the code from the P45 on a week 1 or month 1 basis until you hear from us
if we have not contacted you by 5 April (or the first pension payment is to be made after 5 April), carry forward the existing code to the new tax year but use it on a cumulative basis
after the pension or annuity has started and after you have received a code from us you must destroy the P45

Pension recipient does not give you form P45

If a pension recipient does not give you a form P45:

set up a new payroll record for them
include the date the pension started with the first pension payment
indicate ‘Yes’ in the occupational pension indicator field on the first and every payment of pension
include the annual amount of the occupational pension with the first pension payment, do not pro rata it from the start date
include the tax code — unless you’re told to use a new tax code by us, use the emergency tax code on a week 1 or month 1 basis
include the payroll ID, if you want to use one

Recipient is a non-individual

Where such payments are made to third parties or non-individuals, such as personal representative, trustee in bankruptcy or a body corporate, you must submit the following information under real time information:

Operate code BR.
Leave the National Insurance number field blank.
Enter ‘male’ as the gender.
Enter ‘RP’ as the forename.
Enter the name of the recipient body as the surname.
Enter the address of the recipient body.
Indicate ‘Yes’ in the payment to a non-individual indicator field.
Do not enter a start date for the new recipient.

Term certain pensions and annuities

Where such payments are made to a named beneficiary or beneficiary you must follow the usual procedures for new pensions and annuities. Pensions and annuities paid from or in respect of registered pension schemes are PAYE pension income under the PAYE system.

If such pensions or annuities are for a ‘term certain’ following the death of the pension recipient or annuitant or to a named beneficiary, the continuing pension and annuity instalments may not be taxable. Report PAYE pension income under real time information.

Where such payments are made to a named beneficiary or beneficiary you must follow the usual procedures for new pensions and annuities.

Where such payments are made to third parties or non-individuals, such as personal representative, trustee in bankruptcy, body corporate you must submit the following information under real time information:

Operate code BR.
Leave the National Insurance number field blank.
Enter ‘male’ as the gender.
Enter ‘RP’ as the forename.
Enter the name of the recipient body as the surname.
Enter the address of the recipient body.
Indicate ‘Yes’ in the payment to a non-individual indicator field.
Do not enter a start date for the new recipient.

For named beneficiaries or new recipients of pensions or annuities you must follow the procedures at paragraph 2.2.4.

2.2.5 Trivial commutation payments and winding up lump sums relating to registered pension schemes

Whether a trivial commutation payment or a winding up lump sum is taxable in whole or in part as pension income, tax must be deducted through PAYE from the taxable amount.

Commutation where pension payments have already started (crystallised)

In these cases:

treat the trivial commutation payment in the same way as the earlier pension payments, and operate PAYE in the normal way
complete form P45 including the taxable commutation payment and the pension payments made in the year
give the P45 to the pension recipient
enter the date of payment as the date of leaving on their payroll record so this is sent to HMRC when you report your payroll information
enter on the FPS:
- the taxable element of the lump sum, or sums, paid in the ‘taxable pay to date’ and the ‘taxable pay in this period’ fields
- any non-taxable element of the lump sum, or sums, paid in the ‘non tax or National Insurance contributions payment’ field

For trivial commutation and small pot commutation lump sums only:

indicate the trivial commutation type on the FPS:
- A — trivial commutation lump sum
- B — other lump sum (from personal pension schemes)
- C — other lump sum (lump sum from occupational or public service pension schemes)
enter on the FPS the total amount of the lump sum, or sums, paid in the ‘trivial commutation payment’ field

Where payments are made to the same individual from separate pension pots, you must:

report these separately
use separate payroll IDs for each payment and complete the appropriate fields on the FPS — these can be reported on the same date or on different dates
use different end dates if payments are ‘one-off’ payments where both pots are being emptied

Commutation payment where pension payments have not started (not crystallised)

In these cases:

use the BR code on a week 1 or month 1 basis when putting the trivial commutation payment through your payroll
set the occupational pension indicator
use the date of payment as the leaving date on their payroll record so this is sent to HMRC when you report your payroll information
prepare a P45 and give it to the pension recipient
include the payroll ID, if you want to use one
enter on the FPS:
- the taxable element of the lump sum, or sums, paid in the ‘taxable pay to date’ and the ‘taxable pay in this period’ fields
- any non-taxable element of the lump sum, or sums, paid in the ‘non tax or National Insurance contributions payment’ field
for trivial commutation and small pot commutation lump sums only indicate the trivial commutation type on the FPS:
- A — trivial commutation lump sum
- B — other lump sum (from personal pension schemes)
- C — other lump sum (lump sum from occupational or public service pension schemes)
enter on the FPS the total amount of the lump sum, or sums, paid in the ‘trivial commutation payment’ field
include a start date
enter the total amount of the lump sum paid in ‘annual amount of occupational pension amount’ field

Where payments are made to the same individual from separate pension pots, you must:

report these separately
use separate payroll IDs for each payment and complete the appropriate fields on the FPS — these can be reported on the same date or on different dates
use different end dates if payments are ‘one-off’ payments where both pots are being emptied

2.2.6 Pension schemes payments

From 6 April 2015 individuals have been able to flexibly access a money purchase pension if it is held in a registered pension scheme. They can do this through:

a pre-6 April 2015 drawdown pension fund where they’ve made a valid notification for flexible drawdown before that date means the fund automatically becomes a flexi-access drawdown fund from 6 April 2015
a capped drawdown fund that existed before 6 April 2015 where the scheme has accepted notification that the fund is to become a flexi-access drawdown fund
a capped drawdown fund that existed before 6 April 2015 where the payment exceeds the 150% cap
a new flexi-access drawdown fund set up on or after 6 April 2015
an uncrystallised funds pension lump sum (UFPLS), which lets the individual take pension benefits without going into drawdown or buying an annuity — it can be used to deplete a fund in one go, of which up to 25% may be tax free and the remaining part taxable
a payment under a flexible annuity contract where the individual became entitled to the annuity on or after 6 April 2015
a payment from a money purchase scheme pension where there are fewer than 11 other pension members who became entitled to the scheme pension on or after 6 April 2015
a lump sum from a money purchase scheme pension where the individual had the right to primary protection, but not enhanced protection

These payments are taxable (in whole or part) as pension income. Tax must be deducted from the taxable amount through PAYE and reported under real time information.

How to tax pension flexibility payments

To tax pension flexibility payments you must:

set up a new payroll record
treat the payment in the same way as other pension payments and operate PAYE in the normal way
deduct tax on the taxable element using the emergency code on a week 1 or month 1 basis — if you already have a tax code for the current year from the individual’s P45, you should operate that code on a week 1 or month 1 basis

How to report pension flexibility payments under real time information

Use the following tables for instructions on how to fill in the FPS.

Regular payment

Field	What to enter
Starting date	Only enter the start date if you are reporting the first payment to your pensioner. Do not include the starting date if it has already been reported in an earlier submission
Annual amount of the occupational pension	Enter the amount of the first pension payment and do not pro-rata it from the start date. This applies to payment of pension or income paid from a registered pension scheme
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year
Taxable pay in this period	Enter the taxable pension in this pay period
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Payroll ID	Include the payroll ID, if you want to use one
Pay frequency	Use the appropriate entry, for example M1 for calendar monthly or W1 for weekly
Flexibly accessing pension rights	Enter ‘Yes’
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment in this field

Irregular payment

Field	What to enter
Starting date	Only enter the start date if you’re reporting the first payment to your pensioner. Do not include the starting date if it has already been reported in an earlier submission
Annual amount of the occupational pension	Enter the amount of the first pension payment and do not pro-rata it from the start date. This applies to payment of pension or income paid from a registered pension scheme
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year
Taxable pay in this period	Enter the taxable pension in this pay period
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Payroll ID	Include the payroll ID, if you want to use one
Pay frequency	Select ‘Irregular’ — do not use this where the whole fund or remaining fund is withdrawn
Irregular employment payment pattern indicator	Enter ‘Yes’. This avoids a record being closed where further payments may be made
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment

One-off or lump sum payment — whole fund withdrawn or final payment made

Field	What to enter
Starting date	Only enter the start date if you’re reporting the first payment to your pensioner. Do not include the starting date if it has already been reported in an earlier submission
Annual amount of the occupational pension	Enter the first pension payment and do not pro-rata it from the start date. This applies to payment of pension or income paid from a registered pension scheme
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year
Taxable pay in this period	Enter the taxable pension in this pay period
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Payroll ID	Include the payroll ID, if you want to use one
Pay frequency	If this is the first payment in the tax year enter ‘One-Off’. For payments already made in the same tax year, enter the pay frequency used on those payments
Date of leaving	This should be the same as the date of payment. You should also complete and issue form P45
Flexibly accessing pension rights	Enter ‘Yes’
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment

One-off or lump sum payment — part of fund withdrawn

Field	What to enter
Starting date	Only enter the start date if you’re reporting the first payment to your pensioner. Do not include the starting date if it has already been reported in an earlier submission
Annual amount of the occupational pension	Enter the first pension payment and do not pro-rata it from the start date. This applies to payment of pension or income paid from a registered pension scheme
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year
Taxable pay in this period	Enter the taxable pension in this pay period
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Payroll ID	Include the payroll ID, if you want to use one
Pay frequency	Enter ‘Irregular’
Irregular employment payment pattern indicator	Enter ‘Yes’. This avoids a record being closed where further payments may be made
Flexibly accessing pension rights	Enter ‘Yes’
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment in the field

2.2.7 Death benefit payments relating to pension schemes

Read detailed information about the tax treatment of the different types of death benefit payment in the Pension Tax Manual.

How to report death benefit payments under PAYE through real time information

Set up a new payroll record and use the information in the following tables where the income is usually treated as the recipient’s.

Lump sum death benefit

Field	What to enter
Starting date	Only enter the start date if it’s the first payment to your pensioner and the payment is taxable. Do not include the starting date if it has already been reported in an earlier submission. If the payment is ‘non-taxable’ do not enter a start date
Annual amount of the occupational pension	Enter the annual amount of the occupational pension with the first pension payment and do not pro-rata it from the start date. If the payment is all ‘non-taxable’ enter 0.00 in the annual amount of occupational pension field
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment. For a ‘non-taxable’ payment, enter 0.00
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year. For a ‘non-taxable’ payment, enter 0.00
Taxable pay in this period	Enter the taxable pension in this pay period. For a ‘non-taxable’ payment, enter 0.00
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs
Tax code operated on this payment	For ‘non-taxable payments’, where the taxable amount reported is 0.00 enter ‘0T’ and enter ‘Yes’ in the ‘Tax Code Basis is non-cumulative’ field. For taxable payments use the Emergency Code on a ‘Week 1’ or ‘Month 1’ basis until we tell you the relevant code to use, or where you have a current year P45, use that code on a ‘Week 1 or Month 1’ basis
Payroll ID	Include the payroll ID, if you want to use one
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Pay frequency	Select ‘Irregular’
Irregular employment payment pattern indicator	Enter ‘Yes’ only where the whole fund has not been withdrawn. This avoids a record being closed where further payments may be made
Pension death benefit	Enter ‘Yes’
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment

Regular death benefit payments

Field	What to enter
Starting date	Only enter the start date if it’s the first payment to your pensioner and the payment is taxable. Do not include the starting date if it has already been reported in an earlier submission. If the payment is ‘non-taxable’, do not enter a start date
Annual amount of the occupational pension	Enter the annual amount of the occupational pension with the first pension payment and do not pro-rata it from the start date. If the payment is all ‘non-taxable’ enter 0.00 into the annual amount of occupational pension field
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment. For a ‘non-taxable’ payment, enter 0.00
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year. For a ‘non-taxable’ payment, enter 0.00
Taxable pay in this period	Enter the taxable pension in this pay period. For a ‘non-taxable’ payment, enter 0.00
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Pay frequency	Use the appropriate entry, for example M1 for Calendar Monthly or W1 for Weekly
Tax code	For ‘non-taxable payments’ where the taxable amount reported is 0.00 enter ‘0T’ and enter ‘Yes’ in the ‘Tax Code Basis is non-cumulative’ field. For taxable payments use the Emergency Code on a ‘Week 1’ or ‘Month 1’ basis until we tell you the relevant code to use or where you have a current year P45, use that code on a ‘Week 1 or Month 1’ basis
Payroll ID	Include the payroll ID, if you want to use one
Pension death benefit	Enter ‘Yes’
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment in the field

2.2.8 Serious ill health payments relating to pension schemes

Members of a pension scheme suffering from serious ill health may receive pension entitlement under an arrangement as a lump sum. The scheme administrator will commute this if certain conditions are met.

How to report serious ill health payments under real time information

Use these tables for instructions on how to fill in the FPS.

Field	What to enter
Starting date	Enter the time of reporting the first payment to the recipient. Do not include the starting date if it has already been reported in an earlier submission
Annual amount of the occupational pension	Enter the annual amount of the occupational pension with the first pension payment and do not pro-rata it from the start date
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year
Taxable pay in this period	Enter the taxable pension in this pay period
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs
Tax code operated on this payment	Use the Emergency Code on a ‘Week 1’ or ‘Month 1’ basis until we tell you the relevant code to use or where you have a current year P45, use that code on a ‘Week 1 or Month 1’ basis
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Payroll ID	Include the payroll ID, if you want to use one
Pay frequency	Select ‘One-Off’
Serious ill health lump sum indicator	Enter ‘Yes’
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment in the field

2.3 Statutory payments

Employers are responsible for paying employees who satisfy the relevant qualifying conditions:

SSP for up to a maximum of 28 weeks at the appropriate weekly rate in any one period of incapacity for work or in any series of linked periods of incapacity for work
SMP for up to 39 weeks if they are not at work because of pregnancy
SAP for up to 39 weeks if they’re not at work because they have adopted a child
SPP for 1 or 2 weeks if they take time off to care for a new-born or adopted child or support the mother or adoptive parent
ShPP is payable when mothers or adopters choose to end their maternity or adoption pay early in order to share it with their partner to take time off to care for the child
SPBP is payable for 1 or 2 weeks, taken together or separately, if an eligible parent or carer takes time off following the loss of a child

Read statutory pay for details on the operation of SSP, SMP, SAP, SPP, ShPP and SPBP schemes.

Read statutory leave and time off for frequently asked questions and calculators to help you work out if you have to pay SSP, SMP, SAP, SPP, ShPP, SPBP and, if so, how much.

It will also help you to work out how much you may be able to recover for each tax month.

2.3.1 Payments of SSP, SMP, SAP, SPP, ShPP and SPBP

For both PAYE and National Insurance contributions purposes, SSP, SMP, SAP, SPP, ShPP and SPBP must be included in gross pay at the time it’s paid. PAYE and National Insurance contributions are then worked out in the normal way.

2.3.2 Payments of SSP, SMP, SAP, SPP, ShPP and SPBP to an employee after their contract of service has ended

For National Insurance contributions purposes

If you pay SSP, SMP, SAP, SPP, ShPP or SPBP to an employee after their contract of service has ended and you pay it:

in a lump sum — work out National Insurance contributions using a weekly earnings period unless the lump sum is paid with the last regular payment of earnings, in that case, add the 2 payments together and work out National Insurance contributions using the earnings period used before the employee left
at the same interval as regular earnings — work out National Insurance contributions using the earnings period used before the employee left
at different intervals from regular earnings — work out National Insurance contributions using the interval between payments

For PAYE purposes

Strictly speaking if the employee is dismissed or has decided not to exercise their right to return to work, you should give them form P45 when they stop working for you. You should deduct PAYE using code 0T on a week 1 or month 1 basis from any SSP, SMP, SAP, SPP, ShPP or SPBP you pay, afterwards.

However, provided the employee does not request a P45, you can deduct PAYE from the payments of SSP, SMP, SAP, SPP, ShPP and SPBP using their normal tax code and delay completion of form P45 until you have made the final payment. If you do this, enter as the date of leaving on the P45 the date on which you make the final payment.

If an employee requests a P45, you should enter as the date of leaving the date on which you last made a statutory payment of SSP, SMP, SAP, SPP, ShPP and SPBP prior to the request, and deduct PAYE using code 0T on a week 1 or month 1 basis from all future payments you make.

If the employee has not been dismissed or has not told you that they do not intend to return to work, they remain your employee even after you make the final payment of SSP, SMP, SAP, SPP, ShPP and SPBP, until either they:

formally cease to be employed by you
fail to return to work on the appointed day at which time you should complete form P45

2.4 Payments paid ‘free of tax or National Insurance contributions’

2.4.1 All of an employee’s earnings paid ‘free of tax’

If you enter into an arrangement with an employee where all of their earnings are to be paid ‘cash in hand’ or ‘free of tax’, you should note that:

it’s your responsibility to make sure that your employee understands and agrees with the terms under which the payment is made ‘free of tax’
payments made ‘free of tax’ can increase your costs
there are extra PAYE duties involved

For example, the tax due is worked out by reference to the ‘true gross pay’, not the amount your employee is actually paid. It’s your responsibility to work out the ‘true gross pay’ figure. If you agree to make any payments that are free of tax, read paying employees cash in hand or guaranteed take home pay.

2.4.2 All of an employee’s earnings paid ‘free of tax and National Insurance contributions’

If you enter into an arrangement with an employee that all of their earnings are to be paid ‘free of tax and National Insurance contributions’, you should contact the Employer helpline for advice.

2.4.3 Part of an employee’s earnings paid ‘free of tax’

If you enter into an agreement with an employee that only part of their earnings are to be paid ‘free of tax’, the figure to enter on your employee’s payroll record to calculate the PAYE and National Insurance contributions due is the total of both the:

‘true gross pay’ of the ‘free of tax’ element of the earnings
actual gross pay of the part of the earnings that have not been paid free of tax

To work out the ‘true gross pay’ of the ‘free of tax’ element, you should use the following formula:

‘free of tax’ element of pay × 100 ÷ (100 — employee’s tax rate figure)
(the tax rate figure depends on which tax table you use for the employee).

If you use:

table B English and Northern Irish — the figure is 20 — basic rate
table D1 English and Northern Irish — the figure is 40 — higher rate
table D2 English and Northern Irish — the figure is 45 — additional rate
table B Scottish — the figure is 19 — Scottish starter rate
table D1 Scottish — the figure is 20 — Scottish basic rate
table D2 Scottish — the figure is 21 — Scottish intermediate rate
table D3 Scottish — the figure is 41 — Scottish higher rate
table D4 Scottish — the figure is 46 — Scottish additional rate
table B Welsh — the figure is 20 — basic rate
table D1 Welsh — the figure is 40 — higher rate
table D2 Welsh — the figure is 45 — additional rate

Example

You enter into an agreement to pay an employee a wage of £150 and £15 ‘free of tax’ towards travelling expenses. The employee is a table B employee.

The figure to use to calculate the PAYE and National Insurance contributions due is the total of the ‘true gross pay’ of the ‘free of tax’ element.

£15 × 100 ÷ (100 - 20) = £18.75

The actual gross pay not within the ‘free of tax’ agreement = £150.00
figure to be entered on your payroll records to calculate PAYE and National Insurance contributions £168.75

For more information, read paying employees cash in hand or guaranteed take home pay.

2.4.4 Part of an employee’s earnings paid ‘free of tax and National Insurance contributions’

If you enter into an agreement with an employee that only part of their earnings are to be paid ‘free of tax and National Insurance contributions’, you should contact us for advice on how to work out the amount of PAYE and National Insurance contributions due.

2.4.5 Agreement to pay an employee’s share of National Insurance contributions

You should contact us if you decide to pay the employee’s share of National Insurance contributions on their behalf. That is, you pay the employee’s contributions yourself then do not deduct them from the employee’s pay.

2.5 Payroll giving — an easy way to give

Payroll giving is a voluntary scheme that allows employees to give money to a charity direct from their pay and get tax relief on the donations they make. Employers who currently offer the scheme say they find it easy to run and valuable for promoting good employee and community relations.

You can get tax relief for the costs of administering the scheme. Agencies usually recover their costs by making a deduction from the donations they handle but, if you choose to fund any of the agency’s costs, or match your employees’ donations, you can get relief for that as well.

If you already offer payroll giving, remember that employees are entitled only to tax relief, not relief from National Insurance contributions.

When completing your payroll records you:

deduct the amount of the authorised donation from the employees’ gross pay for PAYE purposes
do not deduct the amount of the authorised donation from the employee’s gross pay for National Insurance contributions purposes

To find out more you can:

read Payroll giving
phone or write to the Charities helpline

2.6 Incentive awards

Employees may receive incentive awards from you the employer, or a third party.

Awards may be made in:

cash
goods
holidays
prizes or vouchers exchangeable for them

An example of a third party making an award is where in the course of a sales promotion, the manufacturer of the product gives awards to salespersons whose direct employer is actually selling the product in question.

2.6.1 Cash awards and awards made by voucher which can be exchanged for cash

Cash awards

If you provide a cash award, the value of that award must be included in the employee’s gross pay and PAYE and National Insurance contributions worked out on it in the normal way.

If a third party provides a cash award, the third party is responsible for deducting PAYE from the award and should seek advice on what to do from us. The value of that award must also be reported to you to enable you to account for the National Insurance contributions due.

Awards made by voucher which can be exchanged for cash

If you, or a third party, award a cash voucher you, as the contractual employer must include the value of that cash voucher in the employee’s gross pay and work out PAYE and National Insurance contributions in the normal way.

Recording and reporting for cash awards and vouchers exchangeable for cash

Include the amount in the field ‘pay subject to Class 1 National Insurance contributions’ on the employee’s payroll record and if it’s cash, also include the amount in the field ‘taxable pay in this pay period’. Then report these figures to HMRC by sending an FPS.

2.6.2 Non-cash awards and vouchers which cannot be exchanged for cash

For PAYE purposes

If you provide the award you can:

fill in the gross value of the award on form P11D after the tax year end
payroll if you have registered to payroll benefits prior to 6 April for the tax year the award was provided
account for the tax by entering into a:
- taxed award scheme (read paragraph 2.6.7) the value of the award grossed at the basic intermediate (Scottish only) or higher rate of tax
- PAYE settlement agreement (PSA) (read section 5) to pay the tax on the value of the award grossed up by reference to the employee’s rate of tax

If a third party provides the award they can only account for the tax by entering into a taxed award scheme.

Promoters who sell incentive schemes or operate them for others cannot account for tax on awards except those made for their own employees.

For National Insurance contributions purposes

Non-cash awards other than non-cash vouchers

Some non-cash awards attract Class 1 National Insurance contributions and others Class 1A National Insurance contributions. Read paragraph 5.1. You, the employer, are liable for any Class 1 National Insurance contributions even if a third party provides the awards to your employees. But, where the award attracts a Class 1A National Insurance liability, the third party is liable unless you arrange or facilitate the provision of the award.

They can account for the Class 1A National Insurance contributions by entering into a tax agreement scheme. For more advice, read Part 6 — third party benefits of the CWG5 guide.

Employee incentive awards has guidance on the National Insurance contributions to record under the heading ‘National Insurance contributions on non-cash awards other than non-cash vouchers’.

Non-cash vouchers

Payments made by way of non-cash vouchers, with certain exemptions, attract liability for National Insurance contributions. Unless exempt, a payment which is derived from the employee’s employment, made by you or by a third party under arrangement with you, must be included in gross pay and Class 1 National Insurance contributions accounted for in the normal way. That is, you must add the cost to you in providing those non-cash vouchers to any other earnings paid in the earnings period and work out National Insurance contributions on the total.

You must report the value of the non-cash voucher and send an FPS to report these figures to HMRC at the time the voucher is provided, even if this is before the employee’s main pay is paid.

Include the amount in the fields for both ‘pay subject to Class 1 National Insurance contributions’ and ‘benefits on which Class 1 National Insurance contributions are due’ on the employee’s payroll record, and send an FPS to report these figures to HMRC.

You do not have to calculate or report any National Insurance contributions for the pay period until the last payment is made in the same period. Then, you must add the value of the award to the employee’s pay that was paid in the same period the award was made and assess the National Insurance contributions due on this revised figure. Deduct the employee’s share of National Insurance contributions from any cash earnings you pay them, update your payroll records and send an FPS to report them to HMRC. Pay the National Insurance contributions due on the revised gross pay figure.

Most non-cash vouchers provided by third parties, where the direct employer does not arrange or facilitate the provision, are excluded from Class 1 National Insurance contributions. They’re liable for Class 1A National Insurance contributions which is payable by the third party. For more details, read Class 1A National Insurance contributions on benefits in kind (CWG5).

However, vouchers provided by third parties in connection with the provision of readily convertible assets (RCAs) (read section 5) always attract Class 1 liability and the direct employer is responsible for the National Insurance contributions.

Employer pays an employee’s tax

If, in addition to making an award, you pay all or part of an employee’s tax due on that award, the tax paid must also be included in the employee’s gross pay when calculating Class 1 National Insurance contributions. This is the case regardless of whether the tax is accounted for through a taxed award scheme. You must include the amount of tax paid in the employee’s gross pay at the time the tax is paid over to the accounts office.

Third party pays an employee’s tax

You should also include tax paid on an employee’s behalf by a third party where the tax is in relation to cash payments, cash vouchers or benefits in kind subject to Class 1 National Insurance contributions which the third party has provided to your employees.

Follow the instructions for how to calculate, record, and report the National Insurance contributions due on the amount of tax you paid.

Where the tax is in relation to benefits in kind or non-cash vouchers, which are subject to Class 1A National Insurance contributions, the third party will be responsible for paying Class 1A National Insurance contributions on the amount of tax paid if they have arranged or facilitated the provision of the benefit or non-cash voucher. The third party will also have to account for that payment through a taxed award scheme.

Calculating, recording and reporting National Insurance contributions

Include the value of the tax paid on behalf of the employee, whether it was you or someone else who paid it for them, in ‘pay subject to Class 1 National Insurance contributions’ on their payroll record and report this to HMRC on an FPS. Do this when the tax is paid to HMRC, even if this is before the employee’s main pay is paid in that pay period.

You do not have to calculate or report any National Insurance contributions for the pay period until the last payment to that employee is made in the same period. Then, you must add the value of the award to the employee’s pay that was paid in the same period the award was made and assess the National Insurance contributions due on this revised figure. Deduct the employee’s share of National Insurance contributions from any cash earnings you pay them, update your payroll records and send an FPS to report them to HMRC. Pay the National Insurance contributions due on the revised gross pay figure.

PAYE settlement agreements

It’s acceptable for a PSA to include non-cash voucher awards you give to your employees as long as they’re ‘minor’ or ‘irregular’. In that event Class 1B National Insurance contributions rather than Class 1 or Class 1A National Insurance contributions will be due. If you have such an agreement and are in any doubt as to whether you’re complying with the terms of it, get in touch with us.

For more information about liability for National Insurance contributions on items included in PSAs, read section 5.

Apportionment

If an award is made for the benefit of more than one employee, read paragraph 2.6.5 for details of how to apportion the award between those employees for National Insurance contributions purposes.

2.6.3 Valuing cash vouchers for National Insurance contributions purposes

Cash vouchers are vouchers that can be exchanged for an amount of money which is not much less than the expense the employer or third party incurs in providing them. The amount to include in gross pay is the surrender value of the voucher.

2.6.4 Valuing non-cash vouchers for National Insurance contributions purposes

The ‘value’ of a non-cash voucher is, apart from 2 exceptions, the cost to you in providing it. If a third party is providing it, then it’s the cost to that third party. The cost in providing a non-cash voucher is not normally the face value unless, exceptionally, the cost in providing it and its face value are the same.

The exceptions are luncheon vouchers and childcare vouchers for which the ‘value’ is the face value of the voucher.

The ‘cost’ in providing a non-cash voucher includes the cost of:

buying the goods or providing the services
selecting and testing those goods or services
storing, distributing and installing the goods or services
servicing and other ‘after sales’ expenses

As such, a non-cash voucher is valued for National Insurance contributions purposes in the same way as for tax.

2.6.5 Apportioning the value of vouchers between employees for National Insurance contributions purposes

If you provide a voucher which attracts a National Insurance contributions liability for the benefit of more than one employee, the value of the voucher must be apportioned between those employees. You must include in each employee’s gross pay the proportionate amount of the total value each employee enjoys.

If you’re unable to determine the correct proportionate amounts, you must split the total value equally and include that amount in each employee’s gross pay.

Example 1

An employer buys a retail voucher at a cost of £300. They provide the voucher to 3 employees with the intention that employee:

A will receive 50% of the voucher’s value
B will receive 30%
C will receive 20%

The amount of earnings to be included in each employee’s gross pay, for employee:

A — £300 × 50% = £150
B — £300 × 30% = £90
C — £300 × 20% = £60

Example 2

An employer buys a retail voucher at a cost of £300. They provide the voucher to 3 employees with the intention each employee will receive an equal amount of the voucher’s value.

The amount of earnings to be included in each employee’s gross pay is: £300 ÷ 3 = £100 each.

2.6.6 Non-cash vouchers exempt from National Insurance contributions

The following types of non-cash voucher, provided to an employee, are exempt from National Insurance contributions liability:

for leave travel facilities for members of Her Majesty’s forces
for use to obtain fuel for a company car where a car fuel tax charge arises on that provision
for motoring expenses for a van provided for private use where a tax charge arises on that provision
for sports and recreational facilities so long as those facilities are available generally to all employees
long service awards so long as the:
- length of service is not less than 20 years
- cost of providing the voucher is not more than £50 for each year of service
- employee concerned has not received another long service award within the preceding 10 years
social functions, such as a Christmas party, so long as the:
- function is open to all employees
- cost of providing the voucher is not more than £150 a head
for travel by any means between home and work by an employee who’s disabled
for the hiring of a cycle or cyclist’s safety equipment so long as the:
- facility is available to all employees and
- cycle or equipment is used mainly for journeys from home to work
until 5 April 2011, the first £55 a week of childcare vouchers provided to cover all or part of the cost and expenses of childcare where all conditions are met, the childcare:
- is for a child or children up to 1 September after their 15th birthday (or 1 September after their 16th birthday if the child is disabled)
- is for a child of the employee or a child who lives with the employee for whom they have responsibility
- is registered or approved childcare
- vouchers are provided as part of a scheme available to all of your employees or all of your employees at a location where the scheme is offered

From 6 April 2011 changes were made to the rules about providing vouchers to employees for childcare. For those new to a childcare voucher scheme from that date the amount that’s disregarded for National Insurance contributions purposes is £55 a week for ordinary rate tax payers £28 for higher rate tax payers and £25 for additional rate tax payers.

From April 2011 employer supported childcare is exempt from National Insurance contributions in line with the tax treatment under S318 and S318A-D Income Tax (Earnings and Pensions) Act 2003. So long as the qualifying conditions are satisfied, National Insurance contributions are only payable on the cost of the childcare which exceeds the exempt amount.

It’s the responsibility of the employer to determine the tax liability of the employee before awarding vouchers so that they know how much can correctly be disregarded:

for meals provided on your premises or canteen so long as the meals are:
- provided on a reasonable scale
- available to all employees and are not provided as part of a salary sacrifice or flexible remuneration arrangement
for a car, motorcycle or bicycle parking space at or near an employee’s place of work
to obtain goods or services in connection with a car provided for private use and on which a tax charge arises
for travel between home and work on a work’s bus so long as the:
- bus service is available to all employees
- main use of the service is for home to work or between workplaces
- service must largely be used by the employees or their children
- service must be provided by a bus with a seating capacity of 12, or a minibus with a seating capacity of 9 or more
for use in connection with additional travelling and subsistence costs incurred as a result of disrupted public transport
for use by an employee for any necessary travel and accommodation costs in connection with the transfer between the mainland and an offshore oil or gas rig, or platform
for late night journeys between home and work so long as:
- the employee is only occasionally required to work late and it’s not simply at the end of the usual shift
- by the time they can go home, public transport has stopped or it’s unreasonable to expect them to use it
for use where normal car sharing arrangements have broken down due to unforeseen or exceptional circumstances
as an award under a suggestion scheme so long as the conditions for exemption from tax are satisfied
for incidental overnight expenses so long as:
- the amount does not exceed prescribed limits — £5 a night for an overnight stay in the UK or £10 a night outside of the UK
- other conditions are satisfied — for more details, read Expenses and benefits for directors and employees — a tax guide: 480 and Class 1A National Insurance contributions on benefits in kind (CWG5)
to obtain gifts (but not cash) so long as:
- the voucher is provided by a third party who is not connected to you
- you have not directly or indirectly procured the voucher
- the voucher is not being provided in recognition of the employee’s past or future performance
- the amount does not exceed £250
provided by a third party where that provision has not been arranged or facilitated by you, but a Class 1A National Insurance contributions liability will arise in such circumstances, which liability is that of the third party
the voucher is a trivial benefit, to qualify as a trivial benefit, the benefit must:
- cost £50 or less
- not be provided as part of a salary sacrifice or other contractual arrangements
- not be provided in recognition of services performed or to be performed by the employee as part of their employment

There’s also an annual cap of £300 worth of trivial benefits provided to directors or other office-holders of close companies, or to members of their family or household.

For more details, read Class 1A National Insurance contributions on benefits in kind (CWG5).

2.6.7 Taxed award schemes

Providers of awards who wish to enter into a taxed award scheme should ask for an information pack from:

Incentive Award Unit
Employer Engagement Team
BPV 4102 Benton Park View
Chillingham House
Longbenton
Newcastle upon Tyne
NE98 1ZZ

Email: incentive.awards@hmrc.gov.uk

Under a Taxed Award Scheme (TAS), providers will have to:

agree in advance how the awards are to be valued
sign a contract with us under which they have to account for tax on the value of the awards grossed up at the appropriate rate
make returns on the awards (the returns differ for basic rate and higher rate schemes — less information is needed for higher rate schemes)
give each employee receiving an award under a higher rate scheme a certificate showing the value of the award and the amount of tax paid on it — for basic rate schemes certificates need only be given to employees who request them

Employers who use the TAS arrangements for incentive awards, and third parties who provide such awards, can report liability for Class 1A National Insurance contributions and account for the National Insurance contributions through taxed award scheme arrangements. Class 1A National Insurance contributions on benefits in kind (CWG5) and the explanatory notes in the TAS information pack.

Read Employment Income Manual at EIM11200 onwards, for more information on incentive award schemes.

2.7 Holiday pay

This section describes the special rules for working out National Insurance contributions and deducting PAYE on certain types of holiday payments.

2.7.1 Holiday pay in the construction industry and similar schemes

The following information relates to schemes for holiday pay in the construction industry or similar schemes when a group of employers contribute to a central, independently managed holiday pay fund (such as electrical contracting, heating, ventilation and domestic engineering industries).

For PAYE purposes

Include in gross pay:

all holiday pay that is paid by you
the cost of holiday pay stamps or credits from an unapproved scheme, these must be treated as pay at the time when they’re allocated to the employee

Do not include in gross pay:

the cost of holiday pay stamps or credits which are issued under a scheme approved by us
any holiday pay that’s paid under an approved scheme by the fund itself — in these cases the fund will deduct tax on this at the basic rate and give the employee a Certificate of Tax Deducted and make their own end of year return to HMRC

For National Insurance contributions purposes

Employment law instructs employers in the obligation of providing paid holidays to their employees, so each employer must calculate and pay their employee the payment due to them when taking holiday during the period of that employment. How to work out National Insurance contributions on holiday pay is described at paragraph 2.7.5.

2.7.2 Holiday pay from money set aside during the year

For holiday pay made up of amounts voluntarily set aside from your employees’ pay during the year to be paid at a certain time. For example, Christmas or their annual holiday, for both PAYE and National Insurance contributions purposes include the amount set aside in gross pay at the time it is set aside.

2.7.3 Holiday pay from a holiday credit scheme

For holiday pay from a holiday credit scheme when money is set aside each payday to be paid in a lump sum when your employees take their holidays, for both PAYE and National Insurance contributions purposes, include these amounts in gross pay:

at the time they’re set aside if your employees have a right to be paid the money at any time
when the payment is actually made if your employees can only have the money when they take their holiday

In both cases, the figures must be included in their payroll record and sent to HMRC on your FPS when you report your payroll information.

2.7.4 Working out PAYE on holiday pay

You should normally work out PAYE using the tax tables for the week in which the holiday pay is paid and record it on the employee’s payroll record.

However, if the effect of the holiday pay is that the employee gets 2 or more weeks’ pay in one week and no pay in the following weeks then you should account for PAYE tax in the following way.

For employees with a cumulative tax code

If your employee’s on a cumulative tax code, calculate and record the PAYE tax using the free pay for the last week in which no pay is received. For example, if an employee is on holiday in weeks 16 and 17 and the wages for those weeks are paid in week 15, together with the pay for week 15, PAYE tax should be calculated on the holiday pay using week 17.

You must report the payment on the FPS in the week you make the payment. For the ‘Number of earnings periods covered by the payment’ on your FPS, in this example, you would enter ‘3’.

For employees with a week 1 or month 1 tax code

Where PAYE is being worked out on a week 1 or month 1 basis, split the pay equally between the full weeks of the holiday and work out and record PAYE on each amount separately for each week. You should report the payment on an FPS in the week that you make the payment. The total amount of PAYE due for these weeks is the amount you should deduct from the total holiday pay.

For employees leaving employment after their holiday

If your employee will be leaving or retiring straight after their holiday, then work out the PAYE tax due on their holiday pay using the free pay for the week in which you pay it to them. You should report the payment on an FPS in the week that you make the payment.

2.7.5 Working out National Insurance contributions on holiday pay

If weekly paid employees receive a payment which covers more than one week and it is, or includes, holiday pay, you can work out National Insurance contributions using one of two methods.

Method A

Split the sum up and work out National Insurance contributions on the payment for each week separately.

Example

On the last payday before their holiday, you pay employees their ordinary weekly wage plus 2 weeks’ holiday pay.

Work out National Insurance contributions on each week’s pay separately and record them in the corresponding weeks on the employee’s payroll record.

Method B

Work out the National Insurance contributions on the whole sum based on the number of weeks it represents. Round up parts of a week.

Example

On the last payday before their holiday, you pay employees their ordinary weekly wage plus 2 weeks’ holiday pay.

National Insurance tables used to work out National Insurance contributions

Work out National Insurance contributions on a 3 week basis by dividing the total earnings on which National Insurance contributions are payable by 3, looking up this figure in the appropriate weekly table and multiplying the National Insurance contributions shown in the table by 3.

Exact percentage method used to work out National Insurance contributions

Any of the following methods for calculating National Insurance contributions is acceptable:

apply the 3 weekly lower and EUL and primary, secondary and UST to the total payment and round the resulting National Insurance contributions figures to the nearest penny, rounding down exact amounts of £0.005, in the normal way
divide the total payment by 3 to establish the average weekly earnings, work out the weekly National Insurance contributions figures, round to the nearest penny, rounding down exact amounts of £0.005, then multiply the answers by 3 to get the total National Insurance contributions due
divide the total payment by 3 to establish the average weekly earnings, work out the weekly National Insurance contributions figures, multiply the answers by 3, then round to the nearest penny, rounding down exact amounts of £0.005, to get the total National Insurance contributions due

Method B

This can also be used:

for employees who are paid at intervals which are multiples of a week, for example, fortnightly or 4 weekly, but if you use the exact percentage method to work out National Insurance contributions you must use method A
even if the employee does not take the holiday but carries on working

Method B

This cannot be used:

for monthly paid employees
if holiday pay is from a holiday pay scheme in the construction industry or similar scheme

If you do not calculate holiday pay based on the length of the holiday but in some other way, for example, according to an employee’s length of service, treat the amount of holiday pay as spread evenly over the period of the paid holiday.

Holiday pay paid in advance and the employee stays at work

If an employee stays at work instead of taking their holiday and you have already worked out National Insurance contributions on the holiday pay, the additional National Insurance contributions due on their wages for working is dependent on how the National Insurance contributions on the holiday pay were calculated.

If method A was used:

add together the pay now due and the holiday pay already paid for that week and work out National Insurance contributions on the total amount
subtract from the amount of National Insurance contributions calculated the National Insurance contributions already paid on the holiday pay for that week to get the amount of National Insurance contributions now due
amend the employee’s payroll record to reflect the new figures

If method B was used do not add the holiday pay to the pay due for working but work out and record National Insurance contributions separately on the pay due for working in the normal way.

Holidays taken some time after the holiday pay is received

If weekly paid employees do not take their holiday until sometime after receiving the pay for it. For example, a security guard who receives their holiday pay before the employer’s annual close down but stays on duty and takes the holiday later, work out and record National Insurance contributions on the holiday pay at the time it’s actually paid.

Holiday pay in advance or arrears

If holiday pay is paid in advance or arrears and the actual date of payment and the usual payday are in different tax years and you’re using method A, read paragraph 3.2.

2.7.6 National Insurance contributions on payments due to be paid during a holiday period

If payments are due to be paid during a holiday period, the National Insurance contributions due on the payment are dependent on how National Insurance contributions were worked out on the holiday pay for the week in which payment is due to be made.

For example, an employee is due to be paid for overtime worked but because of the payroll arrangements the overtime does not become payable until the employee is on holiday.

If method A was used to work out National Insurance contributions on the holiday pay, regardless of the week in which the payment is actually made:

treat the payment as belonging to the week in which it would normally have been made (had the employee not been on holiday)
add the payment to the holiday pay due for that week
work out National Insurance contributions on the total
take into account the National Insurance contributions already paid on the holiday pay for that week
adjust the employee’s payroll record to reflect the correct National Insurance contributions figures

However, if the payment is actually made in a different tax year from the one in which it was due to be made, work out National Insurance contributions separately on the payment based on the contribution rates and limits current at the time of payment.

If method B was used to work out National Insurance contributions on the holiday pay, and if payment is:

actually made in the week in which it was due to be made treat it separately from the holiday pay due for that week and work out National Insurance contributions on it in the normal way
made at a later date for example, when the employee returns to work, add it to the payment due for that period and work out National Insurance contributions on the total

Examples

These examples are based on 2021 to 2022 contribution rates and limits for an employee paying National Insurance contributions under category letter A. National Insurance contributions are worked out using the exact percentage method.

On 31 July the employee is paid:
Basic wages for working 25 July to 29 July = £300
plus holiday pay for 31 July to 5 August = £155
plus holiday pay for 6 August to 12 August = £155
Total = £610

On 19 August the employee is paid basic wages for working 15 August to 19 August = £300

The employee worked overtime during the week 25 July and was due to receive the overtime payment of £80 on 6 August.

Example 1 — method A

Based on the employee being paid the overtime payment on 19 August.

On payday of 29 July National Insurance contributions are due.

Earnings	Employer’s contribution (£)	Employee’s contribution (£)
£300 (wages) £155 (holiday pay) £155 (holiday pay) Total	17.94 0.00 0.00 13.92	13.92 0.00 0.00 13.92

On 20 August the employee is paid the overtime of £80. As the employee was due to receive this on 6 August, the £80 has to be added to the holiday pay for the week 6 August to 12 August and National Insurance contributions worked out again.

Earnings	Employer’s contribution (£)	Employee’s contribution (£)
£300 (wages) £155 (holiday pay) + £80 (overtime) £235 £155 (holiday pay) Total	17.94 8.97 0.00 26.91	13.92 6.12 0.00 20.04

On the payday of 20 August, as the overtime payment has already been accounted for, National Insurance contributions are only due on the wages for that week as follows.

Earnings	Employer’s contribution (£)	Employee’s contribution (£)
£300 (wages)	17.94	13.92

Example 2 — method B

Based on the employee being paid the overtime payment on 5 August.

On payday of 29 July National Insurance contributions are due.

Earnings	Employer’s contribution (£)	Employee’s contribution (£)
£300 (wages) £155 (holiday pay) £155 (holiday pay) £515 ÷ 3 = £203.33 per week Totals	4.60 x3 £13.80	2.32 x3 £6.96

On 6 August, the employee is paid the overtime of £80. National Insurance contributions must be worked out on this separately from the holiday pay payment of £155 for that week and therefore the National Insurance contributions due are:

Earnings	Employer’s contribution (£)	Employee’s contribution (£)
£80 (overtime)	NIL	NIL

Example 3 — method B

Based on the employee being paid the overtime payment on 19 August.

On payday of 29 July National Insurance contributions are due.

Earnings	Employer’s contribution (£)	Employee’s contribution (£)
£300 (wages) £155 (holiday pay) £155 (holiday pay) £610 ÷ 3 = £203.33 per week Totals	4.60 x3 £13.80	2.32 x3 £6.96

On 19 August, the employee is paid the overtime of £80 in addition to the wages due for that week. Add the overtime payment to the wages and work out National Insurance contributions on the total. National Insurance contributions due are therefore:

Earnings	Employer’s contribution (£)	Employee’s contribution (£)
£300 (wages) + £80 (overtime) = £380	£28.98	£23.52

2.7.7 Youth Contract wage incentives

Wage incentives paid to employers as part of the Youth Contract are subject to normal rules of taxation.

Read WP104 Provider Memo — Wage Incentives for further information or contact the person or organisation you received the claim form from.

2.8 Tips, gratuities, service charges and troncs

A tip or gratuity is an uncalled for and spontaneous payment offered by a customer either in cash, as part of a cheque payment, or as a specific gratuity on a credit or debit card payment.

A service charge is an amount added to a customer’s bill before it’s presented to the customer. If it’s made clear to the customer that the charge is a purely discretionary amount and that there’s no obligation to pay, the payment is a voluntary service charge. Where that is not the case, the payment is a compulsory service charge.

To establish the correct PAYE and National Insurance contributions treatment of the payments described, you must identify both the nature of the payment and the arrangements under which it’s paid.

PAYE is not due if cash tips are received directly from customers by your employees and are retained by them, and the monies never pass through your hands. Such tips are, however, taxable directly on the employee who should tell us the amounts they have received. Your employees should declare the money to HMRC who will usually adjust their tax code to collect any tax due.

For PAYE purposes

If, as an employer, you operate a scheme that pays your employees a share of tips or gratuities (including cash tips received by employees and handed to you by the employees for sharing) or service charges (whether voluntary or mandatory) you must include the amount paid to each employee in their gross pay and deduct PAYE accordingly.

PAYE and tronc schemes

A tronc is a separate organised pay arrangement used to distribute tips, gratuities and service charges. You must tell us when you first become aware of the existence of a tronc, telling us the troncmaster’s name and the arrangements in place.

If HMRC are satisfied that there’s a tronc scheme for sharing tips or gratuities and service charges then we’ll set up a PAYE scheme in the troncmaster’s name. The troncmaster is responsible for operating PAYE on all payments made from the tronc, including any share of cash tips. The troncmaster, or someone on their behalf, will need to operate a computerised payroll system and report payroll information to HMRC when or before the payments are made to employees.

For National Insurance contributions purposes

If you impose a mandatory service charge and the money is paid out to your employees, National Insurance contributions are due on the payments no matter what arrangements are in place to share out the money.

If your employees receive tips, gratuities or voluntary service charges you’ll need to determine whether Class 1 National Insurance contributions are due on these. See Booklet E24: Tips, gratuities service charges and troncs, which explains when National Insurance contributions will be due.

Where National Insurance contributions are due, the responsibility for working out and recording the National Insurance contributions will always be yours, as the employer.

If a troncmaster makes a payment to your employees on which National Insurance contributions are due, make sure you:

know the amount being paid and the dates of payment
include the payments in gross pay when working out National Insurance contributions
update the employee’s payroll record accordingly and make sure the information is reported to HMRC

The troncmaster should record the amounts on which National Insurance contributions are due separately from any tips or gratuities on which National Insurance contributions are not payable.

If you’re not satisfied with the arrangements, it may be advisable to:

share out the payments yourself
get the formula for sharing out the payments put into the job contract

It may also be advisable if you take responsibility yourself for paying all earnings to any employee whose basic pay is not enough for full deductions of PAYE and National Insurance contributions to be made. Further guidance can be found at running payroll.

2.9 Employees involved in a trade dispute or lock-out

2.9.1 When the special procedures apply and what they entail

The special procedures must be applied to employees who are absent from work because they’re either:

taking part in a trade dispute
laid off and have a direct interest in a trade dispute

The special procedures for such employees are as follows, you:

must withhold any tax refunds due to the employees for as long as they’re involved in the trade dispute, this applies even if an employee becomes sick after the trade dispute starts
pay any tax refunds that you have withheld only when one of the following circumstances arise, the employee:
- returns to work
- leaves your employment
- dies

2.9.2 How to decide if an employee is involved in a trade dispute or lock-out

It’s up to you, the employer, in the first place to decide if an employee is involved in a trade dispute. Make your decision in the same way as you do for a report called for by Jobcentre Plus, and contact them if you’re in any doubt or difficulty.

Where you decide an employee is involved in a trade dispute but they disagree, advise the employee to contact Jobcentre Plus. If they uphold the employee’s view they’ll give the employee written confirmation that they’re not disqualified from receiving Jobseeker’s Allowance for being involved in a trade dispute.

Where an employee produces such written confirmation:

you cannot treat the employee as being involved in a trade dispute
the special procedures do not apply and you must pay the employee any tax refunds due

2.9.3 Working out PAYE during the trade dispute

If you’re not paying anything to employees involved in a trade dispute you may put off working out their PAYE until the earlier of the end of the trade dispute or 5 April. You must indicate on payroll that it’s a trade dispute.

If you do put off working out their PAYE:

you’ll not be able to deduct from your payments to the accounts office (read paragraph 2.9.4 any refunds you have withheld)
where during the dispute an employee leaves your employment or dies, you must work out their particular PAYE in the normal way, and:
- pay any refund due including any refund withheld in a previous tax year
- complete form P45 in the usual way

If you’re paying anything to employees involved in a trade dispute or you’re not paying them anything but nevertheless choose to work out their PAYE, you must:

make the PAYE calculations in the normal way
where the PAYE calculations show that:
- a tax refund is due, withhold the refund from the employee
- tax is deductible, make the deduction from any pay the employees are receiving, any tax deductible should be reduced by any tax refund that you’re already withholding from the employee, remember, however, to reduce the amount of refund owed to the employee by the amount used by the set-off

2.9.4 Payments to the accounts office during the trade dispute

During a trade dispute the procedures that apply in relation to the payments you make to the accounts office are as follows:

payments you have made to the accounts office for any tax month (or quarter where appropriate) ended before the trade dispute started, are not affected by the trade dispute
you must continue to make your monthly (or quarterly) payments to the accounts office during the trade dispute
if you’re owed money because you made tax refunds before the dispute started but did not make a claim to the accounts office, you may deduct what you’re owed from any amount you’re due to pay to the accounts office during the trade dispute

If you have put off working out the tax refunds due to your employees, you’ll need to do your calculations at the earlier of:

the end of the dispute
when you complete your final submission for the tax year

You can then deduct the refunds from the payments to the accounts office and claim what you’re owed back from the accounts office, who will deal with the matter urgently.

If you have chosen to continue as normal to work out the tax refunds due to your employees you should observe the following procedures when making your monthly (or quarterly) payments to the accounts office:

you may deduct from your payments to the accounts office, any refunds you actually make to employees because they’re no longer involved in the trade dispute (remember, however, not to deduct from your accounts office payment any amount of withheld refund you have previously deducted under the procedure)
you may deduct from your payment to the accounts office, but only for the month (or quarter if appropriate) in which the refund arises, any refunds calculated but withheld
where the amount of withheld refunds exceeds the tax due for that month (or quarter) you may deduct the excess from any payment of National Insurance contributions due
where the amount of withheld refunds exceeds the tax and National Insurance contributions due for that month (or quarter), the excess refunds cannot be deducted from any subsequent payment to the accounts office or be claimed back from the accounts office until the refunds have actually been made to the employees

2.9.5 Trade dispute ends in the same tax year it began

If the trade dispute ends in the same tax year it began, take the following action:

pay any refunds that you have withheld as soon as possible after the employees return to work
follow the procedure at paragraph 2.9.7 for any employee whose withheld refund you cannot pay
work out how much you owe to, or are owed by, the accounts office, remember to allow for any deductions from payments to the accounts office that you have already made
where your calculations show that you’re owed by the accounts office you can either:
- deduct the amount you’re owed from future payments you make to the accounts office
- claim the money back from the accounts office who will deal with your claim urgently, your claim must be in writing and show how you have worked out the amount you’re claiming

2.9.6 Procedure at the end of the tax year if the trade dispute has not ended

You must take the following action at the end of the tax year if the dispute has not ended:

fill in the normal final submission for the year as if you had actually paid the refunds you’re withholding
complete form P60 to give to the employee, by 31 May and, either:
- enter a single figure of tax deducted on form P60 and give the employee a statement of tax withheld on form P61
- give a separate statement on form P60 of the tax withheld and give the employee a form P62
continue, for the following tax year, to:
- carry out normal PAYE calculations
- withhold the tax refunds for as long as the employee is involved in the trade dispute

You can get forms P61 or P62 from HMRC National Insurance Contributions and Employer Office.

2.9.7 Procedure for employees whose withheld refunds you cannot pay at the end of the trade dispute

Where an employee does not return to work at the end of the trade dispute, and you do not know where they are, you’ll not be able to pay the withheld refund to the employee. You should take the following action in such circumstances:

pay to the accounts office any tax you have not refunded to an employee within 42 days of the end of the trade dispute
include the figure of tax not refunded on the FPS
where the final FPS for a year has been submitted you’ll need to submit a further FPS, showing the amount of tax which has not been refunded

Question 4

3.  National Insurance only procedures

Accepted Answer

The following guidance applies to all employers. Guidance for reporting PAYE in real time is also available at payroll.

3.1 Earnings periods for National Insurance contributions purpose

Ordinarily, the earnings period for working out National Insurance contributions is the regular interval between which payments of earnings are made.

The following paragraphs describe how to decide what the earnings period is in different circumstances. The rules described in those paragraphs ordinarily do not apply to directors. Read CA44: National Insurance for company directors for details on the earnings period to use for directors.

3.1.1 Employees paid at regular intervals

If you pay your employees at regular intervals, for example, weekly or monthly, the earnings period for working out National Insurance contributions is that regular interval.

If payments are made based on a regular interval but the actual day you pay them changes:

treat them as paid at the regular interval
work out National Insurance contributions separately on each payment even if 2 or more payments are made in the same earnings period

Refer to the weekly or monthly chart in section 1.

3.1.2 Employees not paid at regular intervals but can be treated as paid at regular intervals

If a payment is not made at regular intervals, there may be a regular pattern covering the period for which each payment is made. In such cases, that regular pattern should be used as the earnings period.

For example, if you pay your employees once a month and their contract shows their pay as a monthly amount, treat them as monthly paid even if sometimes they’re paid for 4 weeks’ work and sometimes for 5 weeks’ work.

Refer to the monthly chart in section 1.

3.1.3 Employees paid at irregular intervals

If the interval between payments to employees is not regular, and cannot be treated as being regular, the earnings period for working out National Insurance contributions is the period which the payment covers, or one week, whichever is longer.

If it’s not reasonably practicable to determine the earnings period in this way, the earnings period will be from the date:

of the previous payment to the date of the current payment
the employment began to the date of the first payment

If either period is less than one week, the earnings period is one week. The earnings period for a payment made before the employment begins or after it ends is 1 week.

If an employee is paid in irregular or unequal payments and it’s established that this avoids, or reduces, the payment of National Insurance contributions, you can be directed to work out National Insurance contributions on a different basis. In such cases, we’ll inform you of the basis to use.

3.1.4 More than one set of regular payments

As a general rule, if an employee is paid more than one set of regular payments, all payments must be added together and National Insurance contributions worked out using the shorter of the regular intervals between payments.

Example

If an employee receives basic pay on a weekly basis and commission on a monthly basis, National Insurance contributions are worked out on the total pay based on a weekly earnings period.

However, if you pay an employee at more than one regular interval and it’s established by the National Insurance contributions and employer’s office that most of the earnings are paid at the longer (or longest) interval, you may be directed to work out National Insurance contributions using the longer (or longest) interval.

If you’re directed to use an annual earnings period to work out National Insurance contributions, the earnings period for the rest of the tax year in which the direction is made will be the number of weeks left in that tax year.

3.1.5 Working out National Insurance contributions when you first pay an employee

When you first pay an employee, you must work out National Insurance contributions based on what will be the normal earnings period for the employment using the contribution rates and limits current at the actual time of payment.

If the interval between an employee starting work and the first payday is less than the normal earnings period, still work out National Insurance contributions using the normal earnings period.

Example 1

A new employee starts work on 6 October and is due to be paid monthly on the last day of each month.

The earnings period is monthly and the first payday is 31 October. Work out National Insurance contributions using a monthly earnings period.

If the interval between an employee starting work and the first payday spans 2 or more earnings periods, and each period is in the same tax year, work out National Insurance contributions on the amounts due for each of those earnings periods separately using the normal earnings period.

Example 2

A new employee starts work on 9 June and is due to be paid monthly on the last day of each month. The earnings period is monthly and the first payday is 31 July (mistimed payments). The employee receives £3,300 gross pay which is made up of:

£1,300 for the period 9 June to 30 June
£2,000 for the period 1 July to 31 July

Work out National Insurance contributions separately on the payment for:

June of £1,300 and record National Insurance contributions on the employee’s payroll record in tax month 3
July of £2,000 and record National Insurance contributions on the employee’s payroll record in tax month 4

If the interval between an employee starting work and the first payday spans 2 or more earnings periods, and the relevant earnings periods are in different tax years, work out National Insurance contributions on the earnings due for each period separately using the normal earnings period. Use the contribution rates and limits current at the time the earnings are actually paid.

Example 3

A new employee starts work on 10 March and is due to be paid monthly on the last day of each month.

The earnings period is monthly and the first payday is 30 April. The employee receives £2,300 gross pay which is made up of:

£800 for the period 10 March to 31 March
£1,500 for the period 1 April to 30 April

Work out National Insurance contributions separately on the payment for:

March of £800 using 2022 to 2023 contribution rates and limits and record National Insurance contributions on the employee’s payroll record in tax month 1 of 2022 to 2023
April of £1,500 and record National Insurance contributions on the employee’s payroll record in tax month 1

3.2 Working out National Insurance contributions for employees not paid on their usual payday

Take the following action if you pay employees on a day other than their usual payday, for example, you bring the payday forward because of a bank holiday or you pay 2 months’ salaries together to employees who submit their timesheets late (mistimed payments).

If the actual date of payment and the usual payday are in the same tax year, treat the early or late payment as if it had been made at its usual time.

Example 1

Two separate weeks’ wages for weeks ending 6 June and 13 June are paid on 13 June. Work out National Insurance contributions separately on each week’s payment. Record the National Insurance contributions information for the late 6 June payment on the employee’s payroll record for 6 June and report to HMRC on or before the date of payment.

In different tax years, work out National Insurance contributions on the early or late payment separately from any other payments made in that tax year, using the contribution rates and limits appropriate to the year in which the payment is actually made

Example 2

Two separate weeks’ wages for weeks ending 30 March 2019 and 6 April 2019 are paid on 30 March. Work out National Insurance contributions on each set of earnings separately using the usual earnings period, but record the total National Insurance contributions for both the early 6 April 2019 payment and 30 March 2019 payment together on the employee’s payroll record for 30 March and report it to HMRC on or before the date of payment.

If the payment is due to be made on a non-banking day, read paragraph 1.8.

In both the same and different tax years, look at each payment individually and decide which of the rules apply to that payment.

Example 3

An employee is paid monthly on submission of a timesheet. The employee submits timesheets for February 2018, March 2018 and April 2018 during May 2018. Work out National Insurance contributions on the payments due for February and March separately using the 2018 to 2019 contribution rates and limits. Record the National Insurance contributions separately in tax month 2. Work out National Insurance contributions on the payments for April and May separately and record the National Insurance contributions in tax months 1 and 2 respectively.

The methods described for calculation of mistimed payments can only be used when nothing was paid on the usual paydays.

3.3 Changing the method of working out National Insurance contributions

You may work out National Insurance contributions using either the:

contribution tables supplied by us
exact percentage method, this is when you apply the appropriate percentage rates to the gross pay for the earnings period

You must use only one method for a particular employee in any tax year unless:

the employee changes to another payroll which already uses the other method
you change your payroll system, for example, from manual to computer

3.4 Employees with more than one job

This section describes the rules which govern the payment of National Insurance contributions if an employee has more than one job.

3.4.1 An employee has 2 or more jobs with different employers and each one pays the employee

If an employee has another job or jobs with a different employer or employers, work out National Insurance contributions in the normal way on the earnings you pay the employee. Ignore the payments made to the employee in the other jobs.

However, if you carry on business in association with the other employers, you must add together the earnings from each job and work out National Insurance contributions on the total unless it’s not reasonably practicable to do so. You may be asked to show why it has not been practicable to add together the earnings from each job.

For advice on the type of information we use if we review your decision, read paragraph 3.4.3.

In such cases, you should agree with the other employer how to share out the payment of employer’s contributions.

Employers are considered to be carrying on business in association with each other if:

their respective businesses serve a common purpose
to a significant degree, they share such things as accommodation, personnel, equipment or customers

You can find more information in the National Insurance Manual. Read aggregation of earnings at NIM10000 onwards.

3.4.2 An employee receives one payment of earnings for separate jobs with different employers

An employee may work for 2 or more employers in separate jobs but only get one payment of earnings.

If the employers are:

carrying on business in association with each other (read paragraph 3.4.1), National Insurance contributions are due from the employer who actually pays the earnings
not carrying on business in association with each other, each employer has to pay National Insurance contributions on their share of the payment

3.4.3 An employee has 2 or more jobs with the same employer

If an employee has 2 or more jobs with you at the same time, the general rule is that you must add all the earnings together and work out National Insurance contributions on the total.

If the earnings from each job are separately calculated, you do not have to add the earnings from the separate jobs together if it’s not reasonably practicable to do so.

For example, this might be if you operate a computerised payroll system which is unable to perform the separate calculation and you would then have to do it manually. In such cases, you may be required to show why it has not been reasonably practicable to add the earnings together from each job.

There’s no definition of the phrase ‘not reasonably practicable’ in National Insurance law. We rely upon the ordinary dictionary meaning and any relevant court decisions.

The onus is on you as the employer to show that aggregation is not reasonably practicable. You’ll need to take into account the costs, resources, and the effects on running the business.

We consider the following points if we review your decision:

is it a fact that your payroll software cannot aggregate earnings
is your payroll software provided by an external supplier or provided by an internal IT section
does the provider of an outside IT package give an update service that includes aggregation
if the work has to be carried out manually, what are the costs
how many employees are potentially affected
has there been a material change in the labour force since the decision not to aggregate was taken

If you would like more detailed information on the ‘not reasonably practicable’ test, refer to section NIM10009 of the National Insurance Manual.

3.5 Working out and recording National Insurance contributions when earnings from separate jobs are added together

If you’re required to aggregate the earnings for separate jobs when working out National Insurance contributions, read paragraph 3.5.1 for guidance on how to calculate and report aggregation in real time.

For more information, read what to do if your employee has more than 1 job.

The rate of employer Class 1 secondary contributions is 0% for employees under the age of 21 up to the UST. Class 1 secondary contributions continue to be payable at the standard rate on all earnings above this threshold.

The current way in which National Insurance contributions is assessed remains unchanged, there’s no change to the principles of aggregation.

Employers should make sure they hold the employee’s correct date of birth and use the correct category letter, read paragraph 3.8.5.

From April 2016 the rate of secondary Class 1 contributions is 0% for apprentices under the age of 25 up to the AUST.

Secondary Class 1 contributions continues to be payable on all earnings above the AUST.

The current way in which National Insurance contributions is assessed remains unchanged. Employers should make sure that they hold the employee’s correct date of birth.

3.5.1 Reporting National Insurance contributions when earnings from separate jobs are added together

National Insurance contributions must be worked out on the total earnings using the exact percentage method rather than the contribution tables. This is because the calculation of National Insurance contributions in each table takes into account that portion of an employee’s earnings which fall below the PT. This portion of earnings can only be disregarded once. The earnings period to be used is the shortest. The examples in this section explain what you need to do. The examples use the rates and limits applicable to the 2019 to 2020 tax year. National Insurance contributions are worked out using the exact percentage method.

For more information on using the exact percentage method, read how to manually check your payroll calculations.

The order in which to calculate National Insurance contributions is Z, M or H, J, B, A and C.

Category M (under 21) and H (apprentice under 25) are treated with the same priority.

If you feel that this section applies to you, and you need more information or help in this area, you can find our address and phone number in help and guidance or read what to do if your employee has more than 1 job.

This example tells you how to work out National Insurance contributions when earnings from more than one job are added together and the jobs have different earnings periods.

Example 1

Jason is 19, and his earnings are:

£250 a week (category M)
£2,000 a month (category M)

Jason’s earnings period is weekly and his monthly earnings will be added to his weekly earnings in the week they’re paid. There will be 40 weeks where Jason earned £250. There will be 12 weeks where Jason earned £2,250.

This is how the National Insurance contributions are worked out. Week 1, Jason earns £250, all at category M.

Employee contributions are due at 12% on earnings above the PT.

Employee’s contribution:
(£250 - £166) × 12%
84 × 12% = £10.08

Employer contributions are due at 0% on earnings above the ST:

The appropriate standard percentage rate on the total earnings above the ST (£166).

Employer’s contribution:
(£250 - £166) × 0%
84 × 0% = 0.00

For the 40 weeks where Jason only receives his weekly salary:

Category: M
Employee National Insurance contributions: £10.08
Employer National Insurance contributions: 0.00

In 12 weeks of the year, Jason receives his monthly salary as well as his weekly salary.

Employee contributions are due at 12% on earnings above the weekly PT up to the weekly UEL and at 2% above the weekly UEL.

Employee’s contribution:
(£962 - £166) × 12% = £796 × 12% = £95.52
(£2,250 - £962) × 2% = £1,288 × 2% = £25.76
£95.52 + £25.76 = £121.28

Employer contributions are due at 0% on earnings above the ST up to the UST and 13.8% above the UST. For the 12 weeks where Jason receives both his weekly and monthly salary:

Employer’s contribution:
(£962 - £166) × 0% = £796 × 0% = 0.00
(£2,250 - £962) × 13.8% = £1,288 × 13.8% = £177.74

Category: M
Employee National Insurance contributions: £121.28
Employer National Insurance contributions: £177.74

Total employee National Insurance contributions:
(£10.08 × 40) + (£121.28 × 12) = £403.20 + £1,455.36 = £1,858.56

Total employer National Insurance contributions:
(0.00 × 40) + (£177.74 × 12) = 0.00 + £2,132.88 = £2,132.88

Reporting National Insurance contributions when earnings from separate jobs are added together

If an employee has one payroll identity add together all the payments made in one earnings period under one category and report National Insurance contributions data on the total amount.

Example 2

Employee has one payroll ID and is paid on the same day for both jobs using one payroll identity — 2019 to 2020 rates.

Robert has 2 jobs with a hotel: one as a barman and one as a lifeguard.

He earns £200 per week as a barman and £100 per week as a lifeguard. The payments are made under one payroll ID.

You must add together all the payments made in one earnings period and calculate National Insurance contributions due on the total amount.

Week 4 — assume same weekly pay each week

Data Item	Description	Hotel
79	NI category	A
79A	Gross earnings for National Insurance contributions year to date	£1,200.00
79B	Gross earnings for National Insurance contributions pay period	£300.00
82	Earnings at the LEL year to date	£472.00
82A	Earnings at LEL to PT year to date	£192.00
169	Earnings at PT to UEL year to date	£536.00
86A	Employer National Insurance contributions this pay period	£18.49
86Aa	Employer National Insurance contributions year to date	£73.96
86B	Employee National Insurance contributions this pay period	£16.08
86Aa	Employee National Insurance contributions year to date	£64.32
49	Aggregated earnings indicator	Yes

Employee has 2 different payroll IDs

If an employee receives payments under 2 different payroll identities, you must use the following procedure:

every time you pay the employee, record and report the pay and employee National Insurance contributions in this pay period for each job in the usual way
in addition, on one of the payroll records, you must also:

Add together the earnings from each job (the total is the ‘aggregated earnings’).
Calculate and record the employer National Insurance contributions due on the aggregated earnings for the pay period.
Calculate and record the employee National Insurance contributions due on the aggregated earnings, and so find out any additional employee National Insurance contributions due (over and above what’s already been recorded for the 2 jobs separately for earnings paid in the same earnings period).
Pay HMRC all the employee and employer National Insurance contributions due on the aggregated earnings.
Update the year-to-date National Insurance contributions figures on the payroll record for the employee, to reflect the National Insurance contributions data for the aggregated earnings.
Set the aggregated earnings indicator on the payroll record.
Report the payroll information to HMRC.

You’ll need to decide under which payroll ID you want to record the data for the aggregated earnings. This reference will be the one under which HMRC will expect payment for both the employer National Insurance contributions and employee National Insurance contributions to be made.

For the other job or jobs, update the employee’s payroll record:

Put ‘0.00’ for the year-to-date National Insurance contributions fields.
Put ‘0.00’ for the employer National Insurance contributions in this period.
Set the Aggregated Earnings Indicator.

Example 3

Employee has 2 jobs with same employer, paid using different PAYE references.

Dev is aged 23 and has 2 jobs with the county council — one as an apprentice in the planning department and one with the education department. Each department has a separate payroll, and so different PAYE references.

With the planning department, Dev earns £3,000 per month and with the education department he earns £250 per month.

The National Insurance category letter for both jobs is ‘A and H’ Standard and Apprentice under 25.

The council adds together Dev’s earnings for National Insurance contributions purposes so that Dev and the council pay employee and employer National Insurance contributions on earnings of £3,250 per month. These are the aggregated earnings and National Insurance contributions must be calculated using the guidance.

The council must record Dev’s earnings every month and send the information to HMRC when they report their payroll information on an FPS for each job.

For the job with the planning department the council will record and report:

taxable pay and pay subject to National Insurance contributions of £3,000 every month
any employee National Insurance contributions deducted from Dev’s earnings in the pay period
‘Yes’ for the aggregated earnings indicator
National Insurance category letter ‘H’

For the employment with education department the council will record and report:

taxable pay and pay subject to National Insurance contributions of £250 every month
any employee National Insurance contributions deducted from Dev’s earnings in the pay period
‘Yes’ for the aggregated earnings indicator
National Insurance category letter ‘A’

The council decides to show the aggregated earnings on the job with the planning department. The records are updated to show:

the employer National Insurance contributions due on the aggregated earnings for the pay period
any additional employee National Insurance contributions due, as a result of aggregating the earnings and calculating the employee National Insurance contributions due on the total, reflected in the year to date totals
the year to date National Insurance contributions data figures on the payroll record for the employee, to reflect the National Insurance contributions data for the aggregated earnings

The education department shows ‘0.00’ for year to date and employer National Insurance contributions in the pay period.

Summary of data items — month 1

Data Item	Description	Payroll ID	Payroll ID 2	Notes
79	NI category	H	A	—
79A	Gross earnings for National Insurance contributions year to date	£3,250.00	£0.00	—
79B	Gross earnings for National Insurance contributions pay period	£3,000.00	£250.00	Pay under LEL for ID 2 — no need to report (if reported for tax). If over LEL (report actual pay).
82	Earnings at the LEL year to date	£512.00	£0.00	—
82A	Earnings at LEL to PT year to date	£207.00	£0.00	—
86A	Employer National Insurance contributions this pay period	£0.00	£0.00	—
86Aa	Employer National Insurance contributions year to date	£0.00	£0.00	—
86B	Employee National Insurance contributions this pay period	£303.72**	Actual if any**	—
86Ba	Employee National Insurance contributions year to date	£303.72	£0.00	—
49	Aggregated earnings indicator	Yes	Yes	—

**employer may choose to deduct primary (employee) National Insurance contributions from either or both employments in the pay period, but must make sure the ‘year to date’ data is all reported under one employment.

Example 4

Read calculation example 1.

Monthly paid job

You must report payment ‘on or before’ every weekly pay, and may deduct National Insurance contributions. You do not need to report year to date National Insurance contributions data on this employment, since this will be reported on the monthly FPS.

Assume week 18

Data Item	Description	—
79	NI category	M
79A	Gross earnings for National Insurance contributions year to date	—
79B	Gross earnings for National Insurance contributions pay period	£250.00
82	Earnings at the LEL year to date	£2,000.00
82A	Earnings at LEL to PT year to date	—
169	Earnings from PT to UEL year to date	—
86A	Employer National Insurance contributions this pay period	—
86Aa	Employer National Insurance contributions year to date	—
86B	Employee National Insurance contributions this pay period	Actual if any deduction made
86Ba	Employee National Insurance contributions year to date	—
49	Aggregated earnings indicator	Yes

3.5.2 Deferment of the payment of employee’s National Insurance contributions for employees with more than one job

Employees with more than one employment, who anticipate earning in excess of the UEL in one, or in a number of employments, can apply to the National Insurance contributions and Employer Office for permission to defer some of their contributions liability.

Where permission is granted the employee will pay a reduced main employee rate of 2% on all earnings from the PT to the UEL and the additional employee rate of 2% on all earnings above the UEL in the deferred employments. If an application is allowed, our Deferment Services will send form CA2700 to the employer concerned authorising them to deduct primary (employee) National Insurance contributions at a rate of 2% on all earnings above the PT.

Employer’s National Insurance contributions are still payable at the full standard rate. An application for deferment is required each year.

If you receive form CA2700 for an employee, use the appropriate category letter as follows:

category letter ‘J’ for an employee aged 21 or over
category letter ‘Z’ for an employee under the age of 21
category letter ‘L’ for an employee working in a designated Freeport tax site
there’s no deferment category for apprentices under 25
there’s no deferment category for armed forces veterans

3.6 What to do if you have already deducted employee’s National Insurance contributions in the tax year prior to receipt of form CA2700

If you have already deducted employee’s National Insurance contributions:

recalculate the employee National Insurance contributions due at 2% on all earnings above the PT
refund to the employee the difference between the National Insurance contributions paid and the amount now due
adjust your next payment to the accounts office as long as it’s for the same tax year
adjust the category letter under which the National Insurance contributions are due on the employee’s payroll record to the appropriate category letter for deferment
report the correct year to date information on your next FPS
keep a record of earnings on which employee National Insurance contributions would have been deducted

Employees with more than one job who want to know about deferment of Class 1 National Insurance contributions read guidance notes for form CA72A or phone Deferment Services on Telephone: 0300 056 0631.

3.6.1 Retrospective membership of an occupational pension scheme

It may be decided that one or more of your employees can become retrospective members of your occupational pension scheme. This includes employees who have been reinstated retrospectively. You and the employees will be entitled to a refund of the difference between the not contracted-out National Insurance contributions paid and the contracted-out rate National Insurance contributions due since the retrospective membership date.

Retrospective membership is dependent on:

the rules of the occupational pension scheme
whether or not the employment in question is excluded from the contracting-out certificate issued by us

Your occupational pension scheme will provide the information you need.

Refunds will only be applicable to tax years before 2016 to 2017, read paragraph 3.7.5.

If a refund is due for a tax year which has ended and you have submitted information using P35 or P14s, contact:

HM Revenue and Customs
PT Operations North East England
Payments Reconciliation Team
BX9 1AN
United Kingdom

3.7 Special rules for some married women and widows

Some married women and widows have the right to pay reduced rate National Insurance contributions. If an employee has such a right they must give you a valid ‘certificate of election’ before you can deduct National Insurance contributions at the reduced rate.

3.7.1 Certificates of election

A certificate of election gives you the authority to deduct reduced rate National Insurance contributions and you must keep the certificate until the woman:

stops working for you
becomes liable to pay standard rate National Insurance contributions
reaches State Pension age

If you deduct reduced rate National Insurance contributions without a valid certificate of election, you’re responsible for any underpayment.

It’s also your responsibility to make sure the certificate of election you receive from your employee is valid. Check carefully any certificates you’re given.

The only valid certificates of election are, form:

CA4139 or CF383 unless:
- either box A or box B shows a date which has passed
- the employee has not earned enough to pay BICs in any 2 consecutive tax years since 6 April 1978 and has not been self-employed
CF380A if the woman has worked for you continuously since 5 April 1980 and has paid reduced rate National Insurance contributions throughout that time

Getting a valid certificate of election

If an employee gives you a certificate of election which is not valid, return it them. If they say that they’re still entitled to pay reduced rate National Insurance contributions, they must write to PT Operations North East England at the address given in paragraph 3.7.6 and ask for a replacement to be issued.

If an employee has more than one job, they must get a separate certificate to give each employer.

3.7.2 Giving up the right to pay reduced rate National Insurance contributions

A woman who wishes to give up their right to pay reduced rate National Insurance contributions must:

Read CF9 and CF9A for more information, or write to the address in paragraph 3.7.6.

If your employee would like more advice they should:

3.7.3 Losing the right to pay reduced rate National Insurance contributions

A woman loses their right to pay reduced rate National Insurance contributions if they:

get divorced or their marriage is annulled
become a widow
have not, in any 2 consecutive tax years since 6 April 1978
- had any earnings on which Class 1 National Insurance contributions are payable or treated as paid (for instance where, since 6 April 2000, the earnings are between the LEL and PT)
- been self-employed

While no National Insurance contributions are payable between the LEL and PT, they’re treated as having been paid and their election remains valid. As such, a married woman or widow will not lose their right to pay reduced rate National Insurance contributions.

Divorce or annulment

Your employee is required by law to:

tell you when they’re no longer entitled to pay National Insurance contributions at the reduced rate
return their certificate of election to PT Operations North East England at the address given in paragraph 3.7.6

As the employer, you’re required by law to return the certificate of election to the employee when asked to do so. You may consider it worthwhile to have arrangements in place:

so that your employee knows who, or which part of your organisation, they should inform that they’re no longer entitled to pay reduced rate National Insurance contributions and whether you require this to be done in writing
to check any notification of change of surname or remarriage or civil partnership as this may mean that there has been a divorce or annulment
to issue a periodic reminder to employees for whom you hold a certificate of election, advising them of the need to tell you if:
- their marriage ends by divorce or annulment
- they’re no longer entitled to pay reduced rate National Insurance contributions

Although all cases will be considered individually on their merits, you’ll be liable for any underpayment of National Insurance contributions unless the:

employee was at fault (this might mean, for example, that they failed to tell you that they were no longer entitled to pay reduced rate National Insurance contributions under the laid-down procedures you may have, or they failed to ask for the return of the certificate of election)
underpayment was not due to any negligence on your part (for example, you may be considered negligent if you have inadequate or no arrangements in place for your employee to tell you that they’re no longer entitled to pay National Insurance contributions at the reduced rate)

3.7.4 When to return a certificate of election

You must return a certificate to your employee when they:

leave your employment
tell you that their marriage has ended in divorce or by annulment
reaches State Pension age
has not, in any 2 consecutive tax years since 6 April 1978:
- had any earnings on which Class 1 National Insurance contributions are payable or treated as paid
- been self-employed
have changed their name
remarry
ask for it back
become widowed

Complete the parts of the certificate which apply to you before you return it to your employee. When you have returned a certificate, if the woman still works for you, deduct standard rate National Insurance contributions unless they have:

given you a new certificate of election
reached State Pension age and has provided you with proof of that (read paragraphs 3.7.6 and 3.8.1)

If you cannot return a certificate of election to an employee who has left, send it with a note of explanation to PT Operations North East England at the address given in paragraph 3.7.6.

3.7.5 Adjusting National Insurance contributions

You must reassess and adjust any National Insurance contributions already deducted if your employee:

gives you a valid certificate of election part way through the tax year
is late in telling you that they’re no longer entitled to pay reduced rate National Insurance contributions

Overpayment of National Insurance contributions

If an overpayment of National Insurance contributions occurs in the current year as a result of your receiving a valid certificate of election part of the way through the year:

refund the amount overpaid to the employee
amend the employee’s payroll records and report corrected information on the next FPS
adjust your next payment to the accounts office

To get a refund of an overpayment in a tax year which has ended when you have reported information, the employee must write to HMRC, quoting their National Insurance number.

Underpayment of National Insurance contributions

If as a result of the employee being late in telling you that they’re no longer entitled to pay reduced rate National Insurance contributions an underpayment has occurred, follow the rules at section 1.

3.7.6 More information

More information about the right to pay reduced rate National Insurance contributions can be obtained by:

phoning the Employer helpline
contacting us at the following address:

HM Revenue and Customs
PT Operations North East England
BX9 1AN
United Kingdom

3.8 Payment of National Insurance contributions for employees over State Pension age

Employees over State Pension age do not have to pay employee’s contributions. Employer’s contributions are still due.

For more information and the State Pension age calculator, read check your State Pension age. As the employer you’re responsible for making sure that the correct contributions are paid, and before you stop deducting employee’s contributions you must have seen proof that the employee has reached State Pension age. This can be a birth certificate, passport or certificate of exception, issued by DWP.

You should keep a copy of the proof you have seen because if you stop deducting employee’s contributions without seeing proof, you’re responsible for any underpayment. The employee’s birth certificate or passport should be used as proof of age as HMRC no longer issues age exception certificates.

There will be very rare instances where an employee is reluctant to provide the employer with a birth certificate as it may contain sensitive information that they do not wish to disclose. If this happens they should write to HMRC advising the reason why they cannot use the birth certificate. HMRC will investigate these and provide a letter confirming they have reached state pension age where this is the case.

3.8.1 Certificates of age exception

Your employee may give you a certificate of age exception issued by DWP instead of showing you their passport or birth certificate. The certificate shows a ‘valid from’ date and is proof that the employee has reached State Pension age and will not be liable to pay any further employee’s contributions on any payment of earnings made on or after that date. You should keep the certificate for as long as the employee works for you.

3.8.2 When to return a certificate of age exception

HMRC no longer issues certificates of age exception, however in exceptional circumstances your employee can contact HMRC to obtain a letter confirming they have reached State Pension age.

Always return a certificate of age exception to your employee when their employment ends. If you’re unable to return the certificate direct to the employee, send it, with a note of explanation, to us at the address given in paragraph 3.7.6.

3.8.3 Adjusting National Insurance contributions

If you’re given proof of the date on which your employee reached State Pension age and that date has passed, you’ll need to reassess and adjust any National Insurance contributions wrongly paid.

Overpayment of employee’s contributions

If an overpayment has occurred in the current tax year as a result of employee’s contributions being wrongly deducted:

refund the employee’s contributions to the employee
amend the employee’s payroll record and report correct values on the next FPS
adjust your next payment to us

If an overpayment has occurred in a previous tax year when you have reported information using forms P35 or P14 for a previous real time information year, to get a refund the employee must write to HMRC.

Underpayment of employer’s contributions

For 2016 and later, if an underpayment occurs in the tax year:

amend the employee’s payroll record and report the correct information on your next FPS
adjust your next payment to us

If an underpayment occurred for a previous tax year, contact the PT Operations North East England at the address given at paragraph 3.7.6 for advice.

3.9 National Insurance contributions — employer reliefs from secondary contributions

Employers are entitled to a 0% rate of secondary National Insurance Insurance contributions for certain employees see paragraphs 3.9.1 to 3.9.4.

3.9.1 National Insurance contributions — abolition of secondary contributions for those under 21 years of age

A 0% rate of secondary National Insurance contributions was introduced from April 2015 for those employees under the age of 21 up to the UST. There’s no reduction in the rate of Class 1 secondary contributions above the UST. It’s important to remember that this rate of secondary contributions does not remove the role of the secondary contributor.

Employers are still required to fulfil any other obligations associated with paying earnings, for example, administering statutory payments. These changes do not alter any of the rules for calculating National Insurance other than by using the U21 secondary rate where appropriate. Primary Class 1 contributions will remain unaltered.

National Insurance category letters have been introduced to support this rate of secondary National Insurance contributions.

Category M

Standard rate contributions for employees aged under 21.

Category Z

Deferred rate contributions for employees aged under 21.

Category Y

Mariners’ standard rate contributions for employees under 21.

Category P

Mariners’ deferred rate contributions for employees under 21.

3.9.2 National Insurance contributions — abolition of secondary rate contributions for apprentices under 25 years of age

A 0% rate of secondary National Insurance contributions was introduced from April 2016 for apprentices under the age of 25 up to the Apprentice Upper Secondary Threshold (AUST). There’s no reduction in the rate of Class 1 secondary contributions above the AUST.

Apprentices must be:

following a government recognised apprenticeship in the UK (those which follow government arrangements and approved frameworks)
have a written agreement specifying the government recognised apprentice framework and standard, with a start and expected completion date

The agreement between the training provider, apprentice and employer and will be the evidence the employer needs to retain when applying the zero rate of secondary Class 1 National Insurance contributions for an apprentice under 25.

National Insurance category letters have been introduced to support this rate of secondary National Insurance contributions.

Category H

Standard rate contributions for apprentices under 25.

Category G

Mariners’ standard rate contributions for apprentices under 25. It’s important to remember that this new rate of secondary contributions does not remove the role of the secondary contributor. Employers are still required to fulfil any other obligations associated with paying earnings, for example, administering statutory payments.

These changes do not alter any of the rules for calculating National Insurance other than by using the apprentice under 25 rate where appropriate.

Primary Class 1 contributions will remain unaltered.

If an employee is eligible for both the apprentice under 25 rate and the under 21 rate then you should operate the apprentice under 25 rate.

3.9.3 National Insurance contributions — Employment Allowance

The Employment Allowance is available for most businesses, charities and Community Amateur Sports Clubs to be offset against their employer Class 1 secondary National Insurance contributions. Businesses, charities, certain individuals who employ care and support workers and Community Amateur Sports Clubs may claim the Employment Allowance if the earnings they pay give rise to a secondary Class 1 National Insurance contributions liability. For claims from April 2020 the Employment Allowance will not be available to employers who had qualifying Class 1 secondary National Insurance contributions liabilities of £100,000 or more in the previous tax year.

Read Employment Allowance to check if you qualify. In the case of a business, this could be a company, a partnership or a self-employed individual, if they have employees whose earnings give rise to a secondary Class 1 liability.

The Employment Allowance is not available for certain domestic employers (a nanny or a chauffeur), public authorities (unless a charity), employers already claiming through a connected business or charity and companies with one employee who’s paid above the secondary threshold and that employee is the director. Service companies are not able to claim in respect of deemed payments of employment income.

The Employment Allowance is straight forward to claim. You can do this as part of the normal payroll process through RTI within your software package or using the Basic PAYE Tools which are free to download.

You’ll need to determine if you’re eligible for the Employment Allowance and, from 6 April 2020 onwards, you must do extra checks to determine your eligibility to claim. Your software should ask you to specify if you want to claim the Employment Allowance and you should select the appropriate response. You will also need to give information about the business sector you operate in (if your business is not engaged in economic activity, the state aid rules will not apply to you and you must let us know this too) and how much state aid you have received or been allocated over the previous 2 years and to-date in the current tax year.

You need to complete this information even if you have not received any state aid before (you can enter ‘0’ as the amount of state aid received or allocated). Not having received state aid before does not mean that you are not subject to state aid rules. Alternatively, the Employment Allowance can be claimed through the Basic PAYE Tools if your software does not enable this.

From 6 April 2020 onwards you’ll need to make a new claim for Employment Allowance each tax year. Claims will not automatically roll over to the next tax year. If you claim the Employment Allowance and state aid rules apply to your business, you will receive a letter to confirm your claim. If you do not receive a letter, check your Generic Notification Service (GNS) messages to view the reasons for rejection.

The Employment Allowance is offset against payments of secondary Class 1 National Insurance contributions until the full annual amount of allowance is used up or the tax year ends, whichever is soonest.

Employment Allowance has more information, details of eligibility and how to claim the National Insurance contributions Employment Allowance.

3.9.4 Apprenticeship Levy

From April 2017 employers with an annual pay bill of over £3 million have to pay the apprenticeship levy. The levy is charged at a rate of 0.5% on your annual pay bill. The pay bill is defined as earnings on which Class 1 secondary National Insurance contributions are due. The pay bill also includes earnings below the ST, and includes the earnings of employees under the age of 21 and apprentices under the age of 25 even though these are liable to Class 1 secondary National Insurance contributions at a rate of 0%.

Levy allowance

You have an annual allowance of £15,000 to offset against your levy liability. If you’re a single employer, with more than one PAYE scheme, who is not connected to other employers by virtue of the connected companies or connected charities rules that apply to the levy, you can share the allowance between your PAYE schemes.

If you’re an employer connected to other employers, by virtue of the connected companies or the connected charities rules, you have one annual allowance of £15,000 available for all of the connected employers within your group. However, connected employers can choose to share the £15,000 annual allowance between them.

You do not need to apply for the allowance, you simply offset one-twelfth of your annual allowance against your levy liability arising each month and this should be applied on a cumulative basis. See the following examples.

If you start up, or go into liquidation, during the tax year, you’ll still be able to use the full £15,000 allowance to offset against your levy liability for the portion of the tax year in which you operated.

Determining whether you’re connected to another company or charity

The rules on connection are the same as those used for the Employment Allowance. For guidance on how to determine if you’re connected to another company, read connected companies and Employment Allowance: detailed technical guidance for employers and their agents.

For guidance on how to determine if you’re connected to another charity, read connected charities and Employment Allowance: detailed technical guidance for employers and their agents.

There are no connected rules for public bodies.

Reporting your levy liability

As an employer, you’ll pay Apprenticeship Levy each month from 6 April 2017 if you:

have an annual pay bill of more than £3 million
are connected to other companies or charities which in total have an annual pay bill of more than £3 million

You must report the levy monthly, on the EPS. You must send the EPS to HMRC within 14 days after the end of each tax month.

If you run more than one payroll under the same PAYE employer reference, make sure you report the total year to date figures for all payrolls operated under the employer scheme.

Paying the levy

You must pay the levy each month to HMRC, at the same time you’re due to pay tax and any earnings-related National Insurance contributions, which is within 17 days after the end of the tax month if you pay by an approved method of electronic communication, or within 14 days if you’re paying by another means.

Calculating your levy liability

You must calculate the levy each month based on the total cumulative pay bill for your workforce year to date. A 12th of your annual allowance can be used in each month of the tax year on a cumulative basis to offset against your levy liability.

To arrive at the monthly pay bill you must add all the employee earnings subject to Class 1 secondary National Insurance contributions (from each of the paydays in the tax month) together.

You must then calculate 0.5% of this amount to calculate your levy liability for that tax month. You then use this figure to calculate your cumulative monthly levy liability for the tax year up to that point (for example, 0.5% of each month’s pay bill added together).

You should then offset your cumulative monthly allowance against your cumulative monthly levy liability in order to calculate the Apprenticeship Levy payable for each tax month.

How the cumulative allowance works

£15,000 ÷ 12 = £1,250
Month 1 — £1,250
Month 2 — £1,250 + £1,250 = £2,500
Month 3 — £1,250 +£1,250+ £1,250 = £3,750
And so on until month 12
Month 12 £1,250 × 12 = £15,000

Any unused allowance can be carried over into the following month. But unused allowance in one tax year, cannot be carried over into the next tax year.

These are examples of how to calculate the levy liability.

Example 1 — regular pay bill of £250,000 each month (£3 million for the tax year so no levy is due)

Month 1

£250,000 × 0.5% = £1,250 levy
Cumulative levy allowance = £1250 (for example, £15,000 ÷ 12)
Levy payable in month 1 = £1,250 - £1,250 = NIL

Month 2

£500,000 (£250,000 + £250,000) × 0.5% = £2,500
Cumulative levy allowance £2,500
Levy payable to month 2 is NIL
Levy paid in month 2 = levy payable to month 2 - levy paid to month 1 = 0 - 0 = 0

And so on until month 12

£3 million (£250,000 × 12) × 0.5% = £15,000
Cumulative levy allowance £15,000
Levy payable to month 12 is NIL
Levy paid in month 12 = levy payable to month 12 - levy paid to month 11 = 0 - 0 = 0

Example 2 — regular pay bill of £300,000 each month (£3.6 million for the tax year)

Month 1 and each month of the tax year thereafter

£300,000 × 0.5% = £1,500 levy
Cumulative levy allowance = £1,250
Levy payable in month 1 = £1,500 - £1,250 = £250

Month 2

£600,000 (£300,000 + £300,000) × 0.5% = £3,000
Cumulative levy allowance £2,500
Levy payable to month 2 = £3,000 - £2,500 = £500
Levy paid in month 2 = levy payable to month 2 - levy paid to month 1 = £500 - £250 = £250

And so on until month 12

£3.6 million (£300,000 × 12) × 0.5% = £18,000
Cumulative levy allowance £15,000
Levy payable to month 12 = £18,000 - £15,000 = £3,000
Levy paid in month 12 = levy payable to month 12 - levy paid to month 11 = £3,000 - £2,750 = £250

This means that the organisation pays £250 each month in levy which totals £3,000 over the year.

Example 3 — seasonal pay bill

Total pay bill is £3 million over the year but fluctuates during it with a peak in June and July (month 3 and 4). See the following table:

Tax month	Pay bill
1	£200,000
2	£200,000
3	£500,000
4	£500,000
5	£200,000
6 to 12	£200,000
Total	£3 million

Month 1

£200,000 × 0.5% = £1,000 levy
Cumulative levy allowance = £1,250, for example
Levy due up to month 1 is NIL as £1,000 levy is less than the cumulative allowance

Month 2

£400,000 (£200,000 + £200,000) × 0.5% = £2,000
Cumulative levy allowance £2,500
Levy due up to month 2 is NIL as £2,000 levy = less than the cumulative allowance (£2,500)
Levy paid in month 2 = levy due up to month 2 - levy due up to month 1 = 0 - 0 = 0

Month 3

£900,000 (£200,000 + £200,000 + £500,000) × 0.5% = £4,500
Cumulative levy allowance £3,750
Levy due up to month 3 = £4,500 - £3,750 = £750
Levy paid in month 3 = levy due up to month 3 - levy due up to month 2 = £750 - 0 = £750

Month 4

£1,400,000 (£200,000 + £200,000 + £500,000 + £500,000) × 0.5% = £7,000
Cumulative levy allowance £5,000
Levy due to month 4 = £7,000 - £5,000 = £2,000
Levy paid in month 4 = levy due up to month 4 - levy due up to month 3 = £2,000 - £750 = £1,250

Month 5

£1,600,000 (£200,000 + £200,000 + £500,000 + £500,000 + £200,000) × 0.5% = £8,000
Cumulative levy allowance £6,250
Levy due up to month 5 = £8,000 - £6,250 = £1,750
Levy paid in month 5 = levy due up to month 5 - levy due up to month 4 = £1,750 - £2,000 = - £250

Therefore the employer gets a credit of £250 that month that may be used to offset against other PAYE liabilities.

Month 6

£1,800,000 (£200,000 + £200,000 + £500,000 + £500,000 + £200,000 + £200,000) × 0.5% = £9,000
Cumulative levy allowance £7,500
Levy due up to month 6 = £9,000 - £7,500 = £1,500
Levy paid in month 6 = levy due up to month 6 - levy due up to month 5 = £1,500 - £1,750 = - £250

Therefore the organisation gets a further credit in month 6 of £250 to set against their PAYE liabilities.

The calculation continues in the same manner for each of the months 7 to 12 where the firm gets a credit of £250 in each month. The whole position for the year can be seen in the following table:

Tax month	Pay bill	Cumulative pay bill	Cumulative pay bill × 0.5%	Cumulative allowance	Cumulative levy	Levy paid per month
1	£200,000	£200,000	£1,000	£1,250	£0	£0
2	£200,000	£400,000	£2,000	£2,500	£0	£0
3	£500,000	£900,000	£4,500	£3,750	£750	£750
4	£500,000	£1,400,000	£7,000	£5,000	£2,000	£1,250
5	£200,000	£1,600,000	£8,000	£6,250	£1,750	-£250
6	£200,000	£1,800,000	£9,000	£7,500	£1,500	-£250
7	£200,000	£2,000,000	£10,000	£8,750	£1,250	-£250
8	£200,000	£2,200,000	£11,000	£10,000	£1,000	-£250
9	£200,000	£2,400,000	£12,000	£11,250	£750	-£250
10	£200,000	£2,600,000	£13,000	£12,500	£500	-£250
11	£200,000	£2,800,000	£14,000	£13,750	£250	-£250
12	£200,000	£3,000,000	£15,000	£15,000	£0	-£250
Total	£3,000,000	—	—	—	—	—

This is an example of how the allowance will work where a unit of companies or charities split the allowance across the unit.

Example 4 — a unit of 3 companies (company A, company B and company C)

Company A and company B are allocated an annual levy allowance of £7,500. As a consequence, company C has a levy allowance of £0. Company A and company B have monthly pay bills of £250,000 (an annual pay bill of £3 million). Company C has a monthly pay bill of £100,000 (an annual pay bill of £1.2 million)

The levy to be paid for company A and company B will be calculated as follows:

Month 1

£250,000 × 0.5% = £1,250 levy
Cumulative levy allowance = £625 (for example, £7,500 ÷ 12)
Levy payable in month 1 = £1,250 - £625 = £625

Month 2

£500,000 (£250,000 + £250,000) × 0.5% = £2,500
Cumulative levy allowance £1,250
Levy payable to month 2 = £2,500 - £1,250 = £1,250
Levy paid in month 2 = levy payable to month 2 - levy paid to month 1 = £1,250 - £625 = £625

And so on to month 12

£3 million (£250,000 × 12) × 0.5% = £15,000
Cumulative levy allowance £7,500
Levy payable to month 12 = £15,000 - £7,500 = £7,500
Levy paid in month 12 = levy payable to month 12 - levy paid to month 11 = £7,500 - £6,875 = £625

The levy to be paid for company C will be calculated as follows:

Month 1

£100,000 × 0.5% = £500
Cumulative levy allowance £0
Levy payable in month 1 = £500 - £0 = £500

Month 2

£200,000 (£100,000 + £100,000) × 0.5% = £1,000
Cumulative levy allowance = £0
Levy payable to month 2 = £1,000
Levy paid in month 2 = levy payable to month 2 - levy paid to month 1 = £1,000 - £500 = £500

And so on to month 12

£1.2 million (£100,000 × 12) × 0.5% = £6,000
Cumulative levy allowance = £0
Levy payable to month 12 = £6,000
Levy paid in month 12 = levy payable to month 12 - levy paid to month 11 = £6,000 - £5,500 = £500

Read Pay Apprenticeship Levy for more information on reporting and paying the Apprenticeship Levy.

Read apprenticeship funding: how it will work for information on how to draw money in order to fund your apprenticeships.

3.9.5 Class 1A National Insurance contributions on Termination Awards and sporting testimonial payments

From April 2020 Class 1A National Insurance contributions are due in real time on payments of termination awards above £30,000 and sporting testimonial payments made by an independent Testimonial Committee above £100,000.

For the 2022 to 2023 tax year, the Class 1A rate for termination awards and sporting testimonial payments paid in real time (RTI) is the Secondary Class 1 National Insurance contributions rate in force on the date of payment.

More details can be found in Class 1A National Insurance contributions on benefits in kind (CWG5) parts 9 and 10.

3.9.6 National Insurance contributions — zero rate of secondary contributions for employers of armed forces veterans

A 0% rate of secondary Class 1 National Insurance contributions was introduced for employers of armed forces veterans from April 2021 to April 2024. Primary Class 1 contributions will not change.

The 0% rate will apply to earnings between the Secondary Threshold and the Upper Secondary Threshold and provides a zero secondary Class 1 National Insurance contributions rate on the earnings of veterans for 12 months. This will start from the first day of a veterans first civilian employment after leaving HM Armed Forces. Subsequent and concurrent employers can benefit from this relief for that period.

To qualify as a veteran the employee must have completed at least one day of basic training in regular HM Armed Forces. The change applies to new and existing veterans.

From 6 April 2021 to 5 April 2022, transitional arrangements are in place so that you can claim the relief for that period from 6 April 2022. If you are unable to claim the relief through your payroll software, you can write to HMRC. The letter should include:

the reference (heading) ‘Overpaid National Insurance contributions’
employee’s name, date of birth and National Insurance number
an explanation that you are reclaiming veteran’s relief
the period overpaid
confirmation that the claim is for a qualifying veteran and keep evidence to show this (HMRC may request to see this evidence at a later date)
confirmation that you are unable to submit an amendment through RTI
the account number, sort code and account name for the bank account where the refund is to be paid

To claim for one employee, send the letter to:

HM Revenue and Customs
National Insurance Contributions and Employer Office
BX9 1AN

To claim for more than one employee, send the letter to:

HM Revenue and Customs
National Insurance Contributions and Employer Office
BX9 1BX

From April 2022, employers will be able to claim this relief in real time by applying a National Insurance contributions category letter.

Category V

Standard rate contributions for employees who are veterans.

These changes do not alter any of the rules for calculating National Insurance other than by using the veterans’ zero-secondary rate where appropriate. You are still required to fulfil any other obligations associated with paying earnings, for example, administering statutory payments.

The earnings will still remain part of the secondary contributor’s pay bill for the purposes of Apprenticeship Levy.

Example

Veteran’s earnings paid in 2022 to 2023 tax year before 6 November for pay period (monthly): £5,000 (£4189(VUST) - £758(ST) = £3431) at 0% = £0 (£5000 - £4189 = £811) at 15.05% = £122.05

Veteran’s earnings paid on or after 6 November for pay period (monthly): £5,000 (£4189(VUST) - £758(ST) = £3431) at 0% = £0 (£5000 - £4189 = £811) at 13.8% = £111.92

Report £111.92 in RTI using NI Category letter V for period

There are no veteran equivalent category letters to B, C or J. In those circumstances, to ensure the employee pays the reduced/exempt rate they are entitled to, you should not use category V. You should claim the relief after the end of the year by making a manual claim to HMRC in the same manner as set out above for the transitional year.

If your employee entitles you to both the Veteran rate and any other zero rate mentioned in this section you should select the most appropriate relief but must ensure you apply the category whereby the employee receives any reduced rate entitlement.

3.9.7 National Insurance contributions — zero rate of secondary rate contributions for employees working in a Freeport tax site

A 0% rate of secondary National Insurance contributions was introduced from April 2022 for employers of employees working in a Freeport tax site up to the Freeport Upper Secondary Threshold (FUST). The FUST is set at £25,000. There’s no reduction in the rate of secondary Class 1 National Insurance contributions above the FUST.

Employees must be newly employed on or after 6 April 2022 and before 6 April 2026, and either of the following apply:

they spend 60% of that employment in a single Freeport tax site
the employer has a business premises in that tax site

The zero rate can be claimed for a maximum of 3 years from the first day of employment.

National Insurance category letters have been introduced to support this zero rate of secondary National Insurance contributions.

Category F

Standard rate contributions for employees in a Freeport tax site.

Category I

Married women reduced rate contributions for employees in a Freeport tax site.

Category L

Deferred rate contributions for employees in a Freeport tax site.

Category S

Over state pension age rate for employees in a Freeport tax site.

These changes do not alter any of the rules for calculating National Insurance other than by using the Freeport rate where appropriate.

Primary Class 1 contributions will remain unchanged.

If your employee entitles you to both the Freeport rate and any other zero rate mentioned in this section, you should select the most appropriate relief. However, you must ensure you apply the category whereby the employee receives any reduced rate entitlement.

Examples of how to report the Freeport categories through RTI.

The following examples use the 2022 to 2023 tax year Class 1 National Insurance contribution rates in force before 6 November.

Example 1

Employer’s contribution (category letter F, I, L or S)

Freeport employee earnings for pay period (monthly): £5000 (£2083(FUST) - £758(ST) = £1325) at 0% = £0.00.

£4189(UEL) - £2083(FUST) = £2106 at 15.05% = £316.95

(£5000 - £4189 = £811) at 15.05% = £122.05.

Report £439.00 employer National Insurance contributions in RTI using National Insurance category letter F, I, L or S for the period.

Example 2

Employee National Insurance contributions (category letter F)

Freeport employee earnings for pay period (monthly): £5000 (£4189(UEL) - £823(PT) = £3366) at 13.25% = £445.99.

Pay above UEL (£5000 - 4189 =£811) at 3.25% = £26.36.

Report £472.35 in RTI using National Insurance category letter F for period.

Example 3

Employee National Insurance contributions (category letter I)

Freeport employee earnings for pay period (monthly): £5000 (£4189(UEL) - £823(PT) = £3366) at 7.1% = £238.99.

Pay above UEL (£5000 - £4189 =£811) at 3.25% = £26.36.

Report £265.35 in RTI using National Insurance category letter I for period.

Example 4

Employee National Insurance contributions (category letter L)

Freeport employee earnings for pay period (monthly): £5000 (£4189(UEL) - £823(PT) = £3366) at 3.25% = £109.39.

Pay above UEL (£5000 - £4189 =£811) at 3.25% = £26.36.

Report £135.75 in RTI using National Insurance category letter L for period.

Example 5

Employee National Insurance contributions (category letter S)

Freeport employee earnings for pay period (monthly): £5000 (£4189(UEL) - £823(PT) = £3366) — no contributions due as employee over state pension age = £0.

Pay above UEL (£5000 - £4189 = £811) — no contributions due as employee over state pension age = £0.

Report £0.00 in RTI using National Insurance category letter S for period.

Where you are eligible to claim this relief but there is no corresponding category letter, you must send a refund request for the relief to be repaid by HMRC. To claim the relief write to HMRC and in the letter include:

the employee’s name, date of birth and National Insurance number
an explanation that you are reclaiming Freeport employer National Insurance contributions relief
the period you have overpaid in
name and address of the place of business, and confirmation of the Freeport this falls within (HMRC may request to see this evidence at a later date)
confirmation that you are unable to submit an amendment through RTI
the account number, sort code and account name of the bank account where you want the refund to be paid

To claim for one employee, send the letter to:

HM Revenue and Customs
National Insurance Contributions and Employer Office
BX9 1AN

To claim for more than one employee, send the letter to:

HM Revenue and Customs
National Insurance Contributions and Employer Office
BX9 1BX

Question 5

4.  Special types of employee

Accepted Answer

The following guidance applies to all employers. Guidance for reporting PAYE in real time is also available in PAYE guidance.

4.1 Part-time or casual employees

You must follow the same PAYE and National Insurance contributions procedures for part-time or casual employees as you follow for full-time or permanent employees. You must also include their details on their FPS when you pay them.

Read tell HMRC about a new employee for more information.

4.2 Workers supplied by agencies

Read paragraph 4.7 and 4.7.1.

Tax and National Insurance contributions

When a person, for example, a worker, provides their services to a client through one or more agencies (or third parties) and they’re neither an employee of the client nor the agency, then subject to certain conditions applying, the agency may be responsible for operating PAYE and paying primary and secondary or employee’s and employer’s Class 1 National Insurance contributions.

The agency directly contracting with the client is responsible for the operation of PAYE and the payment of National Insurance contributions when all of the following conditions are satisfied:

the worker personally provides services to the client
there’s a contract between the client, or a person connected with the client, and any other person who is not the worker under or in consequence of which — 1. the services are provided, or 2. the client, or any person connected with the client, pays, or provides other consideration for the services
someone has the right, even if not exercised, to supervise, direct or control the way the work is done
the worker receives remuneration (from any person) as a consequence of providing the services

When the agency is based outside the UK and contracts directly with a client in the UK, then the client is responsible for deducting the tax and acting as the secondary contributor for National Insurance contributions.

The agency is not responsible for the operation of PAYE and the payment of National Insurance contributions when any of the following conditions are satisfied the:

worker is providing their services:
- wholly in their own home
- at premises which are not controlled or managed by the client, unless the nature of the services being provided to the client dictates they must be undertaken at such premises
- as an actor, singer, musician or other entertainer or as a fashion, photographic or artist’s model
remuneration the worker receives (from any person) as a consequence of providing the services, has already been treated for Income Tax purposes as earnings from an employment
agency merely acts as a job-finding agency which introduces the worker to the client and plays no part thereafter in the worker’s engagement with the client

Refer to the HMRC Employment Status Manual.

An agency ceasing to employ an agency worker should issue form P45, at the earlier of the end of:

the relationship, between the agency and the worker
a period of 3 months during which the agency makes no payments to the worker

An agency should, in respect of any agency workers for whom it’s required to operate PAYE, issue form P45 at the earlier of the end of:

the relationship between the agency and the worker
a period of 3 months during which the agency makes no relevant payments to the worker

From 6 April 2016 new legislation affects the application of the travel expenses and subsistence rules for workers who provide their services through an employment intermediary. Read Expenses and benefits for directors and employees — a tax guide: 480 for more information.

4.3 Student employees

If you employ students you must treat them, for payroll purposes, in exactly the same way as any other employee. If you have any employees under 16 years of age and you’re reporting their payments through RTI, use National Insurance contributions category letter X, as National Insurance contributions are not payable for under 16 year olds.

4.4 Information for farmers

4.4.1 Harvest casuals

For PAYE purposes

There are special rules that apply only to casual employees, taken on for harvest work and shoots, who are not members of your family. For National Insurance contributions purposes, the special rules apply to casual harvest work only, not shoots.

You must follow the normal procedures for any part-time or casual employees:

that you take on for non-harvest work
who are members of your family, regardless of the type of work they do

If earnings:

do not exceed the PT and ST no National Insurance contributions are payable
reach or exceed the LEL but do not exceed the PT the employee is treated as having paid National Insurance contributions when claiming benefit
exceed the:
- PT, Class 1 primary National Insurance contributions are payable by the employee
- ST, Class 1 secondary National Insurance contributions are payable by the employer

Read paying harvest casuals and casual beaters for further information on completing your payroll submissions for these employees.

If you’re an employer who is not filing on line, for further information, phone the Employer helpline.

4.4.2 Labour providers or contractors engaged to carry out specific jobs

Employment business is the generic name used instead of gangmaster, labour provider, contractor or agency. If you engage a gangmaster or a contractor who is not one of your own regular employees, to carry out specific jobs such as supplying:

own machinery or equipment for threshing, ploughing, haulage and so on
workers for potato, fruit or other crop picking or processing
part-time drivers to deliver packages

Then the employment business is usually responsible for operating PAYE and accounting for the National Insurance contributions due for any worker they provide.

In such cases you must:

still record details of all payments you make to the employment business as we may ask for them at the end of the tax year
keep your record of payments for at least 3 years after the end of the tax year to which they relate

If one of your own regular workers acts as a gangmaster or employment business, you may be responsible for operating PAYE. In such circumstances you should contact us for advice on PAYE. You should be aware that those who supply workers to agriculture and food or drink processing and packaging must be licensed with the Gangmasters and Labour Abuse Authority (GLAA). It’s an offence for gangmasters to operate without a licence or for contractors to use unlicensed gangmasters.

4.5 Employees coming to or leaving the UK — treatment for National Insurance contributions purposes

In this section:

UK means England, Scotland, Wales and Northern Ireland — people living in the Isle of Man are usually treated as living in the UK
European Union means:
- Austria
- Belgium
- Bulgaria
- Croatia
- Cyprus
- Czech Republic
- Denmark
- Estonia
- Finland
- France
- Germany
- Greece
- Hungary
- Ireland
- Italy
- Latvia
- Lithuania
- Luxembourg
- Malta
- the Netherlands
- Poland
- Portugal
- Romania
- Slovakia
- Slovenia
- Spain
- Sweden
European Free Trade Association means:
- Iceland
- Liechtenstein
- Norway
- Switzerland
countries with which the UK has a social security agreement (sometimes known as a reciprocal agreement, bilateral agreement or social security co-ordination agreement) are:
- Barbados
- Bermuda
- Canada
- Chile
- all European Union countries
- Guernsey
- Iceland
- Isle of Man
- Ireland
- Israel
- Jamaica
- Jersey
- Republic of Korea
- Mauritius
- New Zealand
- Norway
- Philippines
- Switzerland
- Turkey
- USA
- the Republics of Yugoslavia which include Serbia, Montenegro, Bosnia-Herzegovina, North Macedonia and Kosovo
agreements that include employer obligations:
- the Withdrawal Agreement between the UK and the EU
- the EEA EFTA Separation Agreement between the UK and Iceland, Liechtenstein and Norway
- the Swiss Citizens’ Rights Agreement between the UK and Switzerland
- the Trade and Cooperation Agreement between the UK and the EU
- the Convention on Social Security Coordination between the UK of Great Britain and Northern Ireland and the Swiss Confederation

To find out if you and your employees working abroad have to pay UK National Insurance contributions read National Insurance if you work abroad.

To find out if you and your employees who have come from abroad have to pay UK National Insurance contributions read new employee coming to work from abroad.

If you need help contact:

HM Revenue and Customs
PT Operations North East England
BX9 1AN
United Kingdom

Telephone: 0300 200 3500 (if calling from within the UK), or +44 191 203 7010 (if calling from abroad).

Employers resident, present or having place of business in the UK

Whether you’re resident, present or have a place of business is a question of fact and may depend on how your business operates.

Generally, an employer can be said to have a place of business in the UK if they have a:

registered office in the UK, even if no actual business is carried on there
fixed address or occupy premises where they’re present, or are present with the consent of the lawful owner or tenant

Some pointers to look for when considering if you have a place of business include:

a name plate displayed on the door or premises
headed letter paper
a listing in a phone directory
a lease or rent agreement or some sort of financial transaction for the use of the premises
a registered office
registration as a company incorporated outside the UK but with a place of business here for the purpose of the Companies Act 1985
other premises in the UK

4.5.1 Employees coming from countries that have a social security agreement with the UK

You do not have to pay Class 1 National Insurance contributions for an employee who comes to the UK from a country with which the UK has a social security agreement, and has a certificate showing they are only liable to pay social security contributions into that country’s social security scheme.

Employees must pay Class 1 National Insurance contributions if they:

have a certificate issued by a country other than the UK and the period shown on the certificate issued by the other country ends and the employee cannot get another certificate from the issuing country
do not have a certificate issued by a country other than the UK and they cannot get such a certificate from the country they have come from

If the employee does not give you a certificate showing they have to pay in another country and you’re resident, present or have a place of business in the UK, you must pay the employee’s and employer Class 1 National Insurance contributions to HMRC.

You must pay employer Class 1 National Insurance contributions if all the following apply:

you’re not resident, not present and do not have a place of business in the UK
your employee is covered by one of the agreements that includes employer obligations
your employee has to pay Class 1 National Insurance contributions
you are from one of the countries that entered into the agreement the employee is covered by

You must register as an employer with HMRC if you have not already done so, if your employee has to pay Class 1 National Insurance contributions and you are either:

resident, present or have a place of business in the UK — you must also pay employer Class 1 National Insurance contributions
not resident, not present and do not have a place of business in the UK but you have to pay employer Class 1 National Insurance contributions under one of the agreements that include employer obligations

Your employee can agree with you to register with HMRC and pay the employer and employee National Insurance contributions to HMRC on your behalf if both the following apply, you:

are not resident, not present and do not have a place of business in the UK
have to pay employer Class 1 National Insurance contributions because your employee is covered under one of the agreements that include employer obligations and you are from one of the countries the agreements are with

You must pay employer and employee Class 1 National Insurance contributions if an employer who is not resident, not present and does not have a place of business in the UK is making an employee of theirs available to work in your business and:

you are resident, present or have a place of business in the UK
the employee is not covered by any of the agreements that include employer obligations
the employee has to pay Class 1 National Insurance contributions

4.5.2 Employees coming from countries with which the UK does not have a social security agreement

If you’re resident, present or have a place of business in the UK

The general rule is that Class 1 National Insurance contributions (employer’s and employee’s contributions) must be paid for an employee who has come to work in the UK from a country with which the UK does not have a social security agreement. National Insurance contributions are payable from the date they start work in the UK. This is the case even if the employee is supplied by an agency whose place of business is not in the UK.

Exception

National Insurance contributions are not payable for the first 52 weeks starting from the first Sunday after the employee arrives in the UK for an employee who does not normally live or work in the UK, but who is sent to work here temporarily by their overseas employer who has a place of business outside the UK even if that employer also has a place of business in the UK.

When the 52-week period finishes you pay National Insurance contributions for that employee and the normal rules about working out, paying and recording National Insurance contributions apply.

If you’re not resident, present or do not have a place of business in the UK (and not treated as having a place of business)

You do not have to pay employer’s National Insurance contributions but the employee’s National Insurance contributions must still be paid.

Host UK employer

If an employer outside the UK with no place of business in the UK makes their employees available to you to work in your business, the law treats you as their employer.

This most commonly arises where you’re supplied with workers by a foreign agency or you’re loaned employees from a foreign company linked to yours. You’ll be liable for the payment of National Insurance contributions (both employee and employer) in respect of that person. You’ll have to register with HMRC as an employer if you have not done so already.

4.6 Employees coming to or leaving the UK — treatment for PAYE purposes

4.6.1 Liability to pay National Insurance contributions for employees going abroad

For further information read:

National Insurance if you work abroad

New employee coming to work from abroad

Employees working abroad

National Insurance for workers from the UK working in the EEA or Switzerland

Social security contributions for workers coming to the UK from the EEA or Switzerland

4.6.2 Modified National Insurance contributions schemes — applying for simplified reporting for employees coming to or leaving the UK

Some employers can apply for simplified reporting for employees coming to or leaving the UK.

Details are in the PAYE Manual, PAYE82003 (EP Appendix 7A) and PAYE82004 (EP Appendix 7B).

The arrangements allow certain employers to apply to pay National Insurance contributions and complete a FPS at the normal time using a best estimate of the earnings and benefits, and later submit a minor correction to the amount of Class 1 or Class 1A National Insurance contributions, without then attracting a penalty.

The idea is to help businesses with internationally mobile workers, by giving them a little longer to identify and account for minor benefits and payments that were not paid from the UK payroll. Conditions apply.

Read PAYE Manual for more information.

4.6.3 Employees coming from abroad

Subject to certain exceptions PAYE must be operated in the usual way for all employees:

working at a UK branch or office of any overseas business
who work under the day-to-day control and management of a business in the UK or the UK branch or office of an overseas business (including directors)

The concern in the UK which is using the services of an employee of an overseas employer, must operate PAYE as if it was the employer. This is the case regardless of whether the employee is paid by the UK concern, the overseas concern, or partly by both.

If all or part of an employee’s income, including any benefits provided, is paid by the overseas concern, the UK employer must get together all details needed to operate PAYE and make returns on form P11D.

Employees who are not resident in the UK

Where, because work is performed both in the UK and abroad, it’s unclear at the time of making a payment how much of the payment will ultimately be assessable as PAYE income, the whole payment should be subjected to PAYE unless we have directed otherwise.

Such a direction may be possible where you consider it necessary to determine by apportionment what proportion of a payment is assessable to tax. You can ask us for a direction that PAYE need only be applied to a certain proportion of the payments made.

The direction may cover more than one employee and any number of years, provided these details are specified in the direction. Most commonly such a direction will be appropriate in a situation where a payment is made to an employee who is not resident in the UK and that payment comprises of earnings which relate to duties in the UK and abroad.

Employees on short-term business visits to the UK

Where an employee is likely to qualify for protection from UK Income Tax under the Dependent Personal Services Article of a Double Taxation Convention it may be possible to relax the strict PAYE requirements that arise.

Certain information will need to be provided and the criteria in the Dependent Personal Services clause met. In the latter respect normally the:

employee must be present in the UK for a period not exceeding in aggregate 183 days in the calendar or fiscal year concerned
remuneration is paid by, or on behalf of, an employer who is not a resident of the UK
remuneration is not borne by a permanent establishment or a fixed base which the employer has in the UK

Employee seconded to work in the UK

If you employ someone who comes to work for you from abroad, you’re usually responsible for PAYE tax on their earnings, just as you are for any other employee. So you set up their payroll record and then record and report their earnings, and pay any PAYE tax due on those earnings in the usual way.

If an employee from abroad falls within the definition of a ‘seconded employee’, you’re still responsible for PAYE tax on their earnings — but the rules for what tax code to use and what to include in their payroll record are different.

A seconded employee includes:

individuals working wholly or partly in the UK for a UK employer on assignment whilst remaining employed by an overseas employer
individuals assigned to work wholly or partly in the UK at a recognised branch of their overseas employer’s business
all individuals included by an employer within:
- a dedicated expatriate PAYE scheme
- an expatriate modified PAYE scheme

Read new employee coming to work from abroad for further information on ‘What to include in the payroll record for a seconded employee’, and ‘Using the right tax code for a seconded employee’.

4.6.4 Employees going abroad

The normal PAYE system applies to all employees of a UK employer even if the employees are working abroad for all or part of the time.

When you send an employee to work abroad you should provide the employee with a letter giving the following details, the:

date the employee went abroad
gross pay and tax deducted whilst in your employment for the period from 6 April last to the date the employee was sent abroad

If the employee goes abroad to work full time and you move them to a payroll with a different employer reference you should submit an FPS with a date of leaving. You should then send an FPS with starter information from the new reference.

If an employee is intending to work in full-time employment abroad for more than a complete tax year you should ask them to complete a P85. They should send the completed P85 to HMRC who will consider if an NT (nil tax) code can be operated. This applies whether the employee files a Self Assessment tax return or not.

The P85 should be sent to HMRC no earlier than 8 weeks before the date the overseas work is due to commence and be accompanied by a letter requesting the NT tax code. We’ll tell you if you can operate code NT and the period for which it can apply. NT tax codes will also be issued where there’s ongoing National Insurance contributions liability only. If the employee ceases to be subject to tax and National Insurance contributions, they can be removed from your FPS until they return to the UK and deductions recommence.

You should not operate an NT tax code before receiving formal notice from us as this may result in you sending an incorrect FPS and may incur penalties.

The letter confirming that you can use code NT will explain that any PAYE tax that the employee paid prior to leaving the UK cannot be repaid until after the end of the tax year. As an alternative, for the year of leaving the UK, you can run 2 separate payroll records for the employee (each one operating cumulatively), one on the UK pay the employee was paid up to departure and the other for the earnings for work done abroad after departure.

This will allow you to repay some of the UK tax that the employee paid prior to departure in each pay period until the end of the tax year. If you do decide to do this you should let us know and separate payroll IDs will be necessary for each record.

You can also operate a similar procedure for the tax year the employee returns to work in the UK but you must always tell us that the employee has returned to work in the UK and you should immediately stop using code NT.

Overseas tax deductions

If you send employees to work on an overseas contract, the overseas tax authorities may get in touch with you about making foreign tax deductions from the employees’ pay. It’s advisable therefore to contact the overseas authority on or before the start of the contract to establish your obligations in that country. This is because you’re likely to have obligations to both UK and overseas tax authorities.

Although foreign deductions may be due, you must explain to the overseas authority that you’re still responsible for operating PAYE under UK arrangements for these employees. Find out if the foreign tax authority requires you to make deductions and as soon as you have confirmed this you should contact us. We’ll tell you what you can do to make things easier for the employee who will have 2 lots of deductions made from their pay but you must contact us before the end of the tax year.

4.6.5 Employees working in offshore areas

You must operate PAYE for employees working offshore, but there are exceptions. Before employees start working in these areas, write to us for further information. Read the help and guidance section for our address.

4.6.6 Coding for payroll purposes for non-resident employees who have never been resident in the UK

You may need to provide a code number in the paying system. Code ‘NT’ may be used where a business in the UK (or the UK branch or office of an overseas business) employs someone who’s non-resident, and the employee:

is working wholly outside the UK
has not been resident in the UK before
employee does not intend to and will not perform any duties in the UK

An FPS is not required and there’s no liability for National Insurance contributions. If the residency position of the employee or the place the duties are performed change so that the employee becomes liable to UK tax, you should immediately stop using code NT and follow the procedure for employees coming to the UK from abroad.

4.7 Workers providing their services through intermediaries

This section deals with the following:

workers supplied by agencies, for more information, read Workers supplied by agencies (paragraph 4.2)
workers paid by intermediaries which do not meet the definition of managed service companies ‘IR35’ rules
workers paid by managed service companies
IR35, at the end of the tax year
offshore employment intermediaries

From April 2016 legislation was introduced that affects the application of the travel expenses and subsistence rules for workers who provide their services through an employment intermediary and who are subject to the supervision, direction or control of any party. When such a worker personally provides services (other than an exception for ‘excluded services’ — see below) to a client through an employment intermediary, including a recruitment agency, umbrella company or other similar structure, then each assignment is considered to be a separate employment. Therefore when a worker regularly commutes from home to a workplace for each assignment they will not be eligible for relief on travel and subsistence. Each workplace is classed as a permanent workplace and so the travel is ordinary commuting.

For more information, read Expenses and benefits for directors and employees — a tax guide: 480.

Where a worker is supplied through their own company (for example, a personal service company (PSC)) or partnership, it is not necessary to consider the test of supervision, direction, or control.

In 2017, the government changed the off-payroll working rules for the public sector, shifting responsibility for operating the rules from the worker’s PSC to the organisation they work for. This is how employment status for tax is decided for the vast majority of people, who do not work through their own company. If the rules apply, the organisation that pays the individual’s PSC will be responsible for deducting and paying the associated employment taxes and National Insurance contributions to HMRC from this deemed payment.

Where the engaging public sector organisation determines that the off-payroll working rules apply, the fee-payer, or other organisation responsible for operating PAYE on the deemed payment, should ensure the ‘Off-Payroll Worker subject to reform’ flag is ticked on the Real Time Information (RTI) Full Payment Submission (FPS). The FPS is submitted periodically using the company’s third-party software product or by HMRC’s Basic Pay As You Earn Tool (BPT). This will be for each instance of the individual’s pay cycle going forward whilst the off-payroll working rules apply. If a mistake is made with this flag, and the flag needs to be ticked or unticked, this should be done in a corrective FPS submission made for the same or subsequent pay period.

From April 2021, large and medium-sized organisations became responsible for assessing the employment status of the contractors they engage to work for them. If the rules apply, the organisation that pays the individual’s PSC will be responsible for deducting and paying the associated employment taxes and National Insurance contributions to HMRC.

PSCs are not responsible for deducting student or postgraduate loan repayments for workers engaged through their own companies. The worker will account for student loan obligations in their own tax return. These rules are at Chapter 10, Part 2, Income Tax (Earnings and Pensions) Act (ITEPA) 2003.

However, the travel and subsistence rules will apply when a deemed employment payment:

is payable under IR35 legislation
would have been payable but for the fact that the worker received remuneration as employment income

This is because the workplace will be classed as a permanent workplace and no relief on travel and subsistence will be available for home to work travel.

4.7.1 Workers paid by intermediaries which do not meet the definition of managed service companies (IR35 rules)

The intermediaries legislation at Chapter 8, Part 2, ITEPA 2003 (commonly referred to as ‘IR35’) applies to income earned from engagements (known as relevant engagements) where:

a worker provides services to a client under a contract between the client and one or more intermediaries
the worker is an office-holder of the client or, but for the presence of the intermediary, the income arising under the contract would have been treated as coming from an employment or an office held by the worker, as if the worker had contracted directly with the client

The existing rules which outline the boundary between employment and self-employment for tax or National Insurance contributions purposes, continue to be used to determine whether an office or employment would have existed but for the use of an intermediary.

For more information on how to decide whether someone is employed or self-employed, you can use HMRC’s check employment status for tax tool.

The IR35 legislation will apply where the intermediary is a company and the worker has:

beneficial ownership of, or entitlement to acquire rights entitling them to receive, more than 5% of the ordinary share capital of the company
possession of, or entitlement to acquire rights entitling them to receive more than 5% of any distribution made by the company
received, or could have received, payments or benefits from the company which are not salary but could reasonably be taken to represent payment for the services they provide to clients
rights which would entitle them to receive or acquire more than 5% of the assets available for distribution in the event of a close company being wound up

The ‘IR35’ rules do not apply where the worker is only entitled to receive income from the intermediary which is all taxed as PAYE income and liable to Class 1 National Insurance contributions, and has no other rights to income or capital from the intermediary.

The ‘IR35’ rules also apply to engagements where the intermediary is a partnership.

However, they only apply if:

an individual worker, or persons connected with them, is entitled to 60% or more of the partnership profits
all or most of the partnership’s income in the relevant tax year is derived from the provision of services, in a form which would fall within the definition of relevant engagements, to a single client or a single client and associates of that client
the profit sharing arrangements in the partnership provide for the income of any of the partners to be based on the amount of income generated by those partners through relevant engagements

Where the worker would have been an employee or an office holder of the client, but for the presence of the service company or partnership, the service company or partnership may pay the worker a salary which is liable to PAYE and National Insurance contributions. If the salary actually paid is less than the income received by the service company or partnership, from relevant engagements with a client (less certain deductions) then the balance will be deemed to have been paid to the worker as a deemed employment payment on the last day of the tax year.

Legislation was introduced at Chapter 10, Part 2, ITEPA 2003 in April 2017 for public sector engagements. Part of that was the abolition of the 5% deduction for individuals operating through intermediaries in the public sector. It also shifted responsibility for determining employment status for tax from the worker’s PSC to the organisation they work for. From 6 April 2021, large and medium-sized organisations became responsible for assessing the employment status of the contractors they engage to work for them. From April 2021 where services are provided to a small non-public sector client, the intermediary will continue to be responsible for determining status and operating PAYE and paying National Insurance contributions under Chapter 8, Part 2, ITEPA 2003 if the rules apply as follows.

Intermediaries which are companies

Where a worker’s intermediary is a company and receives income in respect of relevant engagements:

the intermediary must operate PAYE and pay National Insurance contributions on payments of salary to the worker during the year, in the normal way
if at the end of the tax year, the total of the worker’s employment income from the intermediary, including benefits in kind, amounts to less than the intermediary’s income from all that worker’s relevant engagements, then the difference (net of allowable expenses) will be deemed to have been paid to the worker as earnings on 5 April (earlier in certain circumstances), and tax and National Insurance contributions must be paid accordingly
from April 2017 responsibility for determining employment status for tax moved from the worker’s PSC to the client they work for in the public sector
from April 2021 medium and large-sized organisations became responsible for assessing the employment status of the contractors they engage to work for them
where salary is deemed in this way, appropriate deductions will be allowed in calculating Corporation Tax profits — no further tax or National Insurance contributions will be due if the worker subsequently withdraws the money from the company

Intermediaries which are partnerships

Where a worker’s intermediary is a partnership and receives income in respect of relevant engagements:

income of the partnership from all relevant engagements in the year (net of allowable expenses) will be deemed to have been paid to the worker on 5 April as earnings from a deemed employment held by the worker
the partnership will be required to operate PAYE and pay National Insurance contributions on any deemed employment payment
from April 2017 responsibility for determining employment status for tax moved from the worker’s intermediary to the client they work for in the public sector
from April 2021 medium and large-sized organisations are due to be responsible for assessing the employment status of the contractors they engage to work for them
any deemed employment payment taxed as PAYE income, will not be included when calculating the worker’s share of partnership trade profits

Expenses

In computing the deemed employment payment, the following deductions shall be allowed against income from relevant engagements:

all expenses otherwise eligible for deduction under the normal expense rules
any employer pension contributions made to an approved scheme which are allowable under normal rules, plus:
- a flat rate 5% of the gross income from the relevant engagements — legislation was introduced in April 2017 for public sector engagements which removed this 5% deduction and from April 2021 this deduction is also removed for engagements with medium and large-sized non public-sector clients
certain capital allowances
the salary already taxed as employment income and the amount of the employer’s National Insurance contributions paid during the year, plus any due on the deemed payment

More information on how to calculate the deemed employment payment is available.

Payment of tax and National Insurance contributions on the deemed payment

Section 1 of this guide explains how to work out PAYE and National Insurance contributions for various pay intervals. For National Insurance contributions purposes, the deemed employment payment should be aggregated with any other earnings (paid to the worker by the intermediary in the year) which are derived from employed earner’s employment. The amount of Class 1 National Insurance contributions payable in respect of that aggregate amount should be calculated using an annual earnings period, irrespective of whether the worker is a director of the company in the tax year.

Where the provisions of the Intermediaries Regulations apply to the worker from the beginning of the tax year, the worker will have an annual earnings period. Where a later start date applies the worker is prescribed a pro rata annual earnings period.

Read, CA44: National Insurance for company directors.

For more information about the legislation:

read understanding off-payroll working (IR35)
phone the IR35 Helpline on: 0300 123 2326

4.7.2 Workers paid by a Managed Service Company (MSC)

Separate legislation applies to income received from 6 April 2007 by workers providing their services through a MSC.

An MSC is a form of intermediary company through which workers provide their services to end clients. In essence a scheme provider promotes the use of these companies and provides the structure to workers. The worker (although a shareholder) does not exercise control over the company.

Where a worker provides their services through a managed service company, the existing rules which outline the boundary between employment and self-employment for tax and National Insurance contributions purposes do not apply. Payments or benefits received by the worker or an associate which are not already treated as earnings, and can reasonably be taken to be in respect of the services of the worker, are treated as employment income and earnings.

For the purposes of the legislation, a company means a limited company, a limited liability partnership or a general partnership.

The MSC is responsible for deducting PAYE and accounting for National Insurance contributions. The MSC must deduct PAYE and account for National Insurance contributions on payments of income to the worker during the year, in the normal way.

On each occasion when the worker or their associate receives a payment or benefit from the managed service company which is not earnings from an employment, the managed service company must calculate the deemed employment payment in accordance with the legislation and operate PAYE and Class 1 National Insurance contributions on the deemed employment payment.

Appropriate deductions will be allowed on account of the deemed employment payment when calculating profits chargeable to Corporation Tax or partnership profits.

For guidance on calculating the deemed employment payment, read Employment Status Manual.

Expenses

When calculating the deemed employment payment, a deduction can be made for specific allowable expenses. Expenses incurred in providing services at the client’s premises, for example, travel, subsistence or accommodation costs, are not allowable expenses.

Payment of tax and National Insurance contributions on the deemed payment

Section 1 of this guide explains how to work out PAYE and National Insurance contributions for various pay intervals. But where regular payments have been made to the director or employee in question throughout the tax year, the deemed payment should be treated as a week 53 payment. Read section 1.

For National Insurance contributions purposes, the deemed employment payment should be aggregated with any other earnings paid to the worker by the MSC. A MSC must pay the PAYE and National Insurance contributions in respect of the deemed employment payment to HMRC on a monthly basis. The normal end of year payment rules will apply to the PAYE and National Insurance contributions on deemed payments (that’s, the total PAYE and National Insurance contributions due for the year must be paid by 19 April).

Where an MSC fails to pay the PAYE and National Insurance contributions, and the sum is irrecoverable from it, HMRC may transfer the debt to a number of third parties.

The third parties include:

the MSCs director or other office holder or an associate of the MSC
the MSC provider, its directors or other office holders or associates
a person who encouraged or was actively involved in the provision of the worker’s services through the MSC

For more information about the legislation, read off-payroll working through an intermediary (IR35).

4.7.3 IR35 — at the end of the tax year

The normal end of year payment rules apply to the PAYE and National Insurance contributions on the deemed employment payment made under the IR35 Intermediaries Legislation. The calculation of the deemed employment payment should be reported on an FPS on or before 5 April 2023.

If the intermediary is not able to calculate the actual amount of the deemed employment payment and the PAYE and National Insurance contributions due for 2022 to 2023 by 5 April 2023, a payment on account of the estimated tax and National Insurance contributions due should be made by 19 April 2023 supported by a provisional calculation of the deemed payment reported on the final FPS submitted on or before 5 April 2023.

Where a provisional payment of tax and National Insurance contributions has been made because it was not possible to accurately calculate the deemed payment and deductions on time, any adjustments should be reported through an earlier year update submitted to HMRC after the end of the tax year between 20 April 2023 and on or before the following 31 January 2024.

Where HMRC does not receive the earlier year update and balancing payment by the following 31 January 2024, the last FPS submitted will be considered to be the final and correct details.

Interest will be charged on late payments made after 19 April 2023 (when the payment was due), but no penalties will be charged for sending the final earlier year update figures late if:

the final FPS was received on or before 5 April 2023 showing remuneration paid during the year, plus an amount on account of the provisional deemed employment payment, with tax and National Insurance contributions correctly calculated on that additional figure
payment of tax and National Insurance contributions is made by 19 April 2023, including an amount paid on account of the provisional deemed employment payment
an earlier year update is submitted notifying the correct final amount for the deemed employment, and payment and the tax and National Insurance contributions due are sent to us by 31 January 2024
any additional tax and National Insurance contributions due as a result of the earlier year update are paid by 31 January 2024

For more information, read understanding off-payroll working (IR35).

4.7.4 Offshore agencies and employment intermediaries

Where there’s an employer based in the UK, that employer is responsible for operating PAYE and National Insurance contributions.

Where a person is employed by or engaged through a foreign employer with no presence or place of business in the UK, the responsibility for operating PAYE and National Insurance contributions is as follows:

no UK agency in the contractual chain — the end client
a UK agency in the contractual chain — the UK agency
more than one UK agency in the contractual chain — the UK agency that contracts with the end client

Where a UK agency is involved in the supply of workers overseas and the worker is liable for Class 1 National Insurance contributions whilst working abroad, then the UK agency is responsible for operating PAYE and National Insurance contributions.

A worker who would otherwise be self-employed is subject to Class 1 National Insurance contributions and PAYE when they work through an agency and:

the worker personally provides services to another person (the client)
there’s a contract between the client and an agency under or in consequence of which the services are provided or the client provides consideration for the services, and remuneration is receivable by the worker

Section 1 Class 1 National Insurance contributions if it can be shown the worker is not subject to (or to the right of) supervision, direction or control by anyone as to the manner in which they provide their services to the end client.

PAYE and National Insurance contributions in relation to workers employed on the UK Continental Shelf

There are different rules in relation to the UK Continental Shelf when there’s a foreign employer with no presence or place of business in the UK. For workers who are employed on the UK Continental Shelf, the person responsible for operating PAYE and National Insurance contributions is the:

employer, if they’re present in the UK
associated company, where the employer is not present in the UK but has an associated company in the UK
oil field licensee, (under Part 1 of the Petroleum Act 1998), where the employer is not present and does not have an associated presence in the UK

Where the oil field licensee is responsible as the secondary contributor, a certificate system has been introduced. A foreign employer can apply to HMRC for a certificate to discharge the oil field licensee’s secondary contributor responsibilities.

Where HMRC issues a certificate, the foreign employer takes over the oil field licensee’s secondary contributor responsibilities. This will allow oil field licensees to continue dealing with foreign employers and agencies within the industry without exposing themselves to liabilities for tax and National Insurance contributions.

4.7.5 Employment intermediaries reporting requirements

Employment intermediaries must send HMRC a return every 3 months containing details of all workers they place with clients where they do not operate PAYE on the payments.

For more information, read what this means for an intermediary or phone the Employment Intermediaries Compliance Unit on Telephone: 03000 555995.

Question 6

5.  Pay, expenses and benefits

Accepted Answer

5.1 What to include as gross pay on your employee’s payroll record

The list which follows tells you what to include as gross pay for PAYE and Class 1 National Insurance contributions purposes. It lists the main type of payments that can be made to employees. Some entries will refer you to more detailed information elsewhere. This is because there may be special conditions for that type of payment. You can register now to use the online service to tax expenses and benefits through your payroll. If you do this you no longer need to complete a form P11D for most taxable benefits excluding accommodation or loans.

For more information, read payrolling employees taxable benefits and expenses.

Important

Even if the payment does not need to be included on your employee’s payroll record it may need to be shown on form P11D. For details of what to include on form P11D read the list at paragraph 5.2.6.

Type of payment: car or van fuel

If car or van fuel has been supplied for private motoring using your credit card, garage account or an agency card.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, if the conditions for the entry ‘Credit Cards, Charge cards or similar payment method’ are satisfied, but there may be Class 1A liability, read Expenses and benefits for directors and employees — a tax guide: 480	No

Type of payment: car parking fees

Car parking fees for business related journeys paid or reimbursed to employees.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: cars or vans made available for private use

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be Class 1A liability, read Expenses and benefits for directors and employees — a tax guide: 480	No

Type of payment: childcare vouchers

For people using a childcare voucher scheme before 6 April 2011, they can be included in a scheme and receive vouchers of up to £55 a week, if certain conditions were met.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, only any excess above £55 is to be shown	No

For people using a childcare voucher scheme before 6 April 2011, they can be included in a scheme and receive vouchers of up to £55 a week, but if certain conditions were not met.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes, full amount of vouchers to be shown	No

For people new to a childcare voucher scheme from 6 April 2011 and conditions are met the amount available depends on the tax position of the individual.

Rate of taxpayer	Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Ordinary rate taxpayer	Yes, on any excess above £55 a week	No
Higher rate taxpayer	Yes, on any excess above £28 a week	No
Additional rate taxpayer	Yes, on any excess above £25 a week	No

For people new to a childcare vouchers scheme from 6 April 2011 and conditions are not met the amount available depends on the tax position of the individual.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes, full amount of all vouchers to be shown	No

Type of payment: Christmas boxes in cash

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: clothing or uniforms

Clothing or uniforms provided by you.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be Class 1A liability, read Class 1A National Insurance contributions on benefits in kind (CWG5)	No

Payments to employees for non-durable items such as tights or stockings.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be Class 1A liability, read Class 1A National Insurance contributions on benefits in kind (CWG5)	Yes

Other payments to employees to purchase clothing or uniforms which can be worn at any time.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Other payments to employees to purchase clothing or uniforms which can only be worn at work.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	Yes

Type of payment: Council Tax on employee’s living accommodation

Where the employee is provided with accommodation which is within one of the categories where the value does not have to be included for tax purposes on form P11D.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

For all other circumstances.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	No

Type of payment: credit cards, charge cards — employees use your card to purchase goods or services bought on your behalf

On the condition that prior authority given by you to make the purchase has been given, the employee explained in advance of the contract being made and the supplier accepts that the purchase is made on your behalf.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be Class 1A liability, read Class 1A National Insurance contributions on benefits in kind (CWG5)	No

If these conditions have not been fully satisfied.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	No

Type of payment: credit cards, charge cards — employees use your card for expenditure other than goods or services bought on your behalf

Payments relating to business expenses actually incurred.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Readily convertible assets.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read readily convertible assets for more information	Read readily convertible assets for more information

Any other payments not reimbursed to you.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes, at the date you decide not to seek reimbursement	No

Type of payment: credit card reward payments made to employees for detecting and withdrawing lost or stolen cards

Made by you to your own employees.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Made to your employees by a third party.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: damages or similar payment made to an employee injured at work

There’s a contractual liability to make it.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

All other circumstances.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: director’s personal bills charged to loan account

If the transaction makes the account overdrawn (or more overdrawn than it was) and it’s normal practice for you to pay the director’s earnings into the same account.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes, on the overdrawn (or additional overdrawn) amount	No

All other circumstances.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: director’s remuneration, salary, bonuses and fees, including any advance or anticipatory payments paid, voted or credited

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: dividends from shares

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: employee liability insurance — reimbursements of payments made by employees for insurance cover or uninsured liabilities (such as legal costs) for claims against the employee arising out of their work

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: employment income provided through third parties — when taxable under disguised remuneration rules in Income Tax (Earnings and Pensions) Act 2003

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: employment tribunal awards (ETA)

Read paragraph 5.12.

Type of payment: eye care vouchers

To get:

an eyesight test
corrective appliance (for example, glasses or contact lenses) which the test shows are necessary

If the eyesight test:

is required under Health and Safety at Work Regulations
and corrective appliance are available generally to employees

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: expenses payments or reimbursements exempted from charge

Expenses payments or reimbursements paid at an agreed scale rate are exempt from charge to tax.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, read paragraph 5.3.1	No, read paragraph 5.3.1

Type of payment: guarantee payments under the Employment Rights Act 1996

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: holiday pay

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 5.2.6	Read paragraph 5.2.6

Type of payment: honoraria

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: incentive awards

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 2.6	Read paragraph 2.6

Type of payment: Incidental Overnight Expenses (IOEs)

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read 480 and CWG5	Read 480

Type of payment: Inducement payment, such as ‘golden hello’ to recruit or retain employees

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: insurance premiums for pension (read paragraph 3.6.1), annuities, or health cover (read paragraph 5.2.6, paid or reimbursed by you where the contract is between:

You and the insurance provider.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be a liability for Class 1A, read CWG5	No

Employee and the insurance provider.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read ‘Personal bills paid’ in paragraph 5.2.6	Read ‘Personal bills paid’ in paragraph 5.2.6

Type of payment: loans

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be a liability for Class 1A, read CWG5	No

Type of payment: loans written off

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes, at time of write off	No

Type of payment: long service awards

Awards in the form of cash or cash vouchers.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Other awards.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, if they satisfy certain conditions.	Read paragraph 5.2.6

Type of payment: lost time payments

Payments made by a third party or by you on behalf of a third party such as payments for jury service.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

All other circumstances.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: maternity suspension payments made under the Employment Rights Act 1996 to an employee suspended from work on maternity grounds

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: meal allowances and vouchers

Cash payments for meals and voucher redeemable for food and drink or a cash alternative.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Vouchers provided for food and drink provided on your business premises for any canteen where meals are generally provided for your staff, and vouchers redeemable for meals only (all values).

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: medical suspension payments made under the Employment Rights Act 1996 to an employee suspended from work on medical grounds

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: mobile phone vouchers to obtain one mobile phone for private use

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: mortgage payments met directly by you for employees:

Mortgage provided by you or mortgage contract is between you and mortgagee.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be a liability for Class 1A, read CWG5	No

Mortgage contract is between employee and mortgagee.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	No

Type of payment: parking fees at or near the normal place of employment paid for or reimbursed to employees

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Type of payment: payments in kind (but not RCAs — read paragraph 5.2.6

Which can be turned into cash by surrender such as Premium Bonds.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Which can be turned into cash only by sale such as furniture, kitchen appliances and holidays.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be a liability for Class 1A, read CWG5	No

Type of payment: payments you make to an employee whilst they pursue a claim for damages against a third party for loss of earnings following an accident:

Employee must repay you, even if the claim for damages is unsuccessful.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Employee not required to pay you.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes, but if the employee later receives damages and repays you, National Insurance contributions can be refunded	Yes

Type of payment: pensions

Registered pension schemes.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	Yes

Employer financed retirement benefits schemes.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, if the payment satisfies certain conditions.	Yes

Type of payment: personal bill paid for goods and services supplied to employees and club memberships

Contract to supply goods and services is between you and the provider.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, but there may be a liability for Class 1A, read CWG5	No

Contract to supply goods and services is between the employee and the provider, and payment made direct to the provider.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	No

Payment made or reimbursed direct to the employee.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: phone calls or rental cost

Employer is the subscriber.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No Class 1 liability, but there may be a liability for Class 1A National Insurance contributions, read CWG5	No

Employee is the subscriber but employer meets the cost of calls or rental. The phone used exclusively for business use.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Phone used exclusively for private use.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Read paragraph 5.2.6

Phone used for both business and private use.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Rental: Yes — on the full amount of the rental Calls: Yes — on the full amount of the costs of private calls. Any amount in respect of business calls, supported by appropriate evidence, can be excluded	No No

Type of payment: premiums for health cover, pensions and annuities

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read Insurance Premiums	Read Insurance Premiums

Type of payment: prize money paid in cash to employees for competitions in connection with your business, which are not open to the public

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: readily convertible assets: remuneration provided in non-cash form such as stocks and shares, gold bullion, commodities and fine wine

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 5.13.1	Read paragraph 5.13.1

Type of payment: redundancy payments

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 5.11.1	Read paragraph 5.11.1

Type of payment: relocation payments

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 5.8	Read paragraph 5.8

Type of payment: retirement benefits schemes — payments you make into such schemes:

registered pension schemes
employer financed retirement benefits schemes

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 2.1	Read paragraph 2.1

Type of payment: retirement benefits schemes — lump sum payments out of such schemes

registered pension schemes
employer financed retirement benefits schemes

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No if the payment satisfies certain conditions	Read paragraph 2.2 and paragraph 5.11.3

Type of payment: round sum allowances

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 5.6	Read paragraph 5.6

Type of payment: securities or interests in securities

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read readily convertible assets	Read readily convertible assets

Type of payment: sickness, maternity and other absence from work payments

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: sporting testimonial award (non-contractual, non-customary)

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes, if the award exceeds £100,000 the excess is subject to Class 1A National Insurance contributions (see CWG5 for details)	Yes, amount of award above £100,000 is subject to Income Tax

Type of payment: SSP, SMP, SAP, SPP, ShPP, SPBP

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: stocks and shares

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read readily convertible assets

Type of payment: subscriptions or fees to professional bodies paid by you which

Are allowable tax deductions under Sections 343 and 344 Income Tax (Earnings and Pensions) Act 2003 for National Insurance contributions	Include on payroll record for PAYE
	No	No

Are not allowable tax deductions under Sections 343 and 344 Income Tax (Earnings and Pensions) Act 2003.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	No

Type of payment: subscriptions or fees to professional bodies reimbursed by you which

Are allowable tax deductions under Sections 343 and 344 Income Tax (Earnings and Pensions) Act 2003.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	Yes

Are not allowable tax deductions under Sections 343 and 344 Income Tax (Earnings and Pensions) Act 2003.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: suggestion schemes awards to employees

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No, if the award satisfies the conditions for exemption from tax. If you make awards in the form of benefits, read CWG5	Awards which satisfy the conditions for certain conditions are exempt from tax.

Type of payment: termination awards

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes, if the award exceeds £30,000 the excess is subject to Class 1A National Insurance contributions (see CWG5 for details)	Yes, amount of award above £100,000 is subject to Income Tax

Type of payment: third party payments made to your employees

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Where such payments originate with the employer (and the employee then has access to payments — such as through an Employee Benefit Trust) then these payments are earnings or are to be treated as earnings from the employment. Read paragraph 5.15.8	Read paragraph 5.15.7

Type of payment: tips and service charges

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 2.8	Read paragraph 2.8

Type of payment: training — payments for such things as course fees and books

Training is work-related or is encouraged or required by you in connection with the employment.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Training is provided for an employee who’s leaving to enable them to find alternative employment.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read Cost of retraining courses	Read Cost of retraining courses

All other circumstances.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: transport vouchers, such as season tickets provided for

Employees of a passenger transport undertaking under arrangements in operation on 25 March 1982.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Any other employee.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	No, read paragraph 2.6.2

Type of payment: travelling time payments

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

Type of payment: trivial commutations from registered pension schemes

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	Yes

Type of payment: vouchers which can be redeemed or exchanged for

Both goods and cash or cash alone.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes, read paragraph 2.6.2

Goods alone (but not RCAs).

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	No, read paragraph 2.6.2

Use of sporting or recreational facilities.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
No	No

Readily convertible assets.

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Read paragraph 5.13.1	Read paragraph 5.13.1

Type of payment: wages, salaries, fees, bonuses and commission

Include on payroll record for National Insurance contributions	Include on payroll record for PAYE
Yes	Yes

If the list does not show the type of payment you’re making or if you’re not sure whether to include the payment on your employee’s payroll record, phone the Employer helpline. You can also read expenses and benefits: A to Z.

For expenses and benefits which are being payrolled, the tax should be reported through RTI rather than on form P11D. Class 1A National Insurance contributions is payable on expenses and benefits which attract a Class 1A National Insurance contributions charge, whether or not they’re payrolled through real time information or reported on form P11D.

For more information, read payrolling employees taxable benefits and expenses.

5.2 Giving us details of your employees’ benefits and expenses

These paragraphs tell you what forms you have to complete to give us details of your employees’ benefits and expenses:

paragraph 5.2.1 tells you about the form P46 (car) you must send during the tax year, to give us the details we need about certain employees who are provided with a car which is available for private use
paragraphs 5.2.2 to 5.2.3 tell you about the forms P11D and P11D(b) you must send at the end of the tax year, to give us the details we need about the expenses you have paid and the benefits provided for your employees during the tax year and the amount of Class 1A National Insurance contributions you’re due to pay — you must send these forms in time to reach the HMRC National Insurance contributions and Employer Office by 6 July

5.2.1 Form P46 (car)

Employers who payroll car and car fuel benefits do not have to send a P46 (car) where the car has been made available after they have registered for payroll, instead the car details will be reported through real time information.

Complete a form P46 (car) or online equivalent to give details of all employees and directors for whom form P11D is appropriate, who are provided with a car which is available for private use.

The completed form P46 (car) must be sent within 28 days of the end of the quarter to 5 July, 5 October, 5 January or 5 April in which any of the following takes place:

the employee or director is first provided with a car which is available for private use
the employee or director is provided with a second or further car which is available for private use
a car provided to the employee or director is withdrawn and not replaced

Full guidance and information on the tax and National Insurance contributions aspects of company cars can be found in Expenses and benefits for directors and employees — a tax guide: 480 and Class 1A National Insurance contributions on benefits in kind (CWG5).

5.2.2 Form P11D

Complete a form P11D to give details of all taxable expenses payments and the cash equivalent of any taxable benefits provided for employees, directors of a company or business or their families, dependants and guests.

Form P11Ds also include helpful fields which indicate that you need to calculate the amount of Class 1A National Insurance contributions that may be due on specific taxable benefits you provide to your employees. Read CWG5: Class 1A National Insurance contributions on benefits in kind.

Guidance on what to enter on form P11D is given at paragraph 5.2.4. P11Ds are not required for employees whose employer has registered for payroll benefits, read payrolling employees taxable benefits and expenses. Class 1A National Insurance contributions still needs to be calculated on the taxable amount of the benefit which was payrolled.

5.2.3 Form P11D(b)

Complete a form P11D(b) to:

confirm that by 6 July all forms P11D you should have completed have been sent to us
calculate and declare the total amount of Class 1A National Insurance contributions you’re due to pay, either from form P11Ds or through real time information for payrolling

The return date for both form P11D and form P11D(b) is 6 July following the end of the year in which the benefits and expenses have been provided.

Form P11D(b) can also be used to make adjustments to the total benefits liable to Class 1A National Insurance contributions taken from forms P11D and calculated from payrolled taxable amounts.

Employers who payroll benefits and expenses are still required to complete form P11D(b) in respect of the Class 1A due on the benefits provided and make payment by the due date 19 July.

5.2.4 What to enter on form P11D

Complete form P11D to give us details of your employees’ taxable benefits and expenses not subject to payroll.

The list at paragraph 5.2.6:

sets out the various types of expenses that could be paid to employees and benefits that could be provided to them
tells you whether or not you should enter the particular type of expense or benefit on form P11D

5.2.5 Reporting termination packages where amounts over £30,000 are taxable

You need to report packages which are taxable only on amounts over £30,000. You do not need to do this if the package consists of cash only or, where it includes non-cash benefits, if it has an estimated value of £30,000 or less.

You should make a report to:

PT Operations North East England
HM Revenue and Customs
BX9 1BX
United Kingdom

This should be by the 6 July following the tax year in which the termination takes place, if a package is provided, which includes non-cash benefits and is estimated, over its lifetime, to exceed £30,000.

In working out the cash equivalents of non-cash benefits for future years, to determine whether a report is needed or not, you only need make reasonable estimates using the rules in force in the year in which termination occurs.

You do not need to wait until 6 July if you want to send the report earlier. You can send it at any time after the termination has occurred. You can prepare your report in whichever way suits you best. There’s no prescribed form or format. A copy should always be given to the employee.

If you make a report it must contain the following information:

the total estimated value of the package
details of the cash payments made and the cash equivalents of non-cash benefits provided in the year in which the termination took place (where the report is made in the tax year best estimates should be supplied)
an estimate of the cash payments to be made in future years
an estimate of the total lifetime of the package with details of any contingency factors (for example, payments or benefits ceasing if the employee finds alternative employment)
details of the type of benefits to be provided after the first year and the terms of their provision (for example, car for 3 years, medical insurance for 10 years and so on)

If, after you have made your report there’s a variation in the package and the total value increases by more than £10,000 you’ll need to make another report. This has to be made by 6 July following the end of the tax year in which the variation takes place. The report should only contain details of the variation.

A report will also need to be made if, having originally decided that you do not need to make a report, there’s a variation in the package so that it includes non-cash benefits and exceeds £30,000.

In these circumstances, you should send a report to HMRC, at the latest by 6 July following the end of the tax year in which the change takes place. The report, however, should be for the year in which termination occurred as if one had been required in the first place.

If you make such a late report remember to provide a copy to the employee.

5.2.6 P11D List

Important

This list gives general guidance only. It does not cover all expenses or benefits. Expenses and benefits for directors and employees — a tax guide: 480, gives more information as does the P11D Guide. If you’re not sure what to enter on P11D contact us.

Expenses and benefits can also attract a Class 1 or Class 1A National Insurance contributions liability. Guidance on Class 1A National Insurance contributions can be found in CWG5: Class 1A National Insurance contributions on benefits in kind.

The list at paragraph 5.1 also gives information on when Class 1A National Insurance contributions may be due on payments of expenses and benefits.

Employers who payroll benefits and expenses do not have to complete a form P11D. This is because they’re reported under real time information.

The particular type of expenses or benefits you can include on form P11D

The particular type of expenses or benefits you can include on form P11D are:

assets given to the employee or transferred at less than market value
assets provided for the employee’s use such as yachts, aircraft, furniture and kitchen appliances
benefits or payments which could be turned into money or any other benefit
business expense met wholly or partially by you
car or van fuel supplied for private motoring in company vehicles
all car or van fuel and all other benefits supplied for private vehicles
car parking facilities other than at or near the workplace
cars or vans made available for private use
childcare help provided by childcare vouchers
over the relevant exempt amount where the qualifying conditions are met (the excess over the relevant exempt amount)
childcare vouchers (any amount) not meeting the qualifying conditions
other registered or approved childcare over the relevant exempt amount, read Expenses and benefits for directors and employees — a tax guide: 480
credit cards, charge card or credit account payments made by you
entertaining allowances
expenses payments or reimbursements not covered by an exemption
food, groceries and farm produce
goods or services (including professional services) supplies at less than their full cost
holidays
incidental overnight expenses (all other circumstances, read what incidental overnight expenses not to include on P11D)
Income Tax paid but not deducted from a director
Income Tax paid in respect of a readily convertible asset (RCA) or in respect of employment income through third parties (read disguised remuneration) if the tax is not recovered from the employee within 90 days of the end of the tax year (for example, 6 July)
living or other accommodation provided by you:
- service provided with it such as heat, light, repairs or domestic services
- all other circumstances (read what not to include on a form P11D)
loans that are:
- interest-free or at low interest (including notional loans — securities acquired for less than market value)
- written off (not including notional loans)
- if loan advanced to employee as part of a third party arrangement, read disguised remuneration
long service awards in the form of other awards (read what not to include on P11D)
meals provided by you (in all other circumstances (read what not to include on P11D))
meal vouchers given
- which cannot be transferred to another person and used only for meals
- in all other circumstances
medical, dental treatment or insurance to cover the cost of such treatment (in all other circumstances (read what not to include on P11D)
National Insurance contributions (employee’s share borne by you)
private expenses met wholly or partially by you
private phone rental and costs of calls
relocation expenses payments and benefits:
- expenses which are not exempt
- exempt expenses in excess of £8,000
scholarships awarded to students because of their parents’ employment
security measures provided by you
social functions:
- any other type of function (read what not to include on P11D)
sporting or other recreational facilities such as shooting, fishing and gym equipment (all other circumstances (read what not to include on P11D)
subscriptions and professional fees paid by you
third party payments to discharge employee’s personal liability
transport vouchers, tickets and passes of any description which provide transport by any passenger transport undertaking given to:
- employees of passenger transport undertakings under arrangements in operation on 25 March 1982
- any other employee or director
vouchers, meaning any voucher, stamp or similar document which can be exchanged for money, goods or services except vouchers on which PAYE has already been operated — do not include vouchers that can only be used to provide benefits that are exempt from tax, for example, any non-cash vouchers or credit tokens provided with a ‘qualifying mobile phone’ to facilitate its use

The particular type of expenses or benefits you cannot include on form P11D

car parking facilities, at or near place of work
childcare help provided by childcare vouchers:
- up to the relevant exempt amount where the qualifying conditions are met
- for places in qualifying nurseries or play schemes
- for other registered or approved childcare up to the relevant exempt amount
expenses in providing any pension, annuity, lump sum, gratuity or similar benefit which is given to an employee or to his or her spouse, civil partner, children or other dependants on retirement or death
expenses payments or reimbursements — exempted from tax
IOEs within the terms of the special exemption, read Expenses and benefits for directors and employees — a tax guide: 480
living or other accommodation provided by you, value of the accommodation:
- itself where there’s a special threat to the security of the employee who lives there as part of special security arrangements
- where it’s necessary for the employee to live in that accommodation to do their job properly or it’s provided so that the employee can do their job better and it’s customary for employers to provide living accommodation for this type of job
long service awards in the form of:
- cash or cash vouchers (read vouchers)
- RCAs (read paragraph 5.13.1)
meals provided by you:
- at a canteen open to your staff generally
- on your business premises, on a reasonable scale and all employees are able to get free or subsidised meals or meal vouchers — as long as not provided as part of a salary sacrifice or flexible remuneration arrangement
medical, dental treatment or insurance to cover the cost of such treatment:
- outside the UK for treatment necessary while an employee was abroad
- medical treatment recommended by a health care professional to help an employee return to work up to a maximum cost of £500 in a tax year where the employee is unfit for work for at least 28 consecutive days
mobile phones, meaning one mobile phone used by an employee for private calls
office accommodation, supplies or services such as ordinary office accommodation, equipment, typists and stationery provided for an employee on your premises and only used by the employee in doing their job
relocation expenses payments and benefits, exempt expenses of £8,000 or less
retirement benefits schemes (employer-financed) — payments by employer
social functions and annual functions such as Christmas dinners and summer parties, open to staff generally where the cost per head of the function is £150 or less (where more than one such function is held in a year and the aggregate cost per head of the functions is more than £150 per head, exclude details of any functions that total £150 or less and include details of all other functions)
sporting or other recreational facilities, such as shooting, fishing and gym equipment covered by special exemption
subscriptions and professional fees reimbursed by you

The exception to this, is where the expenses or benefits are provided under salary sacrifice or other forms of optional remuneration arrangement. Further guidance is in paragraph 36 of CWG5 and in Appendix 12 of booklet Expenses and benefits for directors and employees — a tax guide: 480.

5.3 Exempt expenses

5.3.1 Exemption for paid or reimbursed expenses

From 6 April 2016 paid or reimbursed expenses, and benefits provided, for which tax relief is available in full are exempted from tax, subject to certain conditions, and do not need to be payrolled or reported to HMRC on form P11D. All dispensations ceased to have effect on 5 April 2016.

Expenses payments or reimbursements for which tax relief is not available on the full amount will need to be paid subject to PAYE.

Benefits provided for which tax relief is not available on the full amount will need to be reported on form P11D. The exemption applies to expenses paid or reimbursed at a scale rate, provided the employer either pays or reimburses at either the HMRC published ‘Benchmark scale rates’ or at a rate agreed with HMRC in accordance with an approval notice.

The exemption can cover most types of expense payments and most benefits. For example:

qualifying travel expenses
reasonable scale rate payments for subsistence
entertaining
subscriptions to professional bodies or learned societies

The exemption cannot apply to:

company cars and vans
cheap loans
round sum allowances
mileage payments to employees who use their own cars for business travel

For the exemption to apply you must have a checking system in place to make sure that employees are in fact incurring and paying amounts in respect of the expenses and that a deduction is due in respect of the full amount paid or reimbursed.

The exemption will not apply to expenses paid or reimbursed under a salary sacrifice arrangement.

Payments made under a salary sacrifice arrangement should be made under PAYE. Employees can make a claim for tax relief direct to HMRC where any expense is incurred and not paid or reimbursed by you, where the exemption does not apply because the expense is not fully deductible, or where expenses or benefits are provided under a salary sacrifice arrangement.

5.3.2 How to apply for an approval notice

If you want to pay or reimburse employees subsistence expenses at a rate other than the HMRC Benchmark scale rates you’ll need to apply to HMRC for an approval notice. Your application will need to set out the:

employees or groups of employees you would like the approval notice to apply to
amounts of expenses you would like to pay, the occasions you want to pay them on and confirm that the amounts are a reasonable estimate of the expenses actually being incurred by employees
checking system you have in place for controlling and authorising payments and reimbursements

Your checking system must be able to show that payments are only made on qualifying occasions where employees meet the relevant conditions for payment, that the amount paid is a reasonable estimate of the expenses being incurred, and that employees are in fact incurring and paying amounts in respect of the expense.

Approval notices will last for up to 5 years. You must inform us if:

your checking system changes
the circumstances under which you make payments changes
the amounts you pay are no longer representative of the amounts your employees are actually incurring

5.3.3 National Insurance contributions on tax exempt expenses and benefits

If you pay, reimburse expenses or provide benefits which are exempted from tax, they’ll not be liable for National Insurance contributions.

Where the exemption does not apply you’ll need to report and pay Class 1 National Insurance contributions on the full amount of the payment, or Class 1A National Insurance contributions on the benefit.

5.4 PSAs

A PSA is an agreement between you and your HMRC office under which you agree to pay the tax in a lump sum on certain expenses payments and benefits in kind you give to your employees. You do not have to include items covered by a PSA on form P11D.

In addition to making lump sum payments of tax, you also make lump sum payments of National Insurance contributions on items included in PSAs by paying Class 1B contributions.

PSAs normally apply to items which are:

minor
given by you on an irregular basis
where it’s impracticable for you to apply PAYE to them or include them on form P11D PSAs do not apply, for example, to wages and salaries.

To find out more, read PAYE settlement agreements.

More information about Class 1B National Insurance contributions

Class 1B National Insurance contributions are payable on PSAs at the same time as tax, using the same payment slip.

Class 1B National Insurance contributions are payable at the appropriate secondary employer’s percentage rate on the total value of:

all items covered by the PSA which would give rise to a Class 1 or Class 1A National Insurance contributions liability
the tax payable by the employer under the PSA

To find out more, read PAYE settlement agreements.

If one of your employees fails to qualify for SSP, SMP, SAP or ShPP because their average weekly earnings are too low, you’ll need to reassess their average weekly earnings taking account of items covered by a PSA which would have given rise to a Class 1 National Insurance contributions liability.

For more information on calculating an employee’s average weekly earnings for SSP, SMP, SAP, SPP, ShPP or SPBP purposes, read statutory pay.

5.4.1 National Insurance contributions on motoring expenses payments

There’s a statutory amount which can be paid to employees who use their own cars, vans, motorcycles or cycles for business travel without incurring a National Insurance contributions liability. If you pay more than the statutory National Insurance contributions free amount, the excess amount must be added to any other earnings the employee receives in the earnings period in which you make the motoring expense payment. Class 1 National Insurance contributions are then calculated on the employee’s total earnings.

To work out whether National Insurance contributions are due, you must multiply the amount of business miles travelled by the statutory mileage rate and compare that figure to the amount that you have paid.

For privately owned cars and vans, the rate to use is the one which applies to the first 10,000 business miles.

This rate is shown in the table and must be used irrespective of the number of business miles actually travelled. In working out whether National Insurance contributions are due, you must include in the calculation of the National Insurance contributions free amount all business miles travelled, even if you do not pay the employee for all of his business mileage.

For employees who use their own motorcycles and cycles for business travel, or who carry passengers, use the appropriate rates in the table.

The rules for paying the new passenger rate and what counts as business travel are the same for both tax and National Insurance contributions.

More guidance on these rules for National Insurance contributions, including examples of how National Insurance contributions are calculated on motoring expenses payments, can be found within Tax and National Insurance contributions for employee travel: 490.

5.4.2 Taxation of mileage expenses payments

Read paragraph 5.4.1 for the National Insurance contributions treatment of motoring expenses payments and passenger payments.

You can pay up to an ‘approved amount’ tax-free to employees using their own vehicles for business travel. This is calculated as follows:

Kind of vehicle	Rate
Car or van	45 pence per mile for the first 10,000 business miles 25 pence per mile after that
Motorcycle	24 pence per business mile
Cycle	20 pence per business mile

There are 2 main conditions for payments to be free of tax, they:

must be paid to the employee (not merely for the benefit of the employee) for the expenses of business travel in the employee’s privately owned car, van, motorcycle or cycle
must not exceed the number of business miles multiplied by the appropriate mileage rate

Payments that meet these 2 tests are known as approved mileage allowance payments.

If you do not pay more than the approved amount, all payments are tax-free approved mileage allowance payments. You do not need to include them on form P11D.

If you pay more than the approved amount, the excess will be charged to tax and you should include it on form P11D only where you have been unable to tax this under PAYE. Excess mileage payments can no longer be included in PSAs.

Meaning of business travel

This is explained in Tax and National Insurance contributions for employee travel: 490.

Associated employments

Where an employee gets motoring expenses payments from 2 or more associated employments, aggregate the mileage to work out when 10,000 business miles is reached.

Record keeping

Even if you pay amounts that are at or below the approved mileage allowance payments limit and so are not taxable, you’ll still need to keep records of the payments made and the business journeys to which they relate.

Passenger payments

There’s an additional exemption from tax for ‘passenger payments’. These are payments you make to employees travelling on business journeys specifically because they carry as passengers fellow employees for whom the journeys are also business travel.

The exempt amount is 5 pence per mile per fellow employee travelling as a business passenger.

The exemption applies only where the vehicle used is a car or a van, but is not restricted to employees’ privately owned vehicles. It can also apply where the vehicle used is a company car or van, provided the employee is chargeable to tax on car or van benefit.

Exempt passenger payments do not need to be included on form P11D but any excess should be taxed through the payroll but you should keep adequate records to demonstrate that payments made satisfy the conditions for exemption.

5.5 Treatment of expenses payments for National Insurance contributions purposes

If you pay an employee expenses, you must include them in gross pay unless they’re exempted from charge under a specific exemption, read paragraph 5.3.1. If you pay an employee expenses for using a privately owned vehicle for business purposes, there are special rules for working out whether you need to include these payments in gross pay, read paragraph 5.4.1.

Evidence

To prove that they’re expenses actually incurred by employees in carrying out their work you must be able to provide evidence of the actual business expense.

The type of evidence will depend on the item of business expenditure. For example, evidence could include:

a log of business phone calls or visits
credit card bills
receipts
work diaries showing the employee’s engagements
a representative survey of the costs involved (that’s a scale rate)

This is not a complete list and any evidence will be considered.

Using a scale rate

Payments based on a scale rate, which covers the costs likely to be incurred, should not be included in gross pay.

For scale rate payments to be excluded from gross pay the scheme you operate must satisfy all the following conditions, the:

scheme must not have an overall profit element
payments must be based on an accurate survey of the costs involved
scheme must allow for a movement in prices
payments must be reasonable in relation to the employment involved
employee must make a claim for each payment made

Details of the scheme and its provisions must be available for inspection. National Insurance contributions will be charged on all payments made under the scheme if the scheme is not supported by written evidence or is not considered sound.

5.5.1 Payments towards additional household costs incurred by employees who work from home

For both PAYE and National Insurance contributions purposes

Do not include in gross pay any payments made in respect of reasonable additional household expenses incurred by employees in carrying out duties of their employment at home.

You may pay up to £6 per week (£26 per month) without supporting evidence of the costs.

If you choose to pay more, you must retain supporting evidence to show that the payment is wholly in respect of additional household expenses incurred by the employee in carrying out the duties at home.

5.6 Round sum allowances

If you pay a round sum allowance to an employee, you must treat the payment as follows.

For National Insurance contributions purposes

If you cannot identify the business expense include the whole allowance — whether or not an expense is actually incurred — in gross pay. If the expense is wholly deductible for tax purposes it may be covered by the expenses exemption. Read paragraph 5.3.1. Payments which are exempted from tax are also not liable for National Insurance contributions.

For PAYE purposes

Where a round sum allowance is clearly meant to do no more than reimburse an employee for an expense actually incurred in doing their job, and the expense was incurred only because of the job the expense may be covered by the exemption for paid or reimbursed expenses. Read paragraph 5.3.1. If so, the expense payment does not need to be reported.

Where the payment includes a profit element, or the expenses it’s meant to reimburse are not exempted, include the whole amount in gross pay.

5.7 Travel and subsistence payments

The rules on the tax and National Insurance contributions treatment of business travel by employees are explained in Tax and National Insurance contributions for employee travel: 490.

Chapter 9 of Tax and National Insurance contributions for employee travel: 490, covers employers’ reporting requirements and explains when you need to operate PAYE on payments for travel and subsistence.

Chapter 6 of Tax and National Insurance contributions for employee travel: 490 guide explains the limited circumstances in which you need to account for National Insurance contributions on travel and subsistence payments.

5.8 Relocation allowances or expenses

Payments you make to or for an employee who has to move residence as a result of being relocated in the UK by you, should be treated as follows.

For PAYE purposes

Do not include in gross pay any exempt relocation expenses payments.

What constitutes an exempt expense payment is found in appendix 7 of 480: expenses and benefits — a tax guide.

Include in gross pay any expenses that are not exempt. Amongst other things this will include any payments not listed as eligible is found in 480: expenses and benefits — a tax guide.

Do not include in gross pay any expenses payments that are eligible for tax relief as listed in 480: expenses and benefits — a tax guide.

Include in gross pay any relocation expenses you pay that are not eligible for tax relief. If you provide:

a relocation package worth more than £8,000
relocation benefits

Read Class 1A National Insurance contributions on benefits in kind (CWG5).

If you make any payment towards a relocated employee’s council tax ask the Employer helpline for advice.

5.9 Allowances or expenses to employees relocating abroad

For both PAYE and National Insurance contributions purposes

Do not include in gross pay any exempt allowances and expenses paid to employees relocating abroad.

5.10 Allowances or expenses to employees working abroad

For both PAYE and National Insurance contributions purposes

Treat payments of expenses to employees working abroad like other expenses payments. In addition, include in gross pay:

payments described as compensation for working abroad
sums paid as an inducement to work abroad
any bonus paid for working abroad

If you pay an employee a general allowance to compensate for the higher cost of living abroad, commonly known as a cost of living allowance or cost of living addition, that sum must be included in gross pay.

But do not include in gross pay any payment you make towards expenses incurred in providing:

an employee with medical treatment outside the UK where the need for the treatment arises while the employee is outside the UK working for you
insurance for the employee against the cost of such treatment

Phone the Employer helpline if you pay the travelling expenses for employees and/or their families returning to the UK on home leave.

5.11 Payments you make when an employee stops working for you

The guidance tells you what you should do if you make additional one-off payments such as on redundancy or retirement.

Guidance on ‘standard’ payments such as salary, wages, SMP, SAP, SPP, ShPP and so on is given at section 2.

5.11.1 Type of payment

The treatment of a payment made when an employee stops working for you varies according to the type of payment. This is true for both PAYE and National Insurance contributions purposes.

A single payment is often made up of more than one element. For example, one payment might cover:

redundancy pay
accrued holiday pay
a payment in lieu of notice

Each element must be considered separately. First decide the appropriate tax and National Insurance contributions rules to apply to each element. Then add these separate results together.

For PAYE purposes

Most payments fall into one of the following 3 categories, the payments are:

taxable in full
taxable only on amounts over £30,000, if:
- there’s more than one sum in this category, you must total all such payments before applying the £30,000 limit
- payments are made by instalments, the exemption does not just apply to the year in which the termination takes place — any unused balance after setting off both cash payments and non-cash benefits may be carried forward to set against payments in a later year
completely tax-free

For National Insurance contributions purposes

Payments are either included or not included in gross pay.

5.11.2 Action to take when you make such payments

The list under paragraph 5.1 lists the most common elements included in a leaving payment, and tells you what the appropriate tax and National Insurance contributions treatments are.

If you need more information about how to value non-cash benefits, read Expenses and benefits for directors and employees — a tax guide: 480.

Contact us for guidance on calculating the taxable amount if:

you intend to provide anything other than cash when an employee leaves — for example, an asset (such as a car) or the use of an asset
any payment (or part payment) is to be paid by a third party, for example, another employer

Payment made under terms and conditions of employment — unless the payment is listed separately later in the following paragraphs.

‘Terms or conditions’ means anything governing the employment relationship so, as well as any written contact, verbal terms, handbooks and agreements may well be included.

For example:

compensation for loss of office provided for under terms or conditions
accrued pay due
pay during a period of notice

If it’s your normal practice to make a payment on termination, it should be treated in the same way as one made under terms or conditions (even if there’s no legal obligation to pay it).

Redundancy payments are dealt with at section 7.

1. Payments made in lieu of notice

Paid under a legal entitlement (or paid automatically) and paid under an employer’s discretion which is in terms and conditions.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
Yes	Yes

Paid as damages.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
Read section 8	Read section 8

2. Part of termination payment treated as being ‘Post-Employment Notice Pay’

Any part of termination payment treated as ‘Post-Employment Notice Pay’

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
Yes	Yes

3. Lump sums paid on retirement or death

A pension scheme registered by HMRC.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No	No

An employer-finance retirement benefits scheme.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No if the payment satisfies certain conditions	Read paragraph 5.11.3

4. Other lump sums paid on retirement

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
Include only earnings received from the employment	Yes in full, read paragraph 5.11.3

5. Other lump sums paid on the death of an employee

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No	Yes in full, read paragraph 5.11.3

6. Lump sums to compensate for loss of employment through disability, injury or ill health.

This prevents the employee carrying out the duties of the employment. Where such a payment is over £30,000, you may wish to agree with us before you pay the whole amount tax-free.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No	No

7. Payments for redundancy

Due under statutory redundancy payment rules and paid from your non-statutory scheme to compensate for loss of employment by reason of redundancy.

Redundancy has a special legal meaning. Broadly, there must be a reduced need for employees which causes the termination of the employment. This would not include, for example, a payment in lieu of notice provided for by such a scheme. The redundancy may be paid indirect. For example, an employee leaves as a result of a reduced need for employees elsewhere in the business.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No, but Class 1A National Insurance contributions are payable on amounts over £30,000 only. See CWG5 for further details.	On amounts over £30,000 only. Read paragraphs 5.11.1 and 5.11.4

8. Payments made as damages if the termination was a breach of contract

For example, you agree, or the courts or an employment tribunal rules, that the employee was unfairly or wrongly dismissed — if you pay something which is due under the terms or conditions of employment, it will not be damages, for example, you may be ordered, or agree as part of a settlement of damages, to pay wages due under such terms — in these circumstances that element of the payment must be included in gross pay for National Insurance contributions and PAYE purposes.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No, but Class 1A National Insurance contributions are payable on amounts over £30,000 only. See CWG5 for further details.	On amounts over £30,000 only. Read paragraphs 5.11.1 and 5.11.4

9. Payments for the employee giving a restrictive covenant.

A restrictive covenant is an undertaking which restricts the employee’s conduct.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
Yes	Yes

10. Employee’s legal costs

These are the costs incurred in bringing a claim to compensation for loss of employment.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No	May be tax-free, ask us about Section 413A Income Tax (Earnings and Pensions) Act 2003

11. Cost of ‘outplacement counselling’

This includes such things as, a course:

or advice to assist the employee in finding new employment
to help the employee adjust to the termination of employment provided that the counselling is generally available to employees

Reimbursed costs and associated travelling expenses are treated in the same way.

These are the costs incurred in bringing a claim to compensation for loss of employment.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No	No

12. Cost of retraining courses

This covers the payment or reimbursement of retraining course expenses for an employee who’s about to leave, or who has recently left your employment. The course must be:

full-time, or substantially fully
last for no more than one year
be designed to provide the employee with skills or knowledge which will help them to find alternative employment (including self-employment)

There are further conditions relating to the time when the employee starts the course, and the period for which the employee has worked for you.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No	No

13. Pension

Registered pension schemes.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No	Yes

Employer-financed retirement benefit schemes.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No, if the payment satisfies certain conditions.	Yes

Pension flexibility, including UFPLS.

Include in gross pay for National Insurance contributions purposes	Include in gross pay for PAYE purposes
No	Include the 75% of the payment chargeable to PAYE. 25% is tax free and should not be included.

For National Insurance contributions purposes

If you make payment:

when the employee leaves, work out National Insurance contributions based on the regular earnings period for the employment
after the employee has left, work out National Insurance contributions based on a weekly earnings period unless it’s a final payment of salary or wage where the usual earnings period, category letter and rates and thresholds at the time of payment should be used

Read the guidance within paragraph 1.14.

For PAYE purposes

Where no tax is due (because the payment is not taxable or the payment is a ‘taxable on amounts over £30,000’ payment below this limit) do not include in gross pay on your employee’s payroll record.

Where tax is due (because the payment is taxable in full or the payment is a ‘taxable on amounts over £30,000’ payment above this limit), and you make the payment to the employee:

when or before the employee leaves, include the taxable amount
- in gross pay on the employee’s payroll record and operate PAYE in the normal way
- on the FPS
- complete a form P45 to give to the employee
after the employee leaves
- include the taxable amount in gross pay on the employee’s payroll record for the tax week or month number in which you make payment
- enter code 0T as the amended code on the employee’s payroll record
- include the details, set the ‘Payment after leaving’ indicator and show the original date of leaving on the FPS when you make the final payment
- operate PAYE by using code 0T (on a week 1 or month 1 basis)
- do not issue a further form P45 — instead give the employee a letter showing the date of the payment, the gross amount, and the PAYE tax you have deducted, and confirmation that the payment is a post-leaving payment

Guidance on reporting termination packages where amounts over £30,000 are taxable is given at paragraph 5.2.5.

5.11.3 Lump sum payments on retirement or death which are not from registered schemes

A lump sum retirement or death payment will be tax-free if it’s from an employer-financed retirement benefits scheme, and:

in the past the employee has been charged to tax on the employer contributions which funded the lump sum and no employer contributions have been made since 5 April 2006
it’s a payment on death which happened as a result of an accident whilst the person was an employee (including accidents outside work)
it’s for ill-health or disablement during service

These exclusions do not apply where the lump sum payment is made from an overseas employer-financed retirement benefits scheme to a person who’s resident in the UK.

Where a lump sum retirement or death payment is not tax-free and it’s paid to any person or body other than an individual (for example, to a club or society) the payer is charged to tax at 45% and PAYE does not apply.

Where payment is made from rights which accrued before 6 April 2017 in respect of service outside the UK, in certain circumstances all or part of the lump sum will not be chargeable to tax. Read the guidance in the Employment Income Manual for more information on when this will apply.

5.11.4 Foreign service

A payment which is ‘taxable on amounts over £30,000’ may qualify for an additional Income Tax relief. This relief applies if, during the employment, there was ‘foreign service’ or ‘foreign seafaring service’.

Broadly, this means that the employee was not ‘resident’ in the UK at some time during the employment. If you think this relief may apply, you may wish to speak to us before taking account of any relief.

With effect from 6 April 2018, tax relief for ‘foreign service’ is only available if the employee is non-UK ‘resident’ for the tax year in which their employment is terminated, or if the employment included qualifying ‘foreign seafaring service’ and they were ‘resident’ in the UK for the tax year in which the employment is terminated.

With effect from 6 April 2021 non-UK ‘Resident’ employees are now also liable for UK tax and National Insurance contributions on Post-Employment Notice Pay (PENP), to the extent they would have been had their period of notice been worked in the UK.

Guidance is available in the Employment Income Manual. You may wish to speak to us when considering whether relief is available.

5.12 Employment Tribunal Awards

An employment tribunal (in Northern Ireland, an industrial tribunal) may require you to make payments to an employee under:

a reinstatement order or a re-engagement order
an order for the continuation of employment
a protective award

Payments due under such awards count as gross pay for both National Insurance contributions and PAYE purposes.

You must calculate Class 1 National Insurance contributions on the full amount of the award and PAYE if the total exceeds £30,000. That’s on the amount awarded before any deductions ordered by the tribunal. If you do not know the full amount of an award, contact the clerk to the tribunal that made the award.

If the actual amount you have to pay the employee is less than the amount of National Insurance contributions and PAYE tax due on the full amount of the award, read paragraph 1.19.1. This gives guidance about recovering underpayments of National Insurance contributions and PAYE tax from an employee.

5.12.1 Reinstatement order or re-engagement order

If a tribunal decides that an employee was unfairly dismissed, it may order the employer to pay notional ‘arrears of pay’ to the employee relating to a period when the employment did not exist. Such amounts count as gross pay for National Insurance contributions purposes.

For PAYE purposes, the payment is taxable on amounts over £30,000 only (read paragraph 5.11.1).

For National Insurance contributions purposes

Payment made to an employee

Where you make a payment under an order to an employee:

you must treat it as a separate payment and not add it to any other payment of earnings you make to the employee at the same time
assess the amount of National Insurance contributions due on the payment using an earnings period which is the longer of:
- the period to which the order relates
- a week

Use this earnings period no matter how you make the payment, that is, in a lump sum or by instalments:

use the category letter, National Insurance percentage rates and earnings limits current at the time you make payment (or when the payment is due to be made if nothing is actually paid because of adjustments to the gross amount by the tribunal)
record the payment, National Insurance contributions details and any other information, on the employee’s payroll record in the tax week or month in which you make payment — this means that if you make another payment of earnings to the employee at the same time, you’ll have 2 lots of entries for the same tax week or month

Payment made to a director

Where you make a payment under an order to a director:

add the amount of the payment to any other earnings paid to date in the year
assess the amount of National Insurance contributions due on the total amount of earnings to date
use the earnings period which you’re using to assess National Insurance contributions on any other payments you make to the director that is, an annual earnings period or a pro-rata annual earnings period — for more information, read CA44: National Insurance for company directors
use the category letter, National Insurance percentage rates and earnings limits current at the time you make payment
record the payment, National Insurance contributions details and any other information, on the payroll record in the normal way

For PAYE purposes:

treat the employee as a new employee
operate PAYE procedures at the week or month number that you make any payments, do not include their previous earnings and tax deducted to date on the FPS

5.12.2 Order for the continuation of employment

A tribunal may order:

that an employee’s employment must continue whilst it deals with a complaint of unfair dismissal
specify the amount that the employer must pay the employee

Such amounts count as gross pay for National Insurance contributions but for PAYE purposes these payments are taxable on amounts over £30,000 only.

For National Insurance contributions purposes

Follow the guidance in paragraph 5.12.1 under ‘Payment made to an employee’ or ‘Payment made to a director’, as appropriate.

For PAYE purposes:

treat the employee as a new employee
operate PAYE procedures at the week or month number that you make any payments, do not include their previous earnings and tax deducted to date on the FPS

5.12.3 Pay due under a protective award

A tribunal may decide that an employer has broken some rules in making, or proposing to make, an employee redundant. If so, it can order the employer to pay the employee for a certain period. This is called the ‘protected period’.

Amounts paid under a protective award count as gross pay for both National Insurance contributions and PAYE purposes.

For National Insurance contributions purposes

Payment made to an employee

Where you make a payment under a protective award to an employee:

you must treat it as a separate payment and not add it to any other payment of earnings you make to the employee at the same time
assess the amount of National Insurance contributions due on the payment using an earnings period which is the longer of:
- the protected period
- that part of the protected period in respect of which the payment is made
- a week
use this earnings period no matter how you make the payment, that is, in a lump sum or by instalments
use the category letter, National Insurance percentages rates and earnings limits current at the time you make payment (or when the payment is due to be made if nothing is actually paid because of adjustments to the gross amount by the tribunal)
record the payment, National Insurance contributions details and any other information, on the employee’s payroll record in the tax week or month in which you make payment — this means that if you make another payment of earnings to the employee at the same time, you’ll have 2 lots of entries for the same tax week or month

Example

An employee is made redundant on 31 October. The employer pays their wages up to 30 November.

A tribunal decides the:

protected period is 31 October to 31 December (62 days)
employer must pay the employee their wages for the period 1 December to 31 December (31 days)

Assess the amount of National Insurance contributions due on the wages paid for the period 1 November to 31 December using a 62-day earnings period, as this is the longer period of:

the protected period (62 days)
that part of the protected period in respect of which the payment is made (31 days)
a week (7 days)

For guidance on how to work out the National Insurance contributions using this 62-day earnings period, read section 1.

Payment made to a director

Where you make a payment under a protective award to a director:

add the amount of the payment to any other earnings paid to date in the year
assess the amount of National Insurance contributions due on the total amount of earnings to date
use the earnings period which you’re using to assess National Insurance contributions on any other payments you make to the director that is, an annual earnings period or a pro-rata annual earnings period — for more information, read CA44: National Insurance for company directors
use the category letter, National Insurance percentages rates and earnings limits current at the time you make payment
record the payment, National Insurance contributions details and any other information, on the payroll record in the normal way

For PAYE purposes

For tax purposes these payments are taxable on amounts over £30,000 only. Apply PAYE to the excess. Read paragraph 5.11.1.

5.13 Providing an employee with a non-cash payment

The following paragraphs provide a guide to operating PAYE where assets other than cash are provided to an employee and are treated as earnings of the employee. In general PAYE and National Insurance contributions will have to be operated where the asset is an RCA or where certain cash sums are paid in connection with securities even where those securities are not RCAs.

5.13.1 Readily convertible asset

An RCA, for the purposes of this guide, is one which:

is capable of being sold on a recognised investment exchange, the London Bullion Market or the New York Stock Exchange — for example, stocks, shares and other financial instruments, gold bullion and other precious metals and so on
is a right over a money debt — for example, trade debts assigned by an employer to an employee, or
is subject to a fiscal warehousing regime, such as a bonded warehouse — for example, oriental carpets stored in ‘bond’
gives rise to a right to enable an employee to obtain money — for example, an interest in trust which comes to an end shortly after being assigned to an employee, resulting in an automatic right to cash
is subject to a trading arrangement, either at the time of provision or likely to come into existence in future under an arrangement or understanding in place when the asset is provided — for example, shares or jewellery which can be sold either under an arrangement existing at the time of provision or under future arrangements for which steps have been taken at the time the shares or jewellery are provided
is already owned by the employee and whose value is enhanced by the employer — for example, an employer may pay an additional premium to an employee’s life assurance policy, considerably increasing the value of the policy
is an asset consisting in securities which are not shares that are Corporation Tax deductible (Part 12 of Corporation Tax Act 2009) — most shares will already be an RCA under one of these criteria — securities include shares of any body, corporate or government loan stock, and other securities defined in Chapter 1, Part 7 of Income Tax (Earnings and Pensions) Act 2003

Shares cannot be RCAs if they represent the exercise of rights:

obtained before 27 November 1996
from a Schedule 3 Income Tax (Earnings and Pensions) Act 2003 Savings Related Share Option Scheme
a Schedule 4 Income Tax (Earnings and Pensions) Act 2003 company share option plan and exercise occurs between 3 and 10 years from the date of grant or less than 3 years from grant by reason of injury, disability, redundancy or retirement

5.13.2 Valuation of assets

Payments in the form of RCAs must be included in gross pay for both PAYE and National Insurance contributions purposes. The amount on which PAYE should be operated and National Insurance contributions assessed is the best estimate that can reasonably be made of the amount of income on which the employee is likely to be chargeable to tax in respect of the provision of the asset.

For most assets, including shares or other securities provided directly to an employee, the value to be ascertained is ‘money’s worth’, with reference to:

the cost of the asset to the employer
the value of the asset when it was awarded
where the employee has already sold the asset, the amount received for it — if known
where the employee has contributed towards the cost of the asset — the amount of that contribution should be deducted

Where, however, the event is one charged to tax under the securities legislation in Part 7 of Income Tax (Earnings and Pensions) Act 2003 (for example, exercise of option or lifting of restriction on a security) the market value must be obtained by reference to the Capital Gains Tax (CGT) value (read sections 272 and 273 Taxation of Chargeable Gains Act 1992 (TCGA)).

5.14 Shares and other securities

5.14.1 Securities options

PAYE and National Insurance contributions will normally be due where:

securities are acquired by an employee (or associated person) pursuant to an employment-related securities option
such an option is assigned or released for consideration (even if the security is not a readily convertible asset, if the consideration is cash or a readily convertible asset then PAYE and National Insurance contributions will be due)
the employee (or associated person) receives a benefit in cash or money’s worth in connection with the option (for example, compensation for loss of option following takeover)

In most cases there’s no charge on the grant of securities options. The exception to this general rule is explained in the Employment-Related Securities Manual.

Tax advantaged schemes

If the shares acquired from tax advantaged schemes do not satisfy the scheme rules for Income Tax relief, then PAYE and National Insurance contributions will be due if the shares are RCAs. If the shares are non-readily convertible assets then the Income Tax payable is to be included in the person’s Self Assessment tax return.

For more details about the tax rules that apply to tax advantaged share schemes, read Employee tax advantaged share schemes user manual.

A gain made from a Schedule 4 CSOP scheme exercised at least 3 years but not later than 10 years after the date it was granted, is generally exempt from PAYE and National Insurance contributions liability.

If a Schedule 4 CSOP is assigned or released for cash or an RCA, then PAYE should be operated as for non-tax advantaged arrangements.

No tax charge arises if the Schedule 4 CSOP scheme allows for options to be exercised when employment ceases within 3 years of the date the options are granted for one of the following reasons:

injury
disability
redundancy
retirement or a Transfer of Undertakings (Protection of Employment) regulations transfer (TUPE), or a transfer of the employing company out of the group
in certain cash takeovers

Where Income Tax liability is due PAYE and National Insurance contributions must be accounted for on any gain if the shares acquired are RCAs.

Schedule 3 Save as you earn (SAYE)

When a share option is exercised in accordance with the rules of a Schedule 3 SAYE scheme at least 3 years after the date on which it was granted, or within 6 months of leaving employment by reason of injury, disability, redundancy, retirement or a TUPE transfer or a transfer of the employing company out of the group, then the gain is exempt from PAYE and National Insurance contributions liability. There’s also no Income Tax charge in certain cash takeovers. If a taxable charge arises, any Income Tax payable is to be included in the employee’s Self Assessment tax return.

Enterprise management incentives

There’s no Income Tax or National Insurance contributions liability on the grant of a qualifying enterprise management incentive option. Income Tax and National Insurance contributions liability may arise on the exercise of the incentive option if:

the option price is less than market value of the shares when the option was granted
the shares under option are free
there’s a disqualifying event

PAYE and National Insurance contributions liability must be accounted for on any gain if the shares acquired are RCAs. For more details about the tax rules that apply to enterprise investment options, read Employee tax advantage share schemes user manual.

Shares acquired by employees under a schedule 2 share incentive plan are generally exempt from PAYE and National Insurance contributions liability when awarded or withdrawn from the plan provided the shares have been held in the plan for 5 years.

Shares withdrawn from the plan earlier than 5 years because the employment has ended due to injury, disability, redundancy, retirement, death or a TUPE transfer or a transfer of the employing company out of the group are not liable to Income Tax or National Insurance contributions.

There’s also no Income Tax charge in certain cash takeovers. Shares that are RCAs and held for a shorter period may be subject to PAYE and National Insurance contributions liability in some circumstances. If the shares are not RCAs and an Income Tax charge arises then the tax is to be included in the person’s Self Assessment tax return.

5.14.2 Restricted securities

Securities (including shares) are restricted if they’re subject to forfeiture or have other restrictions which means that the market value of those securities is reduced, due to the restriction.

If securities are subject to a forfeiture provision that lasts for less than 5 years then Income Tax will not arise at the time of acquisition unless an election has been entered into to disregard the restriction. PAYE and National Insurance contributions should be operated accordingly (subject to the security being an RCA).

If there’s no election then Income Tax will arise at the time when the forfeiture condition ceases to apply. PAYE and National Insurance contributions must then be applied if securities are RCAs. For restricted securities without a forfeiture restriction, Income Tax will arise at the time of acquisition on the value of the securities taking into account the value of the restrictions.

Further charges to Income Tax will arise when those restrictions are lifted. It’s also possible to enter into an election to disregard the restrictions at the time of acquisition in order to avoid further charges to Income Tax. PAYE and National Insurance contributions should be applied if securities are RCAs.

The following charges are subject to PAYE and National Insurance contributions where the securities are RCAs:

chargeable events in relation to restricted securities
chargeable events in relation to convertible securities
charge on acquisition where market value of securities is artificially depressed
charge where market value of securities is artificially enhanced
charge on discharge of notional loan where securities are acquired for less than market value (but not the annual charge)
charge where securities are disposed of for more than market value
chargeable benefits from securities

Even if the securities are not RCAs, if the consideration takes the form of cash or an RCA then PAYE and National Insurance contributions should be operated.

Securities and security options provided through third parties

There are special rules which may apply where arrangements use third parties to reward employees, including by way of securities and securities options. Read paragraph 5.15.7.

Employee shareholder status shares

The employee shareholder employment status came into effect from 1 September 2013 (although those who take advantage of the status scheme will remain employed earners for National Insurance contributions purposes). Employee shareholders will have different employment rights to employees, and in consideration for their agreement to adopt this status they’ll be awarded by their employing company at least £2,000 worth of shares.

There are tax reliefs for employee shareholder shares, and these apply from 1 September 2013. Income Tax and National Insurance contributions will usually not be chargeable on the first £2,000 of share value received by an employee shareholder.

This is because the employee shareholder is deemed to have made a payment of £2,000 for the employee shareholder shares. If shares having a market value of less than £2,000 are acquired, on the first or only day that shares are acquired in consideration of an employee shareholder agreement, then the payment of £2,000 will not be deemed to have been made. The deemed payment by the employee only applies on the first occasion on which they acquire qualifying shares under an employee shareholder agreement.

Income tax reliefs and the CGT exemption relating to shares received as consideration for entering into an employee shareholder agreement on or after 1 December 2016 have been removed, although there are transitional rules for some employees who received the mandatory independent advice on their proposed employee shareholder agreement on 23 November 2016.

For the employee shareholder agreement to have legal effect the employee must receive advice from a relevant legal adviser on the terms and effect of the employee shareholder agreement. The company is required to pay reasonable costs for that advice whether the individual accepts the job or not.

When an employer funds the cost of independent legal advice received by a person considering an employee shareholder position, this will not be treated as a taxable benefit and there will be no Class 1A National Insurance contributions liability. Also, payments to the individual to reimburse any reasonable costs of advice will not give rise to any Income Tax liability and will be disregarded in the calculation of earnings for the purposes of earnings related National Insurance contributions.

5.15 Practical considerations on non-cash payments

5.15.1 PAYE and National Insurance contributions on RCAs

Payment in the form of RCAs must be included in gross pay for both PAYE and National Insurance contributions purposes. The amount on which PAYE should be operated and National Insurance contributions assessed is the amount of income which counts as employment income for Income Tax purposes. Include such notional payments in gross pay for the pay period the payment is deemed as paid. Work out PAYE in the normal way. If the employee is on a K code, ignore the 50% overriding limit when calculating the PAYE due on the payment.

For chargeable events in relation to securities options, restricted securities and convertible securities, employees may enter into an agreement or election with the employer to meet some or all of the liability for employer’s National Insurance contributions.

In these circumstances employer’s National Insurance contributions met by the employee is a deductible amount for Income Tax purposes but is not deductible in calculating the National Insurance contributions due.

5.15.2 Deducting PAYE from non-cash payments

Recover from the employee the PAYE due on the non-cash payment by deducting it in the following way:

first, from any net wages, salaries, commission, fees and so on paid at the same time as non-cash payment, even if this reduces the employee’s pay to nil
then from any later payments made in that pay period until the full amount of PAYE due on the non-cash payment has been recovered

Any PAYE which you do not recover from the employee, must be made good by the employee within 90 days (6 July) of the end of the tax year in which the non-cash payment was received.

If the employee does not do this, then you must show the unrecovered amount as further remuneration on form P11D.

5.15.3 Deducting National Insurance contributions from certain non-cash payment

Where you make non-cash payments of earnings to an employee or an ex-employee you have the right to recover an employee’s share of National Insurance contributions from subsequent cash payments of earnings in the same tax year where an under-deduction occurred because there were not enough cash earnings.

When you recover such underpayments of National Insurance contributions:

you can only recover the employee’s share of National Insurance contributions in the same tax year from any further cash payments of earnings to the employee
the amount recovered cannot exceed the contribution due on that further payment

If non-cash payments of earnings are made and you could not deduct the employee’s share of National Insurance contributions because there were not enough cash earnings, if the payment:

has been made by an intermediary
comprises a beneficial interest in shares
comprises of securities or an interest in securities

You have until the end of the tax year, following the one in which the non-cash payments of earnings were made, to recover the employee’s share of National Insurance contributions. There’s no limit on the amount that you can recover from subsequent earnings to recover the under-deduction.

Intermediary is defined as either a person:

acting on behalf of the employer and at the expense of the employer
connected with them, or trustees holding property for any person, or class of persons which includes, the employee

The rules do not affect your responsibility to account for National Insurance contributions at the time payment is made.

5.15.4 Paying PAYE and National Insurance contributions to HMRC on non-cash payments

PAYE payments are due by the 19th of the month following the end of the tax month or quarter to which it relates (or the 22nd if paying electronically).

You can pay quarterly if you estimate over the full tax year that your total payment will be, on average, less than £1,500 per month.

You must pay HMRC all PAYE and National Insurance contributions due, including that due on any non-cash payments made in that tax month or quarter, even if the employee did not have sufficient cash, to allow all the deductions to be made in that pay period.

5.15.5 Recording a non-cash payment

Regardless of whether or not the employer has borne the PAYE and employee’s share of National Insurance contributions you must include the value of the non-cash payment of earnings with the related PAYE and National Insurance contributions due, on your payroll records for the employee, FPS and P60 as appropriate.

If the employee leaves your employment during the year in which the non-cash payment of earnings was made, include the value of the asset and all PAYE due when updating the payroll information.

5.15.6 P11D

RCAs liable to PAYE should not be reported on form P11D, but tax not recovered from the employee may need to be reported on form P11D, read paragraph 5.12.2.

5.15.7 Employment income provided through third parties (disguised remuneration rules)

Overview

The rules on employment income made available through third parties deal with arrangements which:

involve third parties (including trusts or other vehicles used to reward employees)
attempt to avoid or delay payment of Income Tax

These rules are sometimes called the disguised remuneration rules or the ‘Part 7A’ rules (which refers to the part of Income Tax (Earnings and Pensions) Act 2003 where most of the law is located). The law also deals with pension schemes which are not registered pension schemes.

Broadly speaking, if third party arrangements are used to make available what’s in substance a reward or recognition, or a loan, in connection with the employee’s current, former, or future employment, then an Income Tax charge arises.

A charge also arises where a third party is used as part of a tax avoidance arrangement to make available payments or assets to employees who have or have had a material interest in their employer’s company. The arrangements have to pass what is known as the close company gateway.

The rules contain detailed exclusions. These stop the law from catching certain arrangements. Generally the exclusions are targeted at arrangements which are not tax avoidance arrangements. If the law applies, it deems an amount to count as employment income.

The amount that counts as employment income is specifically brought within the scope of PAYE. Special rules deal with, for example, the interaction with the remittance basis.

General approach to whether a transaction is affected by the rules on employment income provided through third parties — is there a third party involved

This is a very important starting point in working out whether the rules on employment income through third parties (‘the Part 7A rules’) apply. If the employer is providing something directly to the employee, and there’s no third party involved, then these rules will not apply.

There are 3 exceptions to this general rule, the rules can:

apply where the employer is acting as a trustee rather than as an employer
also apply as a result of steps taken by an employer when there’s an agreement that contributions will be paid to a relevant third person comprising an unregistered pension arrangement
apply where the employee concerned is acting as a trustee instead of in their capacity as an employee or individual

If there’s a third party, is it a group company

If the employer’s a company that belongs to a group of companies, the Part 7A rules will not apply to payments and other items provided to the employee by other companies in that group.

This depends on 4 conditions.

The employer and the company in question must both be members of the group of companies at the time the relevant step is taken.
The test about membership of the same group must be satisfied.

To decide whether both companies are members of the same group, you apply the rules for Corporation Tax on chargeable gains, read Capital Gains Manual. However, there’s one change. The chargeable gains test is a 75% test.

But when you apply the test under the rules on employment income through third parties, you change ‘75%’ to ‘51%’ throughout.
The group company must not be acting as a trustee.
The step taken by the group company must not be part of a tax avoidance arrangement.

In practice routine arrangements, where a group company provides employment-related benefits or other parts of the normal pay package, will fall outside the scope of the Part 7A rules and will continue to be taxed as before.

Similar rules apply if the employer’s a limited liability partnership, which has a wholly-owned company that provides benefits or part of the pay package to employees of the limited liability partnership.

What if a third party is involved in a transaction with your employees (Scope of Part 7A rules)

A person who counts as a third party following the rules outlined is referred to as a ‘relevant third person’. When a relevant third person provides something to your employees, then the Part 7A rules may apply. The Part 7A rules will only apply if all of the following conditions are satisfied:

there’s an arrangement that is potentially within the scope of the Part 7A rules in the first place (an arrangement to provide your employee, or former or prospective employee, with rewards, recognition or loans in connection with the employment (or an arrangement which passes the close company gateway))
a relevant third person has taken a defined ‘relevant step’ (not all transactions count as ‘relevant steps’ under Part 7A, for example, normal temporary provision of use of an asset available that’s provided as an employment benefit, such as a company car, would not count as a relevant step)
the step is connected with the arrangement in question

However, you still need to work out if the transaction is specifically excluded from the application of the rules.

Specific exclusions from the Part 7A rules

If an arrangement has met the tests for potentially coming within the scope of the Part 7A rules, that does not necessarily mean that it has given rise to Part 7A income. There are a number of specific exclusions that cut down the scope of Part 7A considerably. Check carefully to see if at least one of the exclusions applies.

The exclusions cover a range of circumstances including:

relevant steps taken ‘under’ or ‘for the purpose of’ tax-advantaged share schemes
relevant steps taken under a registered pension scheme
commercial transactions where the relevant third person is simply providing your employees with something that they provide on the same terms to members of the public in the ordinary course of their business
certain transactions carried out as part of employee benefit packages
certain transactions relating to deferred pay and share plan arrangements
employee car ownership schemes

Generally these exclusions are subject to specified conditions.

Part 7A income

If the step in question has met the test for coming within the scope of part 7A and is not covered by any of the exclusions, then it’ll give rise to Part 7A income.

The Part 7A income counts as employment income of the employee, and is deemed to be PAYE income paid by the employer.

The general rule is that the amount of the Part 7A income will be the value of the relevant step. But there are rules which in certain circumstances will adjust this value, possibly down to nil.

Where an amount is deemed to be PAYE income paid by the employer, apply the guidance on practical considerations on non-cash payments at paragraph 5.15.1 onwards.

For more information about Part 7A income, read Employment Income Manual, EIM45000 onwards.

5.15.8 Employment income provided through third parties (Disguised Remuneration rules) for National Insurance contributions purposes

Regulations to reflect the equivalent tax changes described in paragraph 5.15.7 apply where the arrangements attempt to avoid, reduce or delay payment of National Insurance contributions.

Where a payment is made through third party arrangements (such as through an employee benefit trust) consider whether the payment is earnings under ordinary rules before applying the disguised remuneration rules.

Where the payment is not earnings and it’s treated as employment income for Income Tax purposes under the disguised remuneration rules set out in paragraph 5.15.7, it’s treated as earnings for Class 1 National Insurance contributions purposes.

If the disguised remuneration rules treat an amount as earnings, the amount of earnings should be included in gross pay for Class 1 National Insurance contributions purposes, on the date the relevant step is taken, as set out in paragraph 5.15.7. For example, if a loan is made to an employee, the date the loan is made to the employee, is the date the earnings are paid.

If:

there’s an amount treated as earnings under the Part 7A rules, (for example, the value of a loan)
at some later date some or all of that amount is a payment of earnings for National Insurance contributions purposes, for example, because the employee is not required to repay the loan

National Insurance contributions are not due on the amount already included in gross pay when it was treated as earnings under the Part 7A rules. But if the amount that is earnings is more than the amount treated as earnings under the Part 7A rules, the extra amount should be included in gross pay for National Insurance contributions purposes.

Question 7

Appendix 1 — other useful forms and guidance issued by HMRC

Accepted Answer

<ul>
  <li><a href="https://www.gov.uk/government/collections/expenses-and-benefits-for-directors-and-employees-a-tax-guide-480" class="govuk-link">Expenses and benefits for directors and employees — a tax guide: 480</a></li>
  <li><a href="https://www.gov.uk/government/collections/tax-and-national-insurance-contributions-for-employee-travel-490" class="govuk-link">Tax and National Insurance contributions for employee travel: 490</a></li>
  <li><a href="https://www.gov.uk/government/collections/guidance-for-employers-on-using-basic-paye-tools-bpt" class="govuk-link">Guidance for employers on using Basic <abbr title="Pay as you earn">PAYE</abbr> Tools (BPT)</a></li>
  <li><a href="https://www.gov.uk/government/publications/ca38-national-insurance-contributions-tables-a-and-j" class="govuk-link">CA38: National Insurance contributions tables A, F, H, J, L, M, V and Z</a></li>
  <li><a href="https://www.gov.uk/government/publications/ca40-employees-allowed-to-pay-their-own-national-insurance" class="govuk-link">CA40: employees allowed to pay their own National Insurance</a></li>
  <li><a href="https://www.gov.uk/government/publications/ca41-national-insurance-contributions-tables-b-and-c" class="govuk-link">CA41: National Insurance contributions tables B, C, I and S.</a></li>
  <li><a href="https://www.gov.uk/government/publications/ca42-foreign-going-mariners-and-deep-sea-fishermen" class="govuk-link">CA42: foreign-going mariners and deep-sea fishermen</a></li>
  <li><a href="https://www.gov.uk/government/publications/ca44-national-insurance-for-company-directors" class="govuk-link">CA44: National Insurance for company directors</a></li>
  <li><a href="https://www.gov.uk/government/publications/cwg5-class-1a-national-insurance-contributions-on-benefits-in-kind" class="govuk-link">Class 1A National Insurance contributions on benefits in kind (CWG5)</a></li>
  <li>P6</li>
  <li>P6T</li>
  <li>P9(T)</li>
  <li>P9X</li>
  <li><a href="https://www.gov.uk/government/publications/paye-end-of-year-expenses-and-benefits-p11d" class="govuk-link">Report end-of-year expenses and benefits to HMRC</a></li>
  <li><a href="https://www.gov.uk/government/publications/paye-end-of-year-expenses-and-benefits-p11db" class="govuk-link">Report end-of-year expenses and benefits to HMRC</a></li>
  <li><a href="https://www.gov.uk/government/publications/paye-end-of-year-expenses-and-benefits-p11d-guide" class="govuk-link">How to complete forms P11D and P11D(b)</a></li>
  <li>P11D(INT)</li>
  <li>P14</li>
  <li>P30B</li>
  <li>P30BC</li>
  <li>P32</li>
  <li>P35</li>
  <li>P35(CS)</li>
  <li>P38/P38A</li>
  <li>P39</li>
  <li>P45</li>
  <li>P45W</li>
  <li><a href="https://www.gov.uk/government/publications/paye-car-provided-to-employee-for-private-use-p46car" class="govuk-link"><abbr title="Pay as you earn">PAYE</abbr>: car provided to employee for private use (P46 (car))</a></li>
  <li>P60</li>
  <li>tax tables</li>
</ul>

Question 8

Help and guidance

Accepted Answer

You can get help and guidance from the following sources.

The internet

For help with your payroll, read PAYE guidance.

For wider interactive business help, read set up a business.

Webinars are a way of learning about your payroll, such as ‘Getting payroll information right’. This webinar covers the most common errors that employees make when submitting information to HMRC. It shows you how to provide accurate data and avoid common payroll mistakes.

For more information, read help and support for employing people.

Any page printed from the online version of this help book is uncontrolled and may not be the latest version. We recommend that you always check you’re referring to the latest online version.

Online services

For information and help using our Online Services, read HMRC services: sign in or register.

For more help, contact the Online Services Helpdesk.

Basic PAYE Tools

The Basic PAYE Tools is software that you download onto your computer. It will help you run your payroll throughout the year. It’s designed for employers who have 9 or fewer employees, and you can use it to calculate payroll deductions and then report payroll information online in real time.

To find out more information about the Basic PAYE Tools and other HMRC recognised software, read find payroll software.

Employer helplines

If you have:

been an employer for less than 3 years, Telephone: 0300 200 3211
been an employer for 3 years or more, Telephone: 0300 200 3200
a hearing or speech impairment, Textphone: 0300 200 3212

Tell us your employer PAYE and Accounts Office references when you contact us. You’ll find them on correspondence HMRC have sent you.

Employer help books and forms

Help books and forms are available to download, read payroll forms, tables and helpbooks for employers.

Yr laith Gymraeg

I lawrlwytho ffurflenni a llyfrynnau cymorth Cymraeg, ewch i www.gov.uk/cymraeg sgroliwch i lawr i’r pennawd ‘Treth’ a dilynwch y cysylltiadau ‘Ffurflenni Cyllid a Thollau EM (CThEM)’ ac ‘Arweiniad a thaflenni gwybodaeth CThEM’.

Forms and guidance in Braille, large print and audio

For details of employer forms and guidance in Braille, large print and audio, contact the Employer Orderline on Telephone: 0300 123 1074 and ask to speak to the Customer Service Team.

Help and support from the Digital Delivery Team

More about our live and recorded webinars.

View our video clips.

Follow us on Twitter @HMRCbusiness.

HMRC Online Customer Forum

Our HMRC Online Customer forum is for you — with all the help, support and guidance you need.

You can ask questions, see what others are asking and get the answers and top tips you need to support you in running your business

Employer bulletin online

Employer bulletins contain information and news for employers. We publish these 6 times a year. Read HMRC Employer Bulletin.

Do you use PAYE online?

Remember to keep your email address up to date. If you change your email address, update PAYE Online to ensure you continue to receive email alerts when we have issued tax codes and generic notifications.

HMRC

If you have a query about your PAYE Scheme, contact HMRC.

Tell us your employer PAYE and Accounts Office references when you contact us. You’ll find them on correspondence HMRC have sent to you.

Your rights and obligations

The HMRC Charter explains what you can expect from us and what we can expect from you.

Question 9

Index

Accepted Answer

A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, T, U, V, W, X, Y, Z.

I

J

Joint wages to spouses and civil partners

K

K codes — extra payments made on separate payday
K codes — week 53 payments

L

Labour providers
Leaving employment
Living accommodation
Loans: written off
Lock-outs
Long service awards
Lost time payments
Lump sum payments

M

Married women and widows
Married women and widows — certificates of election
Married women and widows — when to return
Married women and widows — divorce or annulment
Married women and widows — giving up right
Married women and widows — losing right
Maternity
Maternity suspension payments
Meals: allowances and vouchers
Meals: provided by employer
Medical suspension payments
Medical treatment
Membership fees — professional bodies
Mileage expenses for National Insurance contributions
Mistakes in amount of National Insurance contributions or PAYE
Mistakes in amount of National Insurance contributions or PAYE — deliberate deduction failures
Mistakes in amount of National Insurance contributions or PAYE — discovered after end of tax year
Mistakes in amount of National Insurance contributions or PAYE — discovered during tax year
Mistakes in amount of National Insurance contributions or PAYE — recovering underpayments from employees
Mobile phones
Mortgage payments

N

O

Occupational pension schemes — employees over State Pension age with more than one employment
Occupational pension schemes — NATIONAL INSURANCE CONTRIBUTIONS calculation retrospective membership of scheme
Office accommodation — supplies and services
Online filing
Overpayment — unintentional

P

P11D
P11D(b)
P45 — computer printers use
P45 — maternity
P45 — pensioners
P46(car)
P60 Substitutes
Parking
Part-time employees
Paternity pay
Pay — arrears for closed years
Payday — change but pay intervals kept same
Payday — extra payments made on separate payday
Payday — falls on a non-banking day
Pay intervals — calculation of NATIONAL INSURANCE CONTRIBUTIONS and PAYE for varying
Pay intervals — change to longer
Pay intervals — change to shorter
Pay intervals — meaning
PAYE — correcting a previous year’s payroll
PAYE — making amendments for years prior to real time information
PAYE — no payments in final pay period
PAYE — sending amendments for years prior to real time information
PAYE — holiday pay
PAYE — international aspects of employment employee coming from abroad
PAYE — employee going abroad
PAYE — international employment (short term visitor arrangements) PAYE — international employment (employees working overseas) PAYE — employee not resident in UK
PAYE — employee resident but not ordinarily resident
PAYE — employee working in offshore areas
PAYE — short term business visits
PAYE — mistakes in amount deducted
PAYE — discovered after end of tax year
PAYE — discovered during tax year
PAYE — recovering underpayments from employees
PAYE — pay adjustment
PAYE — payday changed
PAYE — extra payments made on a separatet payday
PAYE — calculations for varying
PAYE — change to longer
PAYE — change to shorter
PAYE — kept same but payday changed
PAYE — payments in lieu of notice
PAYE — payments on leaving
PAYE — readily convertible assets
PAYE — relocation allowances
PAYE — round sum allowances
PAYE — settlement agreements
PAYE — trade disputes
PAYE — travel and subsistence payments
PAYE — underpayments from employees
PAYE Online for employers
PAYE — how to gross-up
Payments in kind
Payroll giving schemes
Payroll programs
Pensions — expenses in providing
Pensions — net pay arrangement
Pensions — payments
Pensions — no P45 from pensioner
Pensions — P45 from pensioner
Pensions — paid by employer
Pensions — paid by trustee of pension fund
Pensions — UFPLS
Pensions — if an employee dies
Pensions — payment of the pension passing from the pension recipient to someone other than an individual
Pensions — premiums
Pensions — widow/widower
Pensions — term certain pensions and annuities
Pensions — payments where a person has flexibly- accessed their funds
Personal bills
Premium (insurance)
Private expenses
Private phone
Prize money
Professional bodies, subscriptions or fees
Protective awards

Q

No entries

R

Readily convertible assets
Readily convertible assets — deducting PAYE from non-cash payments
Redundancy payments
Refund of tax when no payments are due to your employees
Reinstatement or re-engagement orders
Reduced rate NATIONAL INSURANCE CONTRIBUTIONS
Relocation allowances or expenses
Reporting termination packages
Retirement, lump sum payments
Retirement benefit schemes: employer-financed, registered
Retraining courses and expenses
Round sum allowances

S

Scholarships
Season tickets
Serious ill health payments relating to pension schemes
Securities
Security measures, provided by employer
Service charges tips and gratuities
Shares
Shares: dividends from
Sickness payments
Social functions
Sporting facilities
Sporting testimonials
Spouses and civil partners, joint wages
State Pension age, employees over — certificate of age exception
State Pension age, employees over — when to return
Statutory Adoption Pay
Statutory Maternity Pay
Statutory Parental Bereavement Pay
Statutory Paternity Pay
Statutory Shared Parental Pay
Statutory Sick Pay
Stocks
Subscriptions, professional organisations
Suffix codes — extra payments made on separate payday
Suffix codes — week 53 payments
Suggestion schemes

T

U

Unfair dismissal awards
Uniforms
Unintentional overpayment of salary/pension

V

Valuing cash vouchers for NATIONAL INSURANCE CONTRIBUTIONS purposes
Valuing non-cash vouchers for NATIONAL INSURANCE CONTRIBUTIONS purposes
Vocational training
Vouchers: eye care
Vouchers: meals
Vouchers: mobile phones
Vouchers: transport

W

Week 53 payments
Week 53 payments — K codes
Week 53 payments — suffix codes
Widows

X

No entries

Y

Youth contract and work choice wage incentives

Z

No entries

Use the index to find out about a specific subject.

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Introduction

Real time information

About this guide

Employers in Northern Ireland

If you’re unhappy with our service

Terms used in this guide

Gross pay

Income Tax year (tax year)

Income Tax weeks (tax weeks)

Income Tax months (tax months)

Pay interval

Payroll record

Recorded gender

Acquired gender

Full gender recognition certificate (GRC)

Interim GRC

Transgender female

Transgender male

Online filing

PAYE Online — your filing options

PAYE Online — expenses and benefits

PAYE Online — Direct Debit payment

Internet

Commercially available or privately produced payrolls

Commercially produced programs

Privately produced programs

Substitute forms P60, ‘EOY certificate’

Form P45 for use on computer printers

1. General procedures

1.1 Who’s an ‘employee’ for the purposes of PAYE and Class 1 National Insurance contributions

For PAYE purposes

For National Insurance contributions purposes

1.2 National Insurance numbers

1.2.1 What a National Insurance number is

Temporary National Insurance numbers

1.2.2 How to get an employee’s National Insurance number

1.2.3 When the National Insurance number used by HMRC differs from the one you already hold

1.2.4 National Insurance number and identity

1.3 When to work out National Insurance contributions and PAYE

For PAYE purposes

For National Insurance contributions purposes

Late notification of marginal items of pay

1.4 National Insurance contributions

Abolition of Class 1 National Insurance contributions contracted out rebate

Abolition of secondary National Insurance contributions for apprentices under the age of 21

Abolition of secondary National Insurance contributions for apprentices under the age of 25

Zero rate of secondary contributions for employers of armed forces veterans

Zero rate of secondary rate contributions for employees working in a Freeport tax site

1.4.1 National Insurance contributions — Health and Social Care Levy

6 April 2022 to 5 November 2022

6 November 2022 to 5 April 2023

1.5 Employment allowance

1.5.1 Apprenticeship Levy

1.6 Class 1A National Insurance contributions on taxable benefits

1.6.1 Class 1A National Insurance contributions on termination awards and sporting testimonial payments

1.7 How to work out National Insurance contributions and PAYE for various pay intervals

Pay interval — weekly *

Pay interval — fortnightly *

Pay interval — 4 weekly *

Pay interval — monthly *^

Pay interval — quarterly ^

Pay interval — half-yearly ^

Pay interval — annually

Pay interval — less than a week ^

Pay interval — irregular pay intervals of more than a week but not multiples of weeks or months

Pay interval — employees paid once only, or employees paid once only where the earnings period is one of those marked *^

1.8 Operation of PAYE and Class 1 National Insurance contributions when the regular date for payment is a non-banking day

When a regular payday falls on a non-banking day but payment made on the last working day before the regular payday

When a payment is made on the first working day after the regular payday

When a regular payment is made early at Christmas

When a regular payday and actual payday cross a tax year

1.9 Change of pay interval to a shorter interval

For National Insurance contributions purposes

Example

For PAYE purposes

1.10 Change of pay interval to a longer interval

For National Insurance contributions purposes

Example

For PAYE purposes