TAXATION

Helping to make your payroll run smoothly

New employees should stand a better chance of having the right amount of PAYE tax deducted from their first pay packets following changes to the procedures for allocating tax codes to new employees without a P45.

Employers can now use the emergency tax code (currently 503L) cumulatively where employees certify that they have not had a job since the previous 6 April or received any taxable benefits. This allows employees to have their personal allowance for the whole period since 6 April on their first payday, instead of just the proportion for the time for which they are paid.

The new form P46, which employees without a P45 must complete, also asks whether the employee has any outstanding student loan repayments. If the employee ticks the box and earns at a rate of more than £15,000 a year, the employer must make deductions immediately instead of waiting for a notice from HM Revenue & Customs.

In another change, employers no longer have to pay national insurance contributions (NIC) on payments by employee-operated troncs, even if the entitlement to a share of the tronc is part of the employment contract. Restaurants and some other businesses use troncs to pool and distribute tips, but the tax treatment is complicated and it is important to take great care with them. Tips distributed through the payroll remain liable to NIC.

Student loan deductions and frequent changes in procedures are just two of the factors that can give rise to mistakes in calculating the correct PAYE tax and national insurance. Even if you use payroll software, it is essential to input correct and complete details. Many organisations find that outsourcing their payroll compliance and administration lifts a significant burden and allows them to focus on their core activities. Please let us know if you would like further information.