When I first started my accounting business I offered payroll but outsourced it. However I decided to bring it in house eventually.
The first client I did the payroll for was a new start up and does payroll on a bi-weekly basis. The first three bi-weekly periods were done by the outsourced payroll supplier (OPS). As the client couldn’t give me any P45’s or P46’s the OPS used emergency tax and deducted PAYE tax from the staff members.
However when I took over from the forth pay period I had received the P46’s via post for all the staff members. I entered these into my payroll software and entered the first three pay periods as well as I thought it would make it easier for tax year end. However as the software had the P46 status entered for each staff member it didn’t calculate the PAYE tax on an emergency basis. (in retrospect I should have entered the first three pay periods before the P46’s)
When it came to the first quarterly payment for the HMRC I used the figures as per my software for NIC and PAYE. However the staff had been paid their wages less PAYE (which was never paid to HMRC) at the time the OPS calculated them for the first three periods.
The question is:
a) Does this PAYE need to be paid to HMRC and the staff request a repayment from HMRC or
b) Does the client just pay the difference in wages over to the staff?
I think a strict interpretation of the regulations states that this must be paid to HMRC and the staff must reclaim it as they couldn’t / didn’t provide P45/P46’s at the time of payment.
This came to light as I was reconciling the various liability accounts for the clients year end.