PAYE as an exam marker now on RTI

PAYE as an exam marker now on RTI

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We have received a letter from an examining board relating to a change in the process they calculate tax on exam marker's income; most probably because of RTI.

Originally the exam board would follow special arrangements under PAYE70245 (see link below) 

Special arrangements

The following PAYE special arrangement has been agreed with the examining bodies listed above

  • Forms P45, P46 and P60 are not issued
  • A certificate of tax form P525 is provided to examiners who have been taxed
  • A return is sent to the responsible Employer Unit with a list of payments made to
    • Those taxed at basic rate

You should note that

  • Coding allowances should not be allocated against these payments
  • Code instructions should not be sent to any of these Employer Units
  • Class 1 NICs are not due

http://www.hmrc.gov.uk/manuals/pommanual/paye70245.htm#IDABL30H

One of our clients is employed as a full time teacher with income taxed over the 40% threshold and this has been the case for the last three years. She has also had marking income for the past three years (around £3-4000 a year) and was taxed at 20% per the 'arrangement' above. She even contacted HMRC to query if a self assessment was required which it wasn't.

The letter says "at present we deduct 20% tax from all payments to markers. HMRC now requires that we report in RTI from 6 April 2014 and that we operate standard PAYE tax deductions for all our markers. You will be paid via a payroll rather than a supplier payment service".

My question is would my client be liable to income tax on the marking from the previous three years? She has paid 20% but should she really have paid 40%?

Under RTI I understand you do not operate P46's anymore and a new employee will be reported on the 1st FPS. Will her payment then be taxed at the normal allowance but M1/W1 and then adjusted to D0 when HMRC get round to issuing a correct coding notice. Is the D0 code cumulative so she will have to make up for the tax short paid?

Any help on this will be great.

At the moment our client believes that only 20% should be deducted per previous years and if 40% was deducted then it really wouldn't be worth all the hassle to mark; this goes for a lot of other full time teachers as well.

Am I correct with the national insurance class 1 that with it being two paye jobs she will not pay any more national insurance on the marking job as it's under the LEL.

Thanks for your help

Replies (6)

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Euan's picture
By Euan MacLennan
06th Feb 2014 14:26

I am sorry about the hassle for your client and others ...

... but why shouldn't they pay the tax due on this source of income at the appropriate rate, like everyone else?

The Special Arrangements set out in PAYE70245 are guidance on the PAYE code to be applied by examing boards on their payments to the examiners whom they employ - NT if the examiner has signed the declaration on form P524 that her total earnings will be less than the personal allowance for the year or BR if not.  It is an administrative convenience for PAYE purposes, not a binding commitment on the rate of tax.

Although the comparable form P38(S) for students was withdrawn in April 2013, there is no indication on the HMRC website that the procedures were changed for examiners when RTI was introduced, so I would have thought that the "special arrangements" would still apply and that she should still have tax deducted under PAYE at the basic rate.  If the examining board is now applying standard PAYE procedures, it will ask her to complete a Starters Checklist (the successor to form P46) on which she will tick Statement C to say that she has another job and under the standard PAYE procedures, they would then apply code BR, so it makes no difference.

The only difference is that under RTI, her secondary employment as an examiner will be reported immediately, rather than at the end of the tax year, and HMRC will presumably instruct the examining board to apply PAYE code D0 on its payroll, thus taxing the examiner at 40% straight away.

I am surprised that HMRC have not issued tax calculations, forms P800, in respect of earlier years to recover the additional tax due at 40% on the fees.

No NIC is payable if the earnings from any one employer are below the NIC threshold (every month if the earnings are paid monthly).

 

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Replying to Portia Nina Levin:
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By emuroylian
06th Feb 2014 15:44

thanks

Thank you very much for your reply it's starting to make more sense to me now.

Non of them ever received a P800 for the relevant years and quite a few phoned HMRC to see if a SA100 was due; which it wasn't. I'm talking about around fifteen examiners we have as clients who are all full time employed with income over the 40% threshold within that one teaching job.

Am I correct then in thinking that they all have undeclared exam marking income going back a good couple of years?

Is it correct that they should only have been taxed at 20% on marking / examiner income and no more? There was a "special arrangement in place".

Sorry the word hassle was incorrect. I meant that the teachers are under the impression (backed up by not receiving any tax demands) that exam board's can't employ examiners because most are teachers who have fallen in to the 40% tax threshold and that they give the examiners an incentive of paying only 20%. If the teachers now have to pay 40% on a D0 issued through RTI, then most of the teachers would not see it being worthwhile to do. 

Thanks for help on this.

 

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Replying to Jigs:
Euan's picture
By Euan MacLennan
06th Feb 2014 17:53

Let's take it stage by stage

emuroylian wrote:

... quite a few phoned HMRC to see if a SA100 was due; which it wasn't.

HMRC got that right.  There is no obligation under s.7 TMA 1970 to notify HMRC of chargeability to tax and thus obtain a self-assessment tax return when all your sources of income are taxed under PAYE.

emuroylian wrote:

Am I correct then in thinking that they all have undeclared exam marking income going back a good couple of years?

No.  The examining boards declared the fees paid to the examiners when they submitted their employer annual PAYE returns

emuroylian wrote:

Is it correct that they should only have been taxed at 20% on marking / examiner income and no more? There was a "special arrangement in place".

Yes.  The "special arrangement" is a simplified PAYE procedure that examining boards should deduct tax at only 20% under PAYE.  It is not saying that the examiners would only be liable to tax at 20% if they were higher rate tax payers.  That is why I said that I was surprised that HMRC had not issued P800 tax calculations to charge them the additional tax - perhaps, they were also confused by the special arrangement for PAYE.  I have a few SA clients who have some income as examiners - they give me a P60 and the figures are included in their total income for the year and taxed accordingly.  I know of no type of employment from which the pay is guaranteed to be taxed only at the basic rate and there is nowhere on a SA tax return to enter any such ring-fenced income.

emuroylian wrote:

Sorry the word hassle was incorrect. I meant that the teachers are under the impression (backed up by not receiving any tax demands) that exam board's can't employ examiners because most are teachers who have fallen in to the 40% tax threshold and that they give the examiners an incentive of paying only 20%. If the teachers now have to pay 40% on a D0 issued through RTI, then most of the teachers would not see it being worthwhile to do. 

I cannot possibly comment on what teachers believe or what they consider to be worthwhile.

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By WhichTyler
06th Feb 2014 16:42

Interesting

there's a discussion about it here: http://community.tes.co.uk/tes_pay_and_conditions/f/33/t/455717.aspx where it appears it is not just your client who thinks they don't have to pay more than BR.

The manual does refer to a 'special arrangement' but that is just about the PAYE process, not the taxability of the income itself

http://www.hmrc.gov.uk/manuals/pommanual/paye70245.htm

Now if this analysis is correct, and you tell your client then I think they are legally obliged to tell HMRC that they should do a SA return :-(

 

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By pjones
06th Feb 2014 16:49

Extra Tax

Emuroylian - if these teachers are all higher rate and had tax deducted on this exam marking at 20% only then as Euan points out, they are all underpaid.

The rules referred to are a simplified PAYE method only - why do you/they believe they should earn extra income from this source but not pay higher rate tax the same as everyone else!

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By WhichTyler
06th Feb 2014 19:35

Market forces...

If teacher stop marking because the post tax pay is too low, the exam boards will have to find other (qualified) people with spare time in the post exam period or put the pay up! 

I stand corrected by Euan on the matter of having to submit a SA return.

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