RTI again - when is a loan an advance?

RTI again - when is a loan an advance?

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We have a number of clients who  run a monthly payroll but have historically paid subs half way during the month.  We have told them that this needs to stop as the subs will need to be reported at the time under RTI.  This has met with some major resistance. 

The RTI gudance says that a loan is not to be reported.

Looking into it about it further, EIM42280 states that a payment on account of earnings is not the same thing as a loan.  A payment on account of earnings is a payment in respect of which the employer has no right of recovery. There is a payment on account of earnings when the employer agrees to pay the employee money the employee has earned but which is not yet due for payment.

So is it tenable to change the arrangement slightly to expressly define the subs as a loan?

If not I suppose these clients should have been operating a fortnightly payroll in the pre-RTI world.

Even under RTI on a practical level will HMRC care?  It is all accounted for in the month anyway. 

Replies (12)

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Chris M
By mr. mischief
07th Mar 2013 11:49

My approach

I have searched high and low and cannot find a legal defintion of "approved loan repayment" which is what my payroll software gives me as an option, as distinct from "salary advance".

I've converted 10 clients from weekly payroll to 4 monthly, mostly to save fees but latterly to reduce RTI hassle.  In the absence of a legal definition of "approved loan repayment" I definie the following as meeting the definition:

1.  A round sum payment mid-month.

2.  No direct connection between the amount and what would have been paid under a weekly payroll system.

As I have posted on this site elsewhere, I am confident that come April 30 many, many fires will be raging around HMRC Towers.  Even Lin Homer has admitted as much.  They'll be way too busy connecting up their hosepipes to the water mains to have time for this sort of stuff.

 

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Chris M
By mr. mischief
07th Mar 2013 11:51

Also

In one of the online HMRC RTI Q&A sessions, I asked to be pointed in the direction of some law - i.e. legal acts passed by Parliament, not just made up stuff on the HMRC website - which defines an advance as opposed to a loan repayment.

As with most of my questions, no answer.  All too keen to reply to someone who is asking "Will I need to have an NI number for all my staff?" but all my questions go into the "too tricky, don't reply and hope he goes away" pile.

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Euan's picture
By Euan MacLennan
07th Mar 2013 11:55

Untenable

You will find it very difficult to convince HMRC that an advance is a loan which is made and repaid every month and then repeated every subsequent month.  In plain English, it is an advance payment of earnings.  If the clients insist on sticking to this arrangement, they will have to operate a fortnightly payroll in 2013/14 and file an FPS each time.

"Even under RTI on a practical level will HMRC care?  It is all accounted for in the month anyway."

HMRC probably could not care less.  Indeed, they would probably prefer just one submission a month covering all monthly, fortnightly and weekly payrolls to reduce the admin of working out how much they expect to receive in PAYE by the 19th/22nd of the following month.  However, RTI is being driven by DWP which is insisting on submissions on or before payment so that they can work out something for Universal Credit purposes.

What your clients might be persuaded to do is to move all the staff to monthly pay and give them a genuine loan of 50%-75% of a month's net pay to be repaid over (say) 3 months.

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By jiatbanus
07th Mar 2013 12:02

Mr M.

Like you I question why we are trying so hard to meet their rubbish systems ratrher than they design the systems to match reality. (Not that they've ever had to be involved in the real world). I also look forward to April and on with mounting anticipation of glee at their coming panic.

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By Sunshine Onerenidi
07th Mar 2013 12:13

Pay day loans

The way around this is to use pay day loans. If the employee has to apply each time they want  some advance funds, the loan is subject to a formal agreement and some interest is paid, it would be very difficult for HMRC to argue that it was an advance of pay, even if the employee applied for such a loan month in month out. IMHO.

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By andy.partridge
07th Mar 2013 12:27

Agree with Euan

If the process you describe is habitual then it's not a loan. An advance in the first pay period for a new starter should be OK as it is genuinely a one-off.

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By jiatbanus
07th Mar 2013 12:47

Loans

It is not unique for Salespersons to get advances against expenses! And there will be lots of similar events. 

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Euan's picture
By Euan MacLennan
07th Mar 2013 14:01

Advances against expenses?

The reimbursement of business expenses incurred by employees is not taxable, so they and any advances against them would not be included in the gross pay figure reported under RTI.

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Teignmouth
By Paul Scholes
07th Mar 2013 18:09

Is it not time to just.....

agree on a salary and take it, or make it available, every month like 99% of the employed population? 

This would do away with the need for hundreds of repeating posts on AccountingWeb and allow people to get a life?

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Replying to dhughes1975:
Tom McClelland
By TomMcClelland
08th Mar 2013 07:52

Yes Paul, and weekly pay too

Paul Scholes wrote:

agree on a salary and take it, or make it available, every month like 99% of the employed population? 

This would do away with the need for hundreds of repeating posts on AccountingWeb and allow people to get a life?

Or indeed if you're paying people weekly or fortnightly to just do the PAYE properly, weekly or fortnightly, and file the RTI for that at the right time, rather than engaging in a raft of semantic shenanigans (pretending that habitual pay advances are loans) to try to avoid doing something that is actually quite easy. The "loan" solution is harder than the problem being solved unless your PAYE software is particularly terrible.

Of all the genuine problems with RTI, and there are real problems, this isn't one.

Just my opinion. Others may differ.

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Teignmouth
By Paul Scholes
08th Mar 2013 08:15

@Tom

Weekly - those were the days, only one of my clients pays weekly and is currently using bribes, stick and baseball bats to convince staff they would be better off monthly.

Here's a workaround to the mid month or advance sub confusion above:

Put half a month's extra pay through payroll & PAYE this month, crediting the net pay to the salary control account (one per employee) thus creating a loan account (company owes employee).  This establishes a balance that the employee can draw upon mid April, to be followed at the end of April by a full month's pay being credited and the employee again taking part to, again, leave a credit to draw on mid next month, and so on.

The added benefit for the employee would be bigger than expected P60 to show their partner at home or back up higher pension contributions, mortgage application or even to con another employer into paying them more when they look for another job.

Also a benefit to the country as HMRC can pay more to George Os for his good works with the rich wealth producers.

Admitedly not of much benefit to the employer/client as they are out of pcket, but they get a happy workforce or can see it as a penalty for being stupid enough to agree mid month subs in the first place.

Sorted.

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Euan's picture
By Euan MacLennan
08th Mar 2013 12:22

Variation on a theme

We have a client which has historically paid its staff almost a month in advance on the 6th of the month.  We have always run the payroll a few days earlier at the end of the previous month, so we will have no problem under RTI.

However, the client has taken on new staff in recent years who are paid at the end of the month in the usual way and we cannot work out how to deal with two monthly pay dates on the same payroll.  If we try to standardise on the end of the month, the old staff previously paid on the 6th will have two months pay in one tax month (and most of them are already into 40% tax).  If we try to standardise on the 6th, the new staff will have no pay in one tax month, which would deny them the advantages of Paul's wizard scheme.  The only solution seems to be to run two separate payrolls with the different pay dates and file their respective FPSs under the same references.  Does anyone have any better ideas?

This client also has weekly paid staff, but he is biting the bullet and telling them that they will be switching to monthly, possibly with the inducement of a (genuine) loan to be paid off over 2 or 3 months.

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