Is there a flaw in the PAYE regs?

Is there a flaw in the PAYE regs?

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Example (1)
The system working correctly:
An employee subject to PAYE reaches pensionable age and starts to receive an untaxed state pension.

The employer continues with existing PAYE/NIC code until notified of new code by HMRC or receipt of NIC exemption certificate provided to the employee by Dept for Work & Pensions. There may be a brief delay but ultimately everything works out tickety boo:

By reason of previous submission of forms P46/P45/P14 or whatever, the "system" is aware of the employment. From other sources the "system" is aware of the state pension commencement. Typically a P161 or whatever is sent to the pensioner, and the pensioner is invited to obtain an NIC exemption certificate to provide to the employer.

Example (2) (system failing):
Employee is paid consistently below the lower earnings limit, this being the only job of the employee. Employment commenced before pension age, so employer provides employee with form P46 containing signed "statement B". As instructed, employer keeps form P46 on file, never sending it to HMRC. No P14 is prepared. No declaration required on P38A. HMRC unaware of employment source (no reason to be, at that time). Employee then achieves pensionable age, and employer is never issued with PAYE coding notice to deduct tax from employment.

Is this a flaw in the system or is someone to blame?
Clint Westwood

Replies (4)

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By adamsgi
15th Sep 2005 17:50

Supplementary return
As I understand it, if an employee earns below the LEL and reaches year end, although you do not have to produce a P14, you do have to make a note on the P38A. Alternatively you can put the person on the payroll and create a P14 (even though it will have zero balances) which negates the need to complete the P38A.

Either way the Inland Revenue finds out about the employment. Using a computerised payroll package, we always create the payroll record, as it means no P38A at the end of the year. There's enought to do already!

Adam Armstrong
www.armstrongpayrollsolutions.co.uk

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By AnonymousUser
15th Sep 2005 19:18

I think if you read the notes on P38A
it exempts you from disclosing employees who have been paid below the LEL and who have provided the employer with a signed declaration B on form P46. So no help there, I'm afraid.

Indeed a year or so ago I recall posting a query in this forum asking for examples of situations requiring a disclosure on P38A that did not also constitute an admission of failure to apply the PAYE regs. I cannot recall anyone rising to the challenge.

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By adamsgi
16th Sep 2005 18:01

Hmmmm...
Clint,

I take my hat off to you, you are right about the P38A comments. (I guess that's what comes when I always create the payroll record!) However, thinking about it, when the employee receives their pension, shouldn't they complete a new P46 ticking box C, which would then put them on BR tax code? This would then have to be sent to HMRC and the notification would be made that way?

I think you may have trouble getting a definitive response as many people do what I do and create the payroll record anyway and churn out a P14, which solves the problem.

Adam
Armstrong Payroll Solutions

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By AnonymousUser
18th Sep 2005 22:01

Chargeability
Not sure about the need to complete fresh P46. However, one point may be that the pensioner has a s.7 notification issue. In the real world, of course, it is quite unlikely that an individual in these circumstances would be professionally represented and so unlikely to be aware of the notification provisions. However, is this problem not dealt with by the issue to individuals approaching (or indeed past) retirement age a questionnaire requesting details of other sources of income etc?

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