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Amending Payroll

Criteria for avoiding potential penalties

Hi,

I'd like to amend payroll for a few employees for 2018/19. The current situation is that payslips from Mar 18 to Feb 19 have been 0 net pay, with gross pay of about £100 per month (to cover £100 pension deduction). We're a micro business and this was by mutual agreement!

I'd like to amend these salaries to £10,800 taxable gross pay. If this is spread evenly across all 12 months, then it would be £12,000 gross pay for the year (due to extra £100 pension deduction per month).

The question is: are we liable for a penalty for this? I've checked out this factsheet:

https://www.gov.uk/government/publications/compliance-checks-penalties-f...

It says that you are liable for a penalty if the original mistake "results in tax being unpaid, understated or over-claimed".

In this case, no tax will be paid anyway, since the taxable gross pay is within the Personal Allowance. But NICs will be paid. The guidance here is not clear whether unpaid NICs is enough for a penalty, or whether it's only income tax.

If this would trigger a penalty, then I see two other ways to handle the amendment:

  1. Instead of a taxable gross pay of £10,800 (£900 per month), go for a taxable gross pay of £700 per month. This way it will be below the NI Primary Threshold, and so no NICs will be due as well as tax.
  2. Pay the entire £10,800 taxable gross pay in one month (Mar 19). This unfortunately will result in NICs being significantly higher than if spread over the 12 months.

Thanks in advance - any advice would be much appreciated! The guidance I can find on the HMRC is not quite clear enough.

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By Matrix
14th Mar 2019 21:24

Are they Directors? If not then why you are retrospectively changing employees' pay?

I don't know the answer to the penalty question I am afraid.

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By jombo
to Matrix
14th Mar 2019 21:39

Matrix wrote:

Are they Directors? If not then why you are retrospectively changing employees' pay?

I don't know the answer to the penalty question I am afraid.

It's not straightforward! But they are employed both by our UK company and Netherlands company, with hours split across both. All 3 remain tax resident in the UK, however, and have expressed a preference for a nominal number of hours to be paid in the UK as it helps them maintain their NI credits.

So I'm trying to pay them for a small number of hours in the UK, and reduce their NL payslips by the same number of hours.

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By Matrix
to jombo
14th Mar 2019 21:49

And your Dutch accountant is ok with this and has addressed all the issues for them?

I would probably work out the max potential penalties versus the downside of putting the whole amount through in month 12. You would only need to pay the LEL to get a year's NI.

Although, depending on the facts, I expect all the pay should have gone through the UK payroll.

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By jombo
to Matrix
14th Mar 2019 22:00

Matrix wrote:

And your Dutch accountant is ok with this and has addressed all the issues for them?

I would probably work out the max potential penalties versus the downside of putting the whole amount through in month 12. You would only need to pay the LEL to get a year's NI.

Although, depending on the facts, I expect all the pay should have gone through the UK payroll.


Yes, the financial year has already passed in the NL, but they can still amend it. In the UK I use a bookkeeper for payroll and she doesn't know about the penalties.

You're right that it would have been a lot cleaner to pay everything in the UK, and then invoice to the NL company as necessary. But another complication is part of these employees' hours is used on an EU-funded project which requires them to be paid a certain amount directly by the NL company. On the NL side it's all in order, it's just trying to get the UK payroll sorted to help them out.

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By Matrix
to jombo
14th Mar 2019 22:57

What about double taxation?

Since the Dutch income should be declared in the UK and I don’t know what analysis you have done to exclude it from the UK payroll.

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By jombo
to Matrix
14th Mar 2019 22:59

Matrix wrote:

What about double taxation?


They're tax resident in the UK still, and there's a UK-NL double taxation treaty, so they don't get charged any tax in the NL at all. It works anyway!

I'm far from an expert on this but I think in countries where there's no double taxation treaty, they would have had to pay double tax and then claim it back at the end of the tax year - messy!

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By Matrix
to jombo
14th Mar 2019 23:06

So how do they pay the UK tax if it is not deducted at source?

Have you checked whether NI is due?

Have you checked pension rights and other HR issues and statutory benefits? What if one of them goes on mat leave?

And are you comfortable with your employer gaining an EU benefit in this way?

Thanks (0)
14th Mar 2019 21:36

Do you own a DeLorean? If not, how do you intend to go back in time and change history?

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By jombo
to Tim Vane
14th Mar 2019 21:41

Tim Vane wrote:

Do you own a DeLorean? If not, how do you intend to go back in time and change history?


I'm sorry, could you clarify? As far as I'm aware, amending payslips is allowed. It obviously has to reflect the truth, but these are actual hours that have been worked.
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to jombo
15th Mar 2019 00:34

jombo wrote:

I'm sorry, could you clarify?

You. Cannot. Change. The. Past. What. Was. Paid. Was. Paid.

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By jombo
to Tim Vane
15th Mar 2019 01:10

Tim Vane wrote:

jombo wrote:

I'm sorry, could you clarify?

You. Cannot. Change. The. Past. What. Was. Paid. Was. Paid.

You can put as many full stops as you like, but it doesn't make it true. I'm not quite sure why you think past payroll cannot be adjusted, but it can: https://www.gov.uk/payroll-errors/correcting-your-fps-or-eps
https://www.gov.uk/payroll-errors/correcting-pay-or-deductions
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to jombo
15th Mar 2019 09:21

jombo wrote:

Tim Vane wrote:

jombo wrote:

I'm sorry, could you clarify?

You. Cannot. Change. The. Past. What. Was. Paid. Was. Paid.

You can put as many full stops as you like, but it doesn't make it true. I'm not quite sure why you think past payroll cannot be adjusted, but it can: https://www.gov.uk/payroll-errors/correcting-your-fps-or-eps
https://www.gov.uk/payroll-errors/correcting-pay-or-deductions

This isn't correcting an error.

It's changing your mind.

Thanks (1)
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to Tim Vane
15th Mar 2019 07:44

Tim Vane wrote:

Do you own a DeLorean? If not, how do you intend to go back in time and change history?

That old line. Groan :S
‘Cos no-one on AWeb has ever admitted to backdating anything.

Thanks (1)
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By jombo
to atleastisoundknowledgable...
16th Mar 2019 01:18

atleastisoundknowledgable... wrote:

Tim Vane wrote:

Do you own a DeLorean? If not, how do you intend to go back in time and change history?

That old line. Groan :S
‘Cos no-one on AWeb has ever admitted to backdating anything.

In fairness, I probably would've been best off asking this question to an accountant in a pub, not on a public forum. We are all error free :)
Thanks (0)
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15th Mar 2019 08:44

Think you may need to take a step back here.

You mention that they are:
"employed both by our UK company and Netherlands company, with hours split across both."
"All 3 remain tax resident in the UK"

Matrix has already raised the query:
"what analysis you have done to exclude it from the UK payroll."
which you haven't answered.

You need to do that analysis. It may well be the case that the Dutch company should be running a UK payroll or the UK company should be operating PAYE on the Dutch company payments. Have a look at this:
https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye81610

As to:
"We're a micro business and this was by mutual agreement!"
"have expressed a preference for a nominal number of hours to be paid in the UK as it helps them maintain their NI credits."
"it would have been a lot cleaner to pay everything in the UK"
It's not a matter of choice etc. whether you run a UK payroll, you apply the law to the facts of the case.

Thanks (1)
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By jombo
to Wanderer
16th Mar 2019 01:08

Wanderer wrote:

You need to do that analysis. It may well be the case that the Dutch company should be running a UK payroll or the UK company should be operating PAYE on the Dutch company payments. Have a look at this:
https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye81610

Hi, thank you for your response.

I don't think that applies here - the companies are legally separate, there is no legal or contractual link, but they do share resources by agreement. But they are operationally independent (I have no control over the NL business). So the NL company would not be considered to have a UK "tax presence" as that link describes.

With the greatest of respect, all of this stuff has already been worked out by the lawyers in the NL and accountants in the UK.

The issue in this case is that the accountants are basically saying to me "yeah, you might get a penalty, you might not, we're not really sure", so I wanted to dig deeper to get a clearer picture.

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to jombo
16th Mar 2019 03:48

'With the greatest of respect' (which normally infers no such thing), can't help but think with the references to DTAs etc that you have tried to make your circumstances fit.

The issue in this case is much greater than you want it to be.

Here's an idea, write down full and complete circumstances of what the arrangements are and write to HMRC for their views. In fact why not send them a copy of this thread?

Also may be worth making an accrual for the liabilities when HMRC start an investigation into your employees when it's discovered that they've paid no tax on either the Dutch nor the UK income. You can be sure that some fingers will be pointed at that time.

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15th Mar 2019 08:15

jombo wrote:

Hi,

I'd like to amend payroll for a few employees for 2018/19. The current situation is that payslips from Mar 18 to Feb 19 have been 0 net pay, with gross pay of about £100 per month (to cover £100 pension deduction). We're a micro business and this was by mutual agreement!

I'd like to amend these salaries to £10,800 taxable gross pay. If this is spread evenly across all 12 months, then it would be £12,000 gross pay for the year (due to extra £100 pension deduction per month).

The question is: are we liable for a penalty for this? I've checked out this factsheet:

https://www.gov.uk/government/publications/compliance-checks-penalties-f...

It says that you are liable for a penalty if the original mistake "results in tax being unpaid, understated or over-claimed".

In this case, no tax will be paid anyway, since the taxable gross pay is within the Personal Allowance. But NICs will be paid. The guidance here is not clear whether unpaid NICs is enough for a penalty, or whether it's only income tax.

If this would trigger a penalty, then I see two other ways to handle the amendment:

Instead of a taxable gross pay of £10,800 (£900 per month), go for a taxable gross pay of £700 per month. This way it will be below the NI Primary Threshold, and so no NICs will be due as well as tax.Pay the entire £10,800 taxable gross pay in one month (Mar 19). This unfortunately will result in NICs being significantly higher than if spread over the 12 months.

Thanks in advance - any advice would be much appreciated! The guidance I can find on the HMRC is not quite clear enough.

From your previous posts it appears that you are not an accountant. Have you considered whether you may be a little out of your depth here?
Thanks (0)
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By jombo
to Wanderer
16th Mar 2019 01:12

Wanderer wrote:
From your previous posts it appears that you are not an accountant. Have you considered whether you may be a little out of your depth here?
That's correct, I'm an actuary who certainly feels out of his depth reading about all this stuff, as it's all quite new to me. However we use a bookkeeper and accountants in the UK, and I generally leave them to it, but in this case the accountants have basically said they don't really know if we'd get a penalty for what is described above, so I thought I'd dig a bit deeper.
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By mumpin
15th Mar 2019 09:27

You are still within the Paye year. If you submit an amended FPS for each month then in my experience they will be accepted by HMRC.
I would be surprised if HMRC issued penalties as you are correcting earlier submissions.
There might be some interest on Paye due but it shouldn't amount to much.
HTH

Thanks (1)
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By jombo
to mumpin
16th Mar 2019 01:15

mumpin wrote:

You are still within the Paye year. If you submit an amended FPS for each month then in my experience they will be accepted by HMRC.
I would be surprised if HMRC issued penalties as you are correcting earlier submissions.
There might be some interest on Paye due but it shouldn't amount to much.
HTH

Thank you. I probably should have clarified in my original post that this was the sort of advice I was looking for. Practical experience as opposed to being told I am very naughty for making an amendment!

I'll take the risk spreading it monthly then I think. Cheers.

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By Matrix
to jombo
16th Mar 2019 07:22

Please also go back to your accountants regarding the Dutch pay for your employees or ask your employees to take their own advice.

While this may have been the advice you are looking for regarding the RTI, there are wider issues with the information you have provided and your employees are exposed here and I think your business is too. I don't really understand how you think you can pay your employees tax free.

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18th Mar 2019 17:04

@jombo

You haven't clearly answered the question raised earlier - i.e. are the employees directors? This is vital information if you want to achieve what your goal.

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to tonycourt
20th Mar 2019 12:33

agree because there's also a question of minimum wage (if employee) and also whether pension was salary sacrifice and if it was actually paid into a pension scheme etc - complicated!
But am presuming for the moment this is for directors - a month 12 payment could achieve what you want as within current tax year. Could you not simply pay it as annual bonus through payroll?

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By Expat24
20th Mar 2019 12:30

You seem to have overlooked the EU Social Security Regulations 883/2004 and that your employees' and the your own employer social security liabilities are payable in ONLY one jurisdication in the EU on their ENTIRE remuneration.
Is Dutch social security (also known as National Insurance) being accounted for on the employees' total remuneration? If so, you should hold a copy of the Dutch A1 certificates to show no UK NIC is due. You cannot mix and match within the EU Regs.

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