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Delaying payments to staff to prevent late RTI submissions?

Delaying payments to staff to prevent late RTI...

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Well in advance of RTI commencing I took action for two client (micro) employers that were going to have a genuine significant problem in complying with the on or before rule. I discussed my thoughts anonymously with HMRC at great length and was told that what I was proposing was acceptable. Now faced with having to provide a reason for a late submission, I'm told by HMRC that what I'm doing doesn't work and the employers have 5 months to change or face penalties.

In both cases, the official pay date wasn't altered so as to avoid changing the pay period of 4 weeks. However, the employees were asked if they minded being physically paid the following week (always 7 days later). All were happy to oblige (there definitely wasn't any coercion), and this gave the employers time to calculate the wages (including a commission element), for the RTI submission.

I started this arrangement in April 2013 and received no late-submission notices until a couple for each client in around months 7 and 8 of 2013/14. I queried them with HMRC and was told that from what appeared on their screens, the submissions were not late. I received no further notices.

I now find that I am having to provide a reason for late submission when I wasn't aware that they were late. As an example, the "official pay date" of one employer was Sunday, 27th April. The employee will be paid on Sunday, 4th May. The submission was submitted on 3rd May, but apparently it is late.

HMRC has stated that the arrangement that delays payment to the employees effectively changes the week for which the payroll should be processed (to week 5 from week 4). They say that an EPS should have been made for weeks 1 to 4 and that an FPS is due for week 5.

Does an arrangement as described really change the timing of the payroll run? I have always been aware that the pay date dictates the week or month for which the payroll should be run, but have never given a thought in the past to the effect of employees receiving their pay a few days later due to logistics.

(I have a third client employer who pays monthly and who has a member of staff that works mostly on a Tuesday, but occasionally does a little overtime on other days. The employee gets paid (in cash, not cheque nor BACS) "next time he's in", invariably on the following Tuesday. But if he's just passing prior to the next time he's in, he can get paid then. For example, he will be paid on 6th May for work up to 30th April but may pop in on 3rd May and collect his cash. I have always managed to submit the FPS by the last day of the month so have never had a problem. But it seems that I need to know the date he is physically paid, check in which tax month it falls and process the payroll accordingly? That can't be correct can it??)

Replies (9)

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Locutus of Borg
By Locutus
03rd May 2014 15:47

Just change your "official pay date"
My understanding is that the "official pay date" is really just a notional date for that period's payroll. Always make that date on or after the RTI submission date, if you want to avoid a penalty notice.

My understanding is also that you don't need to necessarily know the physical date of payment - just that it is on or after the RTI submission date, in which case there should be no problem.

Thanks (1)
By tebthereb
04th May 2014 10:16

EIM42260

Money earnings are treated as received for assessment purposes, and paid for PAYE purposes, on the earliest of the following:

when a payment of earnings is actually made or when a payment on account of earnings is made (see EIM42270)the time when a person becomes entitled to payment of earnings or a payment on account of earnings (see EIM42290)

For employees, the terms of service agreed by the employer and employee will tell you when an employee is entitled to be paid earnings.

If you have agreed with the employees that the "official pay date" should now be 4 May 2014 then I think you have a good argument that this is the time at which the person became entitled to payment of earnings. In which case your process date/pay date (or whatever your software calls it) should be 4 May 2014 and PAYE and RTI dealt with as of that date.

I would perhaps get that agreement with employees documented properly if not already done, otherwise  a fussy Inspector could argue that they became entitled to be paid on 27 April etc and you are merely paying them later.

Thanks (1)
Stepurhan
By stepurhan
04th May 2014 17:33

"Official pay date"

There is nothing notional about the "official pay date". It is, and always has been, the day that the employees actually get paid. This is also he date the PAYE calculations should be undertaken. If you were calculating the wages on 27 April but they were actually paid 4 May, then you have been calculating the payroll wrong.

This should answer your question of whether changing the date payment is made changes the payroll date. Quite clearly, if you were calculating payroll correctly, yes it does.

If calculation is such a problem, have a cut-off date. In fact, I don't see why this is a problem at all. If it can take up to 7 days to perform the calculations and make the payment, then there will always be a 7 day gap. If you want to make payment the last day of the month, you just have to do the commission calculation up to 7 days before that.

As for the employee collecting wages when they come in. This isn't a big problem either. You calculate the net pay up to the pay date for everyone else. You submit the report in advance of that pay date. At the same time as paying everyone else on the actual pay date, you withdraw the money needed to pay them. Take that money, seal it in an envelope and put it to one side. For all practical purposes, that money has left the business (i.e. been paid out) and all accounting records will show that. The physical collection of cash that is already theirs is then not a separate payment. It is only if your client has been paying out of the till (in which case they have perpetually risked not having enough money on hand) that you would have a separate payment date.

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By 14931125
05th May 2014 17:06

payroll date of earning period, date of payment

 i have a client who will pay april 2014 wages on 12 may 2014. date on payslip will be 30/04/2014. the calculation and  printing of payslips will be done using sage on 8/05/2014. all employees are paid via bacs.  according to revenue i assume it will be late and thus penalty of  £300. now if i print on payslips 08/05/2014 then it will be paye month 2. then revenue will say where is month 1 wages ? confused. 

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By tebthereb
05th May 2014 22:48

EIM42260

The date you put on a payslip or the date you print a payslip means nothing for PAYE or RTI.

When is the employee entitled to payment? Presumably 12 May 2014.

In which case that is the date at which PAYE should be calculated, and your RTI submission should be made on or before that date. 12 May 2014 should be your "process" date on Sage Payroll.

If 30 April 2014 was actually the date of entitlement then as this precedes date of payment so this is your process/PAYE/RTI date and yes submitting details after that would be late. There are no penalties for late submissions just yet so I am not sure why you think a £300 would apply at the moment. Think that changes from October.

If HMRC ask where is Mth 1 wages you would have to say they were incorrectly put through Mth 12 of 2013/14. Unlikely they would care as if anything your client probably overpaid PAYE and NIC. I would be more worried about telling your client that then HMRC.

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By Bluffer
07th May 2014 19:16

Feedback and clarification please

Very many thanks for the responses from all of you, particularly the detail you've gone into.

"14931125" - I think we have the same issue, just with different dates.

"tebthereb" - I rather thought that the date the employees were entitled to their wages remained 27 April which is why I processed for week 4. I had assumed, though seemingly incorrectly, that the agreement to delayed physical payment, affects only whether the RTI submission is late or on time. Are you quite confident that entitlement occurs on 4 May please?

"stepurham" - good practical suggestions - many thanks. I particularly like the idea that the setting aside of cash in an envelope constitutes payment; sometimes I can't see the wood for the trees!

 

It looks like where I have gone wrong is thinking that the "date of payment" for RTI submission timing is ALWAYS the date of physical payment, forgetting, or not realising, that delayed payment even under informal arrangements affects the week or month for which the payroll must be calculated.

Thanks (0)
By tebthereb
07th May 2014 20:22

Pretty sure

Seemed to be the conclusion on this thread when I was asking about a similar thing:

https://www.accountingweb.co.uk/anyanswers/question/rti-and-s18-itepa

My conclusion from the references helpfully provided by Steve Kesby was that the "on or before" requirement under RTI is linked to the date of payment for PAYE purposes, not the physical act of payment necessarily.

Would suggest looking through the legislative references on that thread and see if you draw the same conclusion. Would be interested to hear what you think.

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Replying to nodrogbir:
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By Bluffer
10th May 2014 11:28

tebthereb

Steve Kesby often provides accurate and useful posts.

Having considered your own query I think you did come to the correct conclusion with the Director assessable in 13/14. I wonder how many others wouldn't have made the RTI submission "today"? I wouldn't have.

For mine, s686 was the clincher. I was trying to argue that the date of physical payment (4 May), being after the official pay date, was the important date as far as the timing of the RTI submission was concerned, but s686 means that I was incorrect. The RTI submission was triggered on 27 April, assuming that I was correct in considering that date to be the date of entitlement.

As guided by other respondents, I'm introducing a cut-off date and changing the calculation date to the date the staff are physically paid. The RTI submission will be before that date.

Thanks again to everybody.

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By emmac8007
07th May 2014 22:04

Process

Simply change process date to pay date run off all reports/payslips, update your process period and submit your RTI do all of this with the exact pay date the employees will receive payment. I do this weekly & monthly with no issues.

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