With an identified off-payroll worker and their 'deemed payment', what is considered best practice when processing through a payroll system?
Scenario A)
Deemed payment is processed through payroll, attracting necessary Tax and NI, with the net amount paid to the PSC bank account via a normal BACS payroll run. FPS is submitted with all the usual fields as with a 'normal' employee.
Scenario B)
Deemed payment is processed through the payroll, attracting necessary Tax and NI. The net amount is then offset with an exact amount net deduction, to zeroise the payslip. The net amount is then used to pay the invoice, with FPS submission showing deemed payment, Tax, NI, but a zero net figure.
Secnario C)
Same as with scenario A, but instead of paying via the normal payroll BACS run, the net amount is paid outside of payroll. FPS contains same information as scenario A.
I'm asking from the perspective of what the HMRC will want to see on an FPS submission when the deemed payments are processed for off-payroll workers.
Many Thanks
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Replies (6)
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A + C seem virtually identical.
B seems wrong.
I think there is a box you need to tick with the payroll/FPS to let HMRC know that it is a deemed employee. I believe this box also helps for other reasons, e.g. no pension contributions, no student loan deductions, etc.
Thanks @GR. From an FPS perspective they are, it's more case of is it more logical to pay via a BACS run, or allow an Accounts Payable team to administer the final payment via their systems.
You appear to be asking 3 entirely different questions (although not explicitly):
A. What to show within the FPS filed with HMRC?
B. What channel to use to pay the net pay (to the IR35 company not individual)?
C. What to show on the 'payslip' given to the individual?
The only one of these that can be answered definitively is A - as per RTI spec (which means certainly NOT with "net amount offset with an exact amount net deduction, to zeroise the payslip" as this would cause entries in other data items that HMRC will not appreciate).
The 2nd question is entirely up to the employer organisation, its policies and how they feel they can best tie together their processes for handling the invoices and the 'pay due' notifications. Personally I would keep 'deemed employee' payments quite separate from the Payroll BACS run - if only to make it easier to track them.
And the 3rd question is the 'interesting' one. If you replace the word payslip with its old-fashioned and quasi-legalistic name of 'statement of earnings', then you may more easily bring together two opposing needs:
1. You will need to supply the individual with (whatever you call the document) all the figures that constitute gross pay, tax, nics, etc - so that her/his company can show in its books what has been already paid to HMRC and why/when/etc.
2. However it will probably confuse the individual if he/she receives a payslip that shows their personal name - and as hinted above will make the associated payment hard to track with its invoice (and keep it separate from BACS files).
The final step of my recommendation will be dependent on the capabilities of your software, but I would:
* Use the 'deemed employee' flag to prevent the production of a payslip and prevent the inclusion of a payment instruction within the BACS file;
* Run a separate 'print' that generates two new reports:
a) A 'statement of earnings for a deemed employee' (with figures similar to a payslip but clearly labelled differently and hopefully replacing the individual 'employee' name with the IR35 company name);
b) An 'IR35 payments due' (in whatever format is requested by your Finance dept that will assist them not only to make the payment but to tie it to the correct invoice).
Of course, you could start at the other end of all this by asking your current Payroll software supplier what they will allow you to do!
Thank you for reply @Hugo Fair.
That explains in great detail what I was looking for.
Unfortunately, the next headache I have is reconciliation by way of company accounts and how to deduct already paid Tax & NI, off an invoice to ensure customer accounts can balance!
Internal credit note for each PSC to PAYE control account to balance out payment to HMRC will sort that.
You need to make sure the payroll journal is restricted to regular employees only.