RTI and s18 ITEPA

RTI and s18 ITEPA

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I feel like I am missing an obvious answer here and muddling myself up unnecessarily, so can someone clarify for me please?

S18 ITEPA sets out the rules on when earnings are received for assessment purposes, and paid for PAYE purposes (see also HMRC's manuals at EIM 42260).

I am getting myself confused though as to whether this is at all relevant to the "on or before" rule with RTI.

For example, take a client with a general bonus provision in their accounts for year to 31 December 2013. They decide today how this should be paid, and that it will be paid at the end of, say, May. Based on S18 and the guidance at EIM 42260 my understanding is that this is going to be treated as paid for PAYE purposes today (i.e. where the amount of the earnings is determined after the end of the period to which they relate, the date the amount is determined).

For RTI though, does this need to be reported "on or before" today? I.e. is it treated as paid today for RTI purposes, or just for the calculation of the PAYE? Or should it just be reported "on or before" the date of the actual payment - which is end of May - for RTI purposes?

If someone could answer this and point me in the direction of the RTI legislation covering the meaning of relevant payment that would be great. If discussed before a point in the right direction would also be much appreciated.

Replies (3)

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Euan's picture
By Euan MacLennan
11th Mar 2014 10:22

The relevant date is 31st May 2014

If you look at EIM42290, it covers your example as follows:

"Note that the rule is when a person becomes entitled to payment of earnings. This is not necessarily the same as the date on which an employee acquires a right to be paid. For example, an employee's terms of service may provide for the employee to receive a bonus for the year to 31 December 2004, payable on 30 June 2005 if the employee is still in the service of the employer on 31 December 2004. If the condition is satisfied the employee becomes entitled to a payment on 31 December 2004 but is only entitled to payment of it on 30 June 2005. So PAYE applies to it on 30 June 2005 and it is assessable for 2005/06. The date that matters is the date the employee is entitled to be paid the bonus."

So, in your case the bonus will be paid on 31st May 2014.  It will be assessable as the employees' earnings in 2014/15.  PAYE will be calculated on 31st May 2014 and the RTI reporting date is on or before 31st May 2014.

Thanks (2)
By Steve Kesby
11th Mar 2014 10:45

Legislative references

The "on or before" requirement is in Reg 67B of the PAYE Regulations and requires an RTI return on or before making a "relevant payment".

"Relevant payment" is defined in Reg 4 as a payment of or on account of "net PAYE income", which is, in turn, defined in Reg 3 as "PAYE income" less allowable pension contributions (under a net pay scheme) and GAYE donations.

"PAYE income" is then defined in ITEPA 2003, s 683, with the final effect that a "relevant payment" is a payment of or on account of any amount that becomes employment income.

ITEPA 2003, s 684 then tells us "for the purposes of the PAYE Regulations" when a payment is treated as made. It's identical to s 18, which only tells us when the income is received.

Thanks (2)
By tebthereb
12th Mar 2014 08:24

Thank you both

Euan, how does that apply to a director though?

I did not make it clear before that this was what I was thinking about - apologies - but this was why I mentioned "where the amount of the earnings is determined after the end of the period to which they relate, the date the amount is determined".

For a director that would be earlier in my example than "the time when a person becomes entitled to payment of earnings or a payment on account of earnings".

Therefore am I right in thinking:

PAYE calculated todayRTI submission due on or before todayDirector assessable today (i.e. 13/14 not 14/15)

...?

I suppose I was hoping the RTI was linked to physical payment as it does not seem very practical to have to agree a payment (for a director) and submit the RTI the same day, but I think my hopes are dashed.

For the benefit of anyone else looking up the references helpfully provided by Steve I think it is s686 ITEPA that mirrors s18 and not s684.

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