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RTI Help - Leavers and payment after leaving indicator

RTI Help - Leavers and payment after leaving...

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Hi,

I would like some advice on how to treat leavers on the RTI submission. I will give an example to help with the question:

We pay monthly in arrears so the period 28th September to 27th October was paid on 28th October. We had a leaver on 2nd October who had the normal cumulative tax code of 1060L.

In the above example I ran payroll as normal in arrears and paid the employee on 28th October for the days worked between 28th September and the leaving date of 2nd October. I used the employees normal 1060L cumulative tax code, and issued the P45 on the 28th October after processing/paying the monthly payroll.

I noticed our payroll software marked the leaver as having a payment after leaving, even though no P45 had been raised and we used the 1060L cumulative tax code. I first called HMRC and they told me our payroll software was wrong as it should not have marked the employee after leaving indicator. However, yesterday I asked HMRC again and they gave me a different answer saying the employee should be marked with a payment after leaving indicator as they left before the 6th of the month and I should have used a 0T M1 tax code.

So my question is:

If we pay an employee (in arrears) in our normal monthly pay period but they leave before the 6th of the month, should I process their payment as normal on the monthly payroll, or should I be using a payment after leaving indicator and changing their tax code to 0T M1? And if I need to use a 0T M1 tax code should I issue the P45 before or after their final pay?

Many Thanks for any help on this. HMRC have really confused me.

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By aland
10th Nov 2015 09:48

Either?

I believe that both answers are OK but that the second is better and you should do the P45 at the end. It will make a difference to the next employer as you have used up the tax allowance for the new month, whereas if you had paid the odd days on a BR code (which I assume is the same as 0T M1) the new employer would have had a clear run for their first month.

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By Euan MacLennan
10th Nov 2015 11:12

You have done it correctly

The employee left after the previous payday, so he has received his final pay on 28th October.  On other threads, people have argued that the employee should have been paid when he left on 2nd October and an amending FPS submitted for Month 6, but I think that it is usually too complicated to do anything other than pay everyone on the same payday each month, whether they have left or not.

You have entered a leaving date of 2nd October, which will appear on the form P45, but have taxed him on 1060L cumulative in Month 7, which is correct for a payday of 28th October.  Presumably, he got the benefit of a tax refund.  New employers are used to these situations - they will not be surprised that he has been taxed up to Month 7 if he left on 2nd October.  Yes, he will have a lot of tax deducted by his new employer in October if he moved to a new job immediately.

HMRC's initial advice was correct.  Even though your payroll software flagged up a possible error, you were evidently able to ignore it.

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By aland
11th Nov 2015 09:09

I agree

On further reflection I agree with Euan - Keep it simple. RTI is awkward enough as it is.

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By SteLacca
11th Nov 2015 09:28

In four years working in two large payroll bureau, I always processed leavers on the first pay day after leaving, and issue the P45 at that point. RTI did not change my view, and the only time I set the payment after leaving flag was if there was a subsequent payment after the P45 was issued.

Having said all that, I'm glad to be back to full tax work now. Payroll can be mind numbingly fiddly at times.

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By davidmjones1
11th Nov 2015 09:52

Thank you all, that really helps and clears things up. - I spoke to HMRC a few times about this and I got different answers depending on what technician I spoke to. Really annoying seeing as the wait time to get through to somebody was 30 to 40 minutes.

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By Hugo Fair
11th Nov 2015 12:11

The RTI indicator is wrongly named ...

although it's called the 'Payment after leaving' indicator, HMRC's detailed guidelines (for developers) make it clear that it should only be ticked for a 'payment after the P45 has been issued'.

There has been discussion as to whether this is the same as 'after the FPS in which the leaving date was reported' - with HMRC claiming that both definitions should equate to the same thing!

What the flag (and its accompanying need to use a tax code of 0T on a W1/M1 basis) is NOT about is anything to do with whether the payment is made after the employee's leaving date!

In particular, in the circumstances described (where the payment is being made in arrears under contractual terms), this should NOT be treated as a 'payment after leaving'.

 

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