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.