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Tax and paying Living Allowance

Processing payroll for the first time, new starter entitled to Living Allowance on top of Salary

Hello all,

I have recently took on my first role as an accountant/bookkeeper for a shipping company, The reason for my employment is because there is a huge backlog of transactions/accounts which needs to be sifted through (I will ask lots of questions another time). The basis for my question is that the bookkeeper who has handled the accounts for a long time has gotten behind, and now has been taken ill. Which means I am being entrusted with payroll for the first time. Usually, salaries are set up through the bank and PAYE is calcualted on the HMRC Basic PAYE tools software, but I have had a new starter come in whom is also entitled to Living Allowance. I have managed to use the UK Salary Calculator to work out what his monthly pay would be, but can someone please advise on how Living Allowance will be paid? Do I need to deduct anything? Should this be kept completely seperate to the salary? Any help would be greatly appreciated. Thanks!

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12th Oct 2018 17:47

Living Allowance ?

Is it just extra pay ?

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to lionofludesch
13th Oct 2018 09:18

I am unsure. I have not dealt with living allowance before

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to newaccountantsf
13th Oct 2018 14:25

I think that's because it doesn't exist.

Does this employee work away a lot ?

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to lionofludesch
15th Oct 2018 08:29

That would explain why I cannot find anything about it. The employee does work away a lot, yes.

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12th Oct 2018 19:01

i don't know how many employees there are but i suggest that you dump basic tools and go to Payroll Manager or Brightpay and make your life easier

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to carnmores
13th Oct 2018 09:17

Thank you! There are 3 employees but the problem is that I don’t have access to previous payroll information yet as the previous person who handled this is in hospital. So I want to ensure correct payments are issued for the new starter until I gain access to the software (of then I will definitely be switching to payroll manager system). My question is more based on how living allowance is issued/taxed? Is this a straight payment out etc

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to newaccountantsf
13th Oct 2018 09:28

In this situation I would deduct tax from it and correct it later if it proved to be wrong. Easier to deduct it now rather than try to recover it later.

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to scalloway
15th Oct 2018 08:30

You are right, thank you.

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13th Oct 2018 11:04

You talk about Living Allowance as if it were a government approved addition to pay. (I've never heard of this, but that doesn't mean it might not exist) Or do you mean the employer is going to pay this allowance to the employee as it's in the employees contract of employment?

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to Moonbeam
15th Oct 2018 08:31

I had never heard of this either, but struggling to find information which confirms it’s existance. I believe the employer is going to pay this as this was agreed in their initial employment contract.

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13th Oct 2018 18:29

I wonder if the Living Allowance is the old Disability Living Allowance and the new employee is using old terminology rather than its replacement, that is, PIP - Personal Independence Payment. If he/she is entitled to PIP, then it goes directly from the government to the person's bank account, tax free.

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14th Oct 2018 13:00

I'm wondering if it's the Living Wage (or the wrongly titled National Living Wage). OP says its a new employee so maybe someone has put living allowance meaning living wage. I would go back to HR or whoever and raise a query.

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to legerman
14th Oct 2018 13:30

This is what I was thinking. Either that of the director (eg) has said “we’ll give you an extra £X for having to move here”., in which case it’s just extra salary.

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to atleastisoundknowledgable...
14th Oct 2018 19:51

This has the highest probability, I think.

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to Red Leader
15th Oct 2018 08:58

Yes - that's why I asked if he worked away a lot.

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15th Oct 2018 08:27

Hi all thank you for all of the replies. Even when googling ‘Living Allowance’ I can’t see a clear description, which makes me think this may be extra salary, I don’t think it would be national living wage OR the PIP, from assumption. There is no HR department, just a director who emailed new starter agreed salary + ‘living allowance’. I think the best way to go forward would be to 1) find out exactly what this is for 2) confirm if this is to be paid direct to employee 3) figure out if this is a monthly payment 4) tax it like extra salary? Thanks!

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15th Oct 2018 15:54

Is it possibly some kind of round sum expense allowance that the employee uses to fund hotels and subsistence while away in the course of his job? This would be taxable, but possibly open to the employee to make an expense claim at some stage

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