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RTI troublespots: Low paid directors

26th Feb 2013
Partner Rebecca Benneyworth Training Consultants
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One of the most frequently asked questions about RTI on AccountingWEB is what will happen under the new system to small companies that only have directors with no PAYE/NI to pay,  but who receive a small monthly salary.

“Are they really going to have to submit their payroll every month under RTI,” asked [email protected] in November.

In reply, 12Pay’s Tom McClelland came up with a succinct summary of the situation: “If the company has no employees above the LEL in any week, *and* P46s are held for all employees with boxes ‘A’ or ‘B’ ticked (ie you have a declaration from them that this is their only job), then you don't need a PAYE scheme.

“The moment a single employee exceeds the LEL in any week, or a single employee ticks box ‘C’ on their P46 or refuses to tick any of the P46 boxes, you must have a PAYE scheme and report all employees, regardless of pay levels, to HMRC. This is already the case.

“From April 2013 the reporting will be a full payment submission (FPS) for everyone on every payment if the employer has a PAYE scheme. You won't need to think about the status of employees once you've got a PAYE scheme; just pay them all the same way, and (I guess) whatever payroll solution you use will file them all.”

Since then, similar questions have continued to roll in. To try and bring calm to the situation, this “RTI troublespots” article examines the practicalities for directors under RTI and addresses some of the points raised so far.

The main problem for advisers is that the director may actually draw the cash and they are left to decide later how much of this is salary and how much is going to be dividend. If the director has an overall debit balance on his loan account, the amounts he draws and subsequently decides are salary payments breach the on or before rule (assuming that the total amount is in excess of LEL). This presents the risk of substantial penalties (of up to £1,200) in 2014/15 when the late filing penalties commence.

It would be sensible to decide on how much to pay the director, and when, and then prepare a payroll and RTI to reflect this; it could be monthly, quarterly or annual, but the important thing is to make payments of the amounts at the time stated on the RTI submission (at “date of payment”).

Remember that you can file a FPS at any time before payment is made, which leaves the option of running a salary for 11 months of the year in month 1, and making the payments on (say) 20th of each month. Alternatively advisers might run quarterly payroll in advance every quarter.

Of course it is possible to still pay the salary in one lump as an annual amount, but if running a payroll in March 2014 to record an annual salary of, say £7,500, a payment would need to be made to match. Making a credit to the director’s loan account would not count as payment for RTI purposes, as payment has already been made in advance. There is also an issue in potentially triggering NIC liability if the pay is drawn before the salary run, although this frequently won’t be a problem if the director draws less than the threshold.

Where the salary is “paid” by crediting to the director’s loan account which is in credit rather than overall debit, these problems largely disappear, although if a very small company does not actually write up books and ledgers this may be difficult to demonstrate.

Any other cash drawn against loan account would (assuming that the above has been done) then not be salary and could be regarded as a loan, which might subsequently by either repaid or cleared by a dividend. A file note could record this fact.

HMRC’s view is that number of hours for many directors will be 30+ on the FPS. In particular it has been confirmed to me that the hours data on the RTI will NOT be used for minimum wage purposes. Obviously if you KNOW that a director does very few hours you should report accordingly.

Where a director is to be paid in a single month and not in others, the employer may wish to file an inactivity report (and/or nil payment returns) so that HMRC is aware that no payments are due each month.

More RTI resources

Rebecca Benneyworth is lecturing throughout February and March on ‘RTI and other PAYE issues’ as part of the Tolley CPD Seminars programme. Further articles will follow based on troublespots raised at her talks and on AccountingWEB’s Any Answers page.

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Replying to facucvivas:
By cfield
11th Mar 2013 13:55

Employment contracts for directors

silicondale wrote:

A written contract of employment really is NOT required.

Quite right, and nor should an owner-director have one, otherwise strictly speaking you would have to pay yourself at least the Minimum Wage.

However, even though you are not an employee, as a director you are still an office holder, and companies are obliged to operate PAYE on the earnings of office holders insofar as they relate to the duties of that office. Therefore, your earnings (as office holders) must be reported under RTI.

Hope that clarifies.

 

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Replying to johngroganjga:
By silicondale
11th Mar 2013 14:30

Indeed so

cfield - thanks. That is my understanding too, and what my company has been doing for many years. When things were all done offline, HMRC (well the Inland Revenue as was) used to send me books of forms each year, and expected me to send in the nil returns each month even though our directors were and are generally paid just once a year - until I persuaded them that this was nonsense, and waste of their and my time. It seems that RTI is bringing back this time-wasting with FPSs, EPSs, and all the other TLAs (Three-Letter-Acronyms).

I thought I understood RTI, but reading this thread (and others) it seems that once again they want me to confirm each and every month that I haven't paid anybody and don't owe any tax or NICs. Reading the HMRC guidance, it does seem that I can opt for annual filing in respect of annual salary payment - but that if I do that I have to tell them what month I would "normally" expect to be paying salary (or in our case directors fees). Since this varies from year to year, there is no "normally", and indeed some tax years there may be two payments, while other years none at all. Why can't I just tell them the payments are at irregular intervals - and I'll just send an FPS or whatever when I'm about to make a payment? What on earth is the point of EPSs saying nothing has been paid and nothing is due? A waste of time!  Just a thought .... if there really is nothing due because no salaries have been paid, are HMRC actually likely to impose penalties for not telling them? If so, what justification?

 

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By Oppco
28th Feb 2013 11:48

Advice on this thread

We are all trying to work out what to do with our 'one man band' limited company payrolls from 6 April.

It does not help when contributors present incorrect opinion as 'fact'.

Mr Gordon, will you please stop doing this?

 

 

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By patricia caputo
28th Feb 2013 12:01

Daily paid employees

 

Thank you very much for guiding me to the easement.  

I have attended three RTI  events now - two CIOT and one CIPP and the advice differed with each event - indeed the presenter at the "Everything you need to know about RTI" event explained that it was everything that we needed to know about RTI on that day; however the course content had been rewritten four times as HMRC would stipulate something then the professional bodies would point out that it was unworkable and HMRC would adapt due to this and so on.

Having spoken to employment taxes specialists who feel that RTI is completely unworkable I do not share the optimism of some Accounting Web subscribers.

 

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Replying to Mike Bath:
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By Paul dyke
02nd Mar 2013 09:51

RTI
Thank you everyone for you input, HMRC do try and test us.

So what would happen in a one man limited company paid the personal allowance on a monthly basis and reported so to HMRC. On top of this they draw additional funds through the dca which is then overdrawn but cleared via a quarterly dividend, issued in reference to management accounts.

My understanding is nothing needs reporting in terms of the extra funds drawn as the HMRC website states that if funds are drawn as a loan to be repaid then nothing needs reporting.

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By justsotax
28th Feb 2013 15:03

backdating dividends...

having worked for a cross section of practices i would be surprised if more than half the companies out there even have dividend minutes....

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By The Limey
28th Feb 2013 14:56

Given you said:

Given you said:

"It isn't, but in the case of a single director, owner managed Ltd company, how can HMRC prove otherwise when presented with minutes and copy vouchers at a later date having requested them?"

 

I think it is reasonable to assume that you were saying it was acceptable to backdate the relevant accounts, minutes and dividend vouchers. If that is not what you were saying, I apologise. 

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
28th Feb 2013 16:38

cross purposes??

norstar, I think we (you and I) may be at cross purposes..

If the loan account is in CREDIT, by the crediting of monthly dividends (after due process - I didn't mena you with my dig, I was just observing for the wider audience - sorry) then it matters not a jot whether the wages / salary are drawn or not. Just file an RTI agreeing with the date the salary was credited to the loan account. That is the date of the earliest event and thus the date on which PAYE must bite - accompanied by RTI filing. You could do this by monthly credit, quarterly or any interval you like and the director can draw however much he wants whenever he likes as long as the account remains in credit for the entire year.

The issue is that when the account has gone into debit then the salary put through at the end of the year (say) has already been drawn in full or in part, so you have an on or before failure and potential penalties. Filing an RTI stating a payment date of 31 March 2014 would also be incorrect - and thus a potential for penalties there too.

My references to "sacking" clients were light hearted but also true. Those clients who do not bother to follow my advice in terms of trying to keep them on the right side of the law are too much trouble for me in a small practice. If they really don't want to listen, there is little point in me continuing to act for them, which I am happy to explain. I've been in practice for 26 years and seen pretty much everything, and I just don't need the mess and stress of clients draining the company bank account to nil every year and not being able to pay CT etc etc. So they get their marching orders - generally as part of a bit of a cull, which I do every so often; stripping out unprofitable work or clients I don't like dealing with.I don't regard this as unprofessional - although some may. I just regard it as business sense.

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By nogammonsinanundoubledgame
01st Mar 2013 00:29

Even before RTI, HMRC's PAYE auditors have over the years been constantly snapping at the heels of employers who have debited cash drawings to the DLA throughout the year and then (perhaps) processed a single annual credit as salary as the year end approaches.  They have argued that the earlier payments were on account of wages and were subject to PAYE at the time of cash drawn.  If that argument is valid after RTI is introduced then it was no less valid before RTI was introduced.  Furthermore, provided that the RTI paperwork is filed timeously, they would have no more nor less reason to trigger an audit by reason of RTI, which audit would be required in order to highlight the dating discrepancy.  So in assessing the extent of the problem here in light of RTI it may be informative to review the success rate in HMRC pursuing this argument before RTI.

An amount drawn down on a director's account may at a given instant be one of three things: a payment on account of salary, a payment of a dividend, or a loan (if overdrawn).  HMRC favours the interpretation that it is a payment on account of salary.  This was always their preferred interpretation.  All that RTI does is up the stakes if they win that argument.  But nothing about RTI fundamentally (as I understand it) affects whether that argument is successful, only the consequences of success.

The reason that HMRC favours that interpretation is obvious;  the PAYE regulations favour a higher tax/penalty/interest take under that interpretation.  The reason that taxpayers favour an alternative is equal and opposite.  There is not a shred of doubt in my mind that, had the taxation consequences been reversed, so would have been the preferences of, and arguments advanced by, the opposing protagonists.

Neither argument is in itself sufficient to dictate the treatment one way or the other.  Whether at a given instant a payment was on account of dividends, a loan, or on account of salary is a question of facts.  Those facts are largely under the control of the employer and director, who have the authority to make a choice on the matter.  Where HMRC tend to be successful is where there is an absence of evidence to support the choice as presented.  But that is largely a matter of carelessness on the part of the employer and director, who would have had it within their power to put in place at the time of the cash drawings sufficient evidence had they been so minded, and my experience and understanding is that HMRC have little or no success in disturbing such allocations and decisions where the proper form is observed.

Unless I am missing something, I should be interested in Rebecca's comments on the following scenario:

On 06 April 2013 a company and director/shareholder formally agree that the former may advance a loan to the latter in the sum of £37K, immediately prior to which the DLA was all square and there are £1m undistributed P&L reserves.  Interest requirements are also put in place. The director duly draws down £37K and debits it to a loan account.  No further transactions take place until 31 March 2014 at which point the director checks that there are still, give or take, £1m reserves, convenes a meeting and votes a dividend of £30K, payment of which is satisfied by credit to the DLA.  On 05 April 2014 the director decides to pay himself a salary of £7K as a single annual payment with annual pay interval, also recorded by credit to the DLA.  Had he so wished, he could have left the £7K on loan, but on 05 April chose otherwise.  He also pays over the interest on the loan on that day.

By what exercise of law might HMRC successfully argue that £7K of the initial £37K drawn was "paid" on 06 April 2013 rather than on 05 April 2014, and what is it about RTI that makes this any different from the position pre-RTI?

Furthermore, if on 05 April 2013 there was a credit balance of £7K or for that matter £37K on the DLA rather than a £nil balance, would it make any difference to the analysis?

With kind regards

Clint Westwood

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By Mister E
01st Mar 2013 08:51

Thoughts

I was thinking about this yesterday evening and by coincidence came up with very similar thoughts to the above post by Clint Westwood. To be 100% sure no problems then some client's need some guidance but at the end of the day is this really going to be a problem and it is being blowing out of proportion.

I have had HMRC reviews into loan accounts overdrawn by thousands of pounds where one dividend voted and a bonus/salary to clear it at certain times (usually the accounts year end). HMRC never tried to argue the withdrawals taken were payments on account of wages and the paperwork was, to be honest, not great.

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Teignmouth
By Paul Scholes
01st Mar 2013 10:53

Facts of each case

I'm with Clint & Mister E. 

If, for example, you look at the manual concerning HMRC's approach to various loans, debits & credits, etc, as far as S455 is concerned, they are looking for the substance of the transactions and will look at how the books were entered up at the time, ie the acounting treatment.

It's therefore up to the clients & us to be aware and do the bookkeeping and record of events properly to evidence the purpose & reasoning. 

So if you have a bucket called director's loan and bung eerything in it, without a note or minute, you only have yourself to blame if HMRC imply a reasoning that is to their benefit rather than the client's.

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
01st Mar 2013 18:10

But this isn't

what happens in the majority of cases. In the examples I'm referring to the director draws down round sums as and when, quite often writing "drawings" on the cheque stub. School fees are drawn against the company bank account because the funds are there. Company credit card used for private purchases for no particular reason.

I do accept that if a properly documented loan has been made, and the first time that salary is mentioned is when the credit is made at the end of the year then no salary has been paid previously. However, I'm also aware that the McVeigh case said otherwise. This involved whether tax had been "deducted" when payment was made - not really an issue here as no tax will normally be due. It was held that deduction was only possible when payment was made, and as that happened some time before, no tax was deducted. The principle in the case is therefore that you cannot make a deduction by journal entry after the funds have been drawn. (the director ended up personally liable for the PAYE the company had failed to deduct on his salary -co in liquidation. this power still used reasonably often)

Anyhow, as some of you say, with the right advice you can deal with the problem, and those who are engaged with clients who will follow this probably won't have a problem - in any event why not run payroll for the year and credit the account on the basis that it's only the press of a button at a different time?

But it is the rest that I worry about - and they are a sizeable minority - or maybe even a majority.

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
02nd Mar 2013 11:38

Paul you are spot on

This is the outcome I have been suggesting, so that the amounts reported as salary are paid as such and therefore quite separate from any other funny business going through DLA - whether loans, dividends or whatever. Then there is no need to do anything further and you have no "on or before" worries.

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Replying to lionofludesch:
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By norstar
04th Mar 2013 14:31

What about HMRC treating other payments as bonus?

RebeccaBenneyworth wrote:

This is the outcome I have been suggesting, so that the amounts reported as salary are paid as such and therefore quite separate from any other funny business going through DLA - whether loans, dividends or whatever. Then there is no need to do anything further and you have no "on or before" worries.

 

Excuse ignorance, but I have a question on this.

If we're saying that the whole idea of making a client actually withdraw the monthly reported amount of money avoids any question as to what withdrawals are "salary" and therefore subject to the RTI treatment, and if we are saying that weekly advances or in fact any other payments when a DLA is in debit can be classified by HMRC as being "salary" or at least "advances of salary" and therefore subject to RTI, in the scenario you're suggesting Rebecca, can I ask what stops HMRC from arguing that although your client has taken 12 lots of £700 per month as per the payroll and RTI submissions (thus satisfying the on or before rule), the £1000 he took in May was in HMRC's opinion, a bonus that should be subject to an RTI submission?

It would seem to me that nothing does unless a) dividends existed before to create a credit balance or b) a loan account credit balance was already there.

That being the case, if you've got to make sure a credit balance exists for "any other funny business going through DLA" ' already, what's the point in making sure there are 12 actual payments per an RTI submission?

I can't see it makes a jot of difference. If HMRC can already regard non-patterned withdrawal of money as a salary subject to RTI, then it follows they will be able to add other withdrawals on top of your regular 12x£700 payrolled money no?

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By cfield
03rd Mar 2013 01:36

Loan agreements for overdrawn DLAs

It seems to me that the simple answer to the problem is to identify clients who are likely to have overdrawn loan accounts on 6 April and get them to sign loan agreements (if they haven't already done so).

Best to make the loan fairly sizeable so that even the spendthrift clients can't blow it. Then, have a clause stating that any cash they take out of the company that is not explicitly for salary, dividends or expenses will be treated by default as a drawdown on the loan.

Make sure 4% interest is in there too as technically this only prevents a BIK arising if the employee is required to pay it.

It may also require a Resolution to change the Articles if loans to directors are forbidden or restricted (I believe from memory that CA 2006 allows up to £10k without the members approval).

Very important - get them to sign and send you a copy by e-mail so there is electronic evidence it was not backdated. Either that or get it witnessed.

HMRC do try us, but there is usually a solution to every problem.

 

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Replying to razertoo:
Euan's picture
By Euan MacLennan
11th Mar 2013 10:45

Loan agreement

cfield wrote:

It seems to me that the simple answer to the problem is to identify clients who are likely to have overdrawn loan accounts on 6 April and get them to sign loan agreements (if they haven't already done so).

Best to make the loan fairly sizeable so that even the spendthrift clients can't blow it. Then, have a clause stating that any cash they take out of the company that is not explicitly for salary, dividends or expenses will be treated by default as a drawdown on the loan.

Make sure 4% interest is in there too as technically this only prevents a BIK arising if the employee is required to pay it.

It may also require a Resolution to change the Articles if loans to directors are forbidden or restricted (I believe from memory that CA 2006 allows up to £10k without the members approval).

Very important - get them to sign and send you a copy by e-mail so there is electronic evidence it was not backdated. Either that or get it witnessed.

HMRC do try us, but there is usually a solution to every problem.

Thank you for your support in your most recent post.

I had to go a long way back to find your suggestion.  I did not pick up on it at the time because our clients, whether they have an overdrawn DLA or not, have been trained to set up a standing order to pay themselves £620/£640 a month.  We shall file monthly FPSs for them using Moneysoft's batch RTI processor, so not only will the effort involved be minimal, but the FPSs will provide clear evidence that it is salary which is being paid, thus satisfying your requirement that it is explicit.  I think this is the solution that Rebecca was advocating in the post before yours.

Whilst I agree that it is probably a good idea to have a loan agreement for persistent borrowers in order to cover the other drawings, particularly to specify the interest rate in order to avoid a BIK, it does involve quite a lot of effort to set it up.  It is s.197 CA 2006 which prohibits loans to directors without the approval of the members and s.207 which says it does not apply to loans under £10,000 - however, most of these cases are one-man companies, so it is not difficult to arrange to pass a written resolution of the member(s).  That said, I think it might still be a bit OTT.

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Replying to youngloch:
By cfield
11th Mar 2013 11:38

Loan agreements (the need for)

Euan MacLennan wrote:

...but the FPSs will provide clear evidence that it is salary which is being paid, thus satisfying your requirement that it is explicit.  I think this is the solution that Rebecca was advocating in the post before yours.

I meant the loan drawdowns should be explicit, not the salary payments. As you say, the FPS will be evidence for salary payments, or at least the cash transfers you want them to treat as salary. It's the others I'm more concerned about, say where a new client takes cash in advance of the first dividend.

Clients may well have a monthly standing order for £624 or whatever, but what about the lump sums they take on an ad-hoc basis? That could be an issue under RTI even if the DLA wasn't overdrawn before.

Rebecca has highlighted this as a risk area (on the grounds that taking cash out of the company could be construed by HMRC as salary on the earliest date rule) so a written loan agreement (signed in advance) would be a way of disproving this.

As you say, it is easy enough for a one-person company to pass a resolution agreeing to the loan, and the loan agreement itself does not need to be a lengthy document - one page should be sufficient.

Maybe it would have been a bit OTT before (which is why I never bothered with them) but RTI moves the goalposts in practical terms (if not legally) so best to nip the problem in the bud I think.

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By JLTJPT
04th Mar 2013 11:58

Building Contractors

What is the situation for payments to sub-contractors, where there are both these and employees under PAYE?

Are the sub-contract payments to be reported when they are made or do we carry on reporting monthly, as before?

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By whiteways
04th Mar 2013 13:52

"Most of my Directors are

"Most of my Directors are paid up to the Secondary Threshold, not the LEL. Ergo, they require a PAYE scheme, but there is not and will never be any liability to Tax or NIC.

"However, if all payments are made in the first instance by credit to the Directors Loan Account and not in cash, then if this post is correct, there will never be any reportable payments to generate a FPS.

"So how would the scheme be operated in practice?"

So far I have read nothing here which answers my question. 

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Replying to Tornado:
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By Mister E
04th Mar 2013 16:20

Report due

whiteways wrote:

"Most of my Directors are paid up to the Secondary Threshold, not the LEL. Ergo, they require a PAYE scheme, but there is not and will never be any liability to Tax or NIC.

"However, if all payments are made in the first instance by credit to the Directors Loan Account and not in cash, then if this post is correct, there will never be any reportable payments to generate a FPS.

"So how would the scheme be operated in practice?"

So far I have read nothing here which answers my question. 

For the clients I have like that (which is most directors too) I will run/report monthly or run/report a quartely payroll.  If you want those credits to count as salary then there surely has to be a report on/before the credit date.

So run a qurterly payroll in say April, client can then take that money up to June so a report has been made on/before.  Next quarter run July and so on.  As long as a report is made and HMRC can not argue the later withdrawals are additional salary I can not see a problem with this.  Just drawing the salary later on.

 

Now if a monthly reporting system was in place so you just report each months payroll by 19th (or15th whatever) then this would be all so much easier.  Do DWP really need payments as they happen, would reporting them monthly make a massive difference.  It could then be one report of the final payroll each month, any errors would be corrected, HMRC would know what PAYE an employer owes and the DWP would know how much someone was paid..... simples

 

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By Ian McTernan CTA
04th Mar 2013 16:11

More work...

One thing is clear- RTI will create more meaningless paperwork for us and HMRC, but when HMRC make a massive mess of it they won't be fined- but if we make errors we will be fined.

I run my client's payroll once a year, one payment, job done.  Now I apparently might have to run NIL returns for them all for the other 11 months- and even then if there is no 'activity' they might decide to automatically close the scheme down.  A simple check box on the system saying 'director- one annual payment only' would have solved the problem.

Will we then incur a fine when we can't file an end of year Return or complete next year's payroll due to the scheme no longer existing?  

Who is going to pay for my time to deal with that and setting up another scheme?

And this:The requirement is for monthly nil EPSs (Employer Payment Summary) and that one problem with these is that they can only be submitted between 6th and 19th of the following month, rather than at the same time as live payrolls within the month.

Really?  Whoever thought of that particular gem needs taking out and shooting.  Where were our representatives when this point came up?  I don't want to have to spend time running payrolls and then have to spend more time getting some system designed by committee to accept that there is no payment due some time later- and have it rejected if it doesn't fall within a set time frame.

Real life doesn't sit well with this ivory tower perfect world system designed by people who have in house payroll and HR departments and IT departments who they can pass off the inevitable problems to.

I really wish they would let people with experience of real life and how things work out here design these systems from the ground up, and then hand it over to HMRC and ask them what they want to include, rather than have them designed by committee in some ivory tower and then passed down to the 'working together' team who then struggle to explain it to the rest of us.

 

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Replying to SteveHa:
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By Hazel Edwards
04th Mar 2013 16:35

More work

Thank you Ian McTernan for your comment re the window for submitting the EPS; now we are really getting down to the crux of things.  I know there is a pilot running and that ideas change along the way, but it is only now that this has truly come to light.  I run a lot of payrolls, same salary each month, nil monthly returns, so tend to bunch them together 1st/2nd week of each month.

From April, in RTI, this will still be true, BUT I will now have to devise some form of aide memoire as I cannot submit the EPS until after the 5th of the following month, when I will be running the next month's payroll.  This really is a backward step given that I can currently login to HMRC and file a nil return for the month's payroll.  It seems to me that the extra work is once again being placed on the payroll provider and heaven forbid forgetting to submit an EPS, as we will be straight into penalties from 2014.  What do other posters think and am I correct in my understanding?

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Replying to marks:
Euan's picture
By Euan MacLennan
05th Mar 2013 09:43

Not a nil EPS, but a FPS

Hazel Edwards wrote:

Thank you Ian McTernan for your comment re the window for submitting the EPS; now we are really getting down to the crux of things.  I know there is a pilot running and that ideas change along the way, but it is only now that this has truly come to light.  I run a lot of payrolls, same salary each month, nil monthly returns, so tend to bunch them together 1st/2nd week of each month.

From April, in RTI, this will still be true, BUT I will now have to devise some form of aide memoire as I cannot submit the EPS until after the 5th of the following month, when I will be running the next month's payroll.  This really is a backward step given that I can currently login to HMRC and file a nil return for the month's payroll.  It seems to me that the extra work is once again being placed on the payroll provider and heaven forbid forgetting to submit an EPS, as we will be straight into penalties from 2014.  What do other posters think and am I correct in my understanding?

I think you have misunderstood the reporting requirements.  If you "run a lot of payrolls, same salary each month", you need to be filing FPSs for the payments to be made to the directors/employees, presumably at the end of the month, but you can continue to run the payrolls in the "1st/2nd week of each month" and file the FPS at that time.  When you say "nil monthly returns", I assume you mean the current online notification that no PAYE is due - under RTI, you will not have to do that separately because the FPS will take care of it.

Nil EPSs are only required when there are no payments to any employees on an active PAYE scheme, not when there is no PAYE due to HMRC.

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Replying to lionofludesch:
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By Hazel Edwards
05th Mar 2013 16:43

Thank you for your post Euan regarding the filing of an EPS.  We use Sage software and I have just spoken to the helpline to confirm my understanding.

The EPS filed through Sage specifically asks the user to select a checkbox if there is no payment to HMRC.  Additionally, may I quote from an article written by Linda Pullan (Payroll Alliance)  and subsequent Q&A session ' You will need to provide nil submissions via the Employer Payment Summary (EPS) to indicate that no PAYE/NI is due'. So in two separate documents, it is very clear that there is the need to do this. 

What Sage have also said is that this is still a pilot and our understanding of how things are going to work may change tomorrow, so their advice is to keep checking out the websites.

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Replying to RobertD:
Euan's picture
By Euan MacLennan
06th Mar 2013 09:31

Someone is getting confused!

Hazel Edwards wrote:

The EPS filed through Sage specifically asks the user to select a checkbox if there is no payment to HMRC.  Additionally, may I quote from an article written by Linda Pullan (Payroll Alliance)  and subsequent Q&A session ' You will need to provide nil submissions via the Employer Payment Summary (EPS) to indicate that no PAYE/NI is due'. So in two separate documents, it is very clear that there is the need to do this. 

Have a look at the HMRC Guidance on EPS.  It says:

"If no payments to employees are made within a pay period, or you want to recover statutory payments, Construction Industry Scheme (CIS) deductions suffered or NICs Holiday, you must send an EPS" - it makes no mention of submitting an EPS if you have already filed an FPS for payments made to employees, but where there is no PAYE to be paid over.

Read the first section on the entries to be made in the "No Payment for Period" field, which is presumably the field filled in by Sage when you select their checkbox:

"'Yes' if you have made no payments to employees or directors for an earlier period of one or more complete tax months and there was no FPS made.

You must submit an EPS and indicate no payment is due and show dates in 'no payments due' fields after the end, but within 14 days of, the end of the tax month."

Linda Pullan's comment appears to be based on the second sentence above, taken out of context.  She should have extended it to say "You will need to file a nil 'EPS to indicate that no PAYE/NI is due' where you have made no payments to employees and there was no FPS made."

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Replying to Tornado:
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By Hazel Edwards
06th Mar 2013 12:30

EPS confusion

You know what Euan, let's just wait and see what happens.  In less than six weeks time, it should all become blatantly clear! I am afraid that I have to believe the RTI helpline and Sage otherwise I will just lose the will to live.  Other readers views/understanding would be appreciated!!

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Chris M
By mr. mischief
05th Mar 2013 11:41

Some perspective

In this thread, and others like them, the majority of contributors are professional accountants and payroll folks who have been aware of RTI for over a year and studied the pilots and literature.

Yet every week we get a thread which runs to numerous posts on some apparently simple aspect of RTI.

Some of my clients do their own payrolls with up to 15 staff on them.  Whilst I am helping them with all the information I know of, I am also getting ome really basic questions back.  With one or two I suspect they'll have a go, muck it up then ask me to take over. 

Up and down the country there will be numerous small businesses even less aware of RTI than these clients, with much less free support from someone who has been keeping up to speed with RTI.  In many cases zero support.

The clowns at HMRC have decided to skimp and not bother with a dedicated RTI hotline staffed by folk who really know their RTI stuff.

The fan is shortly going to connect with brown smelly stuff.

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Replying to Billy Watson:
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By Hazel Edwards
05th Mar 2013 16:48

RTI stuff

Mr Mischief, you put it so well; this thread just goes to highlight that we are still in a pilot and that things are constantly changing and even with the best will in the world, we can't read and digest it all. I agree with you re an RTI hotline, but on the courses I have attended, we were told that there would be no extra support.

To be honest, I need to concenterate on getting therough the M12 payrolls and end of years and then hope that RTI will just be a smooth and obvious transition and that our software will guide us through.

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
06th Mar 2013 13:18

@Hazel

I was challenged about just this issue on a course and took the issue up with HMRC. They have re-iterated absolutely categorically that EPS for NIL Payment must only be filed where no payments have been made to staff in the pay period juist ended. It is filed between 6th and 19th of the month.

It must not be used merely to indicate that no tax or NIC is due as a result of employees paid below the relevant thresholds, for which FPS's have been filed. In particular : no filing of Nil EPS in months 1 and 2 of each quarter for employers paying under quarterly payment scheme, and no filing of nil FPS where as a result of thresholds no employees suffer tax or NIC.

It is clear that some people are still confused about this, but the guidance on HMRC's website is pretty good. It's also apparent to me that even some HMRC staff supporting pilot employers have not got this issue straight, as one delegate was advised by HMRC to the contrary. My contacts will go back and ensure that staff are clear on this issue. And I'm sorry, but if Sage have told you otherwise then they are wrong!

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Replying to kevinringer:
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By Hazel Edwards
06th Mar 2013 16:54

EPS confusion

Rebecca, thanks for the clarification in your post, which makes perfect sense.

What truly concerns me is that the RTI helpline told me exactly the same as the Sage helpline and I was even asked to speak to the RTI Press Office for further information (which I didn't do as I thought it inappropriate!).  It certainly will make life easier just filing an EPS when those certain conditions are met eg statutory payments, CIS/NI deductions and no payments to employees. 

On another point, what is the acceptable time between filing the EAS (which we have to do with Sage software) amd the first FPS?  I ask because I do have a number of weekly payrolls and may have to submit over the weekend of the 6th/7th to allow for processing on the 8th April.

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Replying to kevinringer:
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By Kazmc
06th Mar 2013 19:27

Spoken to Sage

RebeccaBenneyworth wrote:

I was challenged about just this issue on a course and took the issue up with HMRC. They have re-iterated absolutely categorically that EPS for NIL Payment must only be filed where no payments have been made to staff in the pay period juist ended. It is filed between 6th and 19th of the month.

It must not be used merely to indicate that no tax or NIC is due as a result of employees paid below the relevant thresholds, for which FPS's have been filed. In particular : no filing of Nil EPS in months 1 and 2 of each quarter for employers paying under quarterly payment scheme, and no filing of nil FPS where as a result of thresholds no employees suffer tax or NIC.

It is clear that some people are still confused about this, but the guidance on HMRC's website is pretty good. It's also apparent to me that even some HMRC staff supporting pilot employers have not got this issue straight, as one delegate was advised by HMRC to the contrary. My contacts will go back and ensure that staff are clear on this issue. And I'm sorry, but if Sage have told you otherwise then they are wrong!

Hi Rebecca
I called SAGE helpline this afternoon after reading your post and they are absolutely adamant that you are wrong!
I have to say following numerous previous incorrect information being given to us by them I'm not convinced but who's advice do we go with. We have 130 director only payrolls in the pilot so we really do need to be getting this right!
Would really appreciate yr comments
Many thanks
Karen

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Replying to johnjenkins:
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By Hazel Edwards
07th Mar 2013 16:00

Kazmc comments re EPS and when to file

I know I am harping on about this, but consider this text from the HMRC letter sent to employers earlier this year entitled 'Paying PAYE electronically for the income tax year 2013/14:

 

'When no payment is due for a month or quarter

RTI employers

'n RTI employer is one that has submitted a FPS and/or an EAS. RTI employers who have no payment to make for a single or multiple months should tell us by completing and submitting an EPS for the period(s) concerned. Fill in the box for No payment due as no employees or subcontractors paid in this pay period and enter the relevant dates at the No payment dates boxes and/or the Period of inactivity dates boxes as appropriate. If you don't do this we may make a specified charge and seek payment for each period concerned.'

 

Taking the first two sentences - This implies that if there is a nil return, then an EPS should be submitted. End of.

Taking the next two sentences - this now refers to nil payments to employees and talks about period of inactivity! And what box does this refer to? Is it generalising about 3rd party software or assumes use of the BPT?

 

We have one company on the pilot from 6th March; during the EPS submission, Sage software categorically asks you to select the checkbox if there is no payment due to HMRC.  Now correct me if I am wrong (please!) but this does not relate to employees nil pay but to what is owed to HMRC.

 

Is there any wonder we are all so confused when the HMRC documentaiton is trying to tell us two different things in one paragraph.

 

Rebecca, please can you take a lool at this whole area again and report back?

 

 

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By norstar
06th Mar 2013 14:12

Director loan agreement

I think I'm going to tackle this with a documented loan agreement for say £45k at the start of the year as others have suggested.

I've drafted a template for a resolution/loan agreement combined but am slightly confused about the need to state the "nature and purpose of loan" as per the toolkit, as obviously we don't want to say "the purpose of the loan is to avoid any RTI problems"!!

Does anyone have suggested wording for this? Or does it even need to be there?

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Replying to Ruddles:
By cfield
06th Mar 2013 18:49

£45k loan

norstar wrote:

I think I'm going to tackle this with a documented loan agreement for say £45k at the start of the year as others have suggested.

Does anyone have suggested wording for this? Or does it even need to be there?

How about for a season ticket loan? J 

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By CarolB
06th Mar 2013 16:37

Directors' drawings

Rebecca

HMRC state the following at EIM42280:

"Directors very often draw money from the company during the year, which is debited to their loan account and repaid at the end of the year by crediting fees, or a dividend, voted or declared after the end of the year. Until that time, and in the absence of specific evidence to the contrary, the amounts drawn do not actually belong to the director. The in-year drawings are not payments on account of earnings for the purpose of Sections 18(1) and 686(1)."

Are you able to confirm that this statement is specific to entitlements arising under the terms of a company's articles of association, as opposed to entitlements arising under the terms of a service agreement, so that the broad thrust of your arguments, in terms of the PAYE implications of salary advances charged to DLA, remain unchanged?

Thanks in advance

Carol

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By Mister E
07th Mar 2013 08:52

a summary

Following on from Kazmc can HMRC not have some FAQ's about this on their website.

And it would be handy to perhaps have a similar summary on this website so as things change it is updated with a note what has been updated and when.  Someone looking for the answer to Kazmc question might not look in here and to be honest with the amount of queries on this thread alone might get lost.

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By shogun
07th Mar 2013 09:11

What is the position with wives and minor children on the payroll? If there is a joint account between spouses, isn't it a bit of a joke giving the wife a cheque which is then deposited back into the joint account? Regarding 16-year old children who have no bank accounts in the name? It would be interesting if someone has any answers.Thanks.

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By daveforbes
07th Mar 2013 09:35

@kazmc and mister e

The HMRC do have info about filing FPS in advance -

http://www.hmrc.gov.uk/payerti/reporting/when-to-report.htm#6

and it does say you can if you want file all 12 monthly FPSs in April, and I am sure some of our users will be taking this approach, so we have added a "bulk file" facility to facilitate it.

Perhaps the "92 day" limit mentioned by Kazmc is a feature of the particular payroll package rather than RTI in general, or just a recommendation.

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By Herring
07th Mar 2013 12:34

RTI - EPS Report

 

Hi, I am a newcomer to this thread but have read it with interest.

I understand that the EPS Report is only to be submitted where you need to advise HMRC of any alteration to the PAYE and NIC liabiity.   Therefore if the employees are paid a wage where there is no PAYE or NIC liaibility, HMRC will know from the FPS report submitted.  The EPS should also be submitted where Statutory Payments are recovered, NIC compensation on Statutory Payments, Advance funding obtained from HMRC for tax refunds and statutory payments, CIS Deductions suffered and NIC Holiday,  all of which alter the PAYE and NIC liability that would show as being due on the FPS report.

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By Kazmc
07th Mar 2013 16:14

Reply to Hazel...

Hi Hazel

Many thanks for that reply and I am beginning to think that SAGE are not completely on the ball.

I spoke to a HMRC agent today who was so helpful and she said that SAGE are wrong in the advice they are giving out and we are just wasting our time submitting EPS's for payrolls that have staff but no PAYE liability, the 'no payment due' tick box on the EPS is JUST to be used when no payroll at all has been processed and therefore no FPS can be submitted.

She also said that most of the problems that are being flagged up during the pilot are with SAGE customers.

What are the implications though if we do not follow our software providers instructions, could there be any comeback?

Many thanks

Karen

 

 

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Euan's picture
By Euan MacLennan
07th Mar 2013 18:34

It is straightforward

Way back, I gave a link to the HMRC guidance on EPS and asked Hazel to read the heading and the details for the first field of information to be included in the EPS.

All the quotes to the contrary are based on the second sentence "You must submit an EPS and indicate no payment is due ..." taken out of context of the first sentence which says "'Yes'  [make an entry] if you have made no payments to employees or directors ... and there was no FPS made."  If you read the first sentence before the second sentence, the meaning is clear.

This is the guidance published by HMRC.  This is what Rebecca has already confirmed - asking her to look at it again is insulting.  If Sage is giving contrary advice, that is their problem.  Change to competent RTI compliant payroll software.

 

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Replying to dhughes1975:
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By Kazmc
07th Mar 2013 19:22

And?

Euan MacLennan wrote:

Way back, I gave a link to the HMRC guidance on EPS and asked Hazel to read the heading and the details for the first field of information to be included in the EPS.

All the quotes to the contrary are based on the second sentence "You must submit an EPS and indicate no payment is due ..." taken out of context of the first sentence which says "'Yes'  [make an entry] if you have made no payments to employees or directors ... and there was no FPS made."  If you read the first sentence before the second sentence, the meaning is clear.

This is the guidance published by HMRC.  This is what Rebecca has already confirmed - asking her to look at it again is insulting.  If Sage is giving contrary advice, that is their problem.  Change to competent RTI compliant payroll software.

 

I was under the impression that this forum was for people to come to for help and understanding not for unnecessary rude comments??
We are all in this together and if we are receiving conflicting advice from the professionals then I would have hoped we could guide each other through any problems... Obviously I got that wrong

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
07th Mar 2013 21:38

OKay, and once again from the top, folks

My contact on HMRC is the head of agent and employer engagement. She is the voice of RTI and is on all of the webinars and HMRC presentations. What she says is the final answer.

Here is her final answer, with no need for 50/50 or ask the audience.

If you pay employees you file an FPS on or before the date of payment showing the pay, tax etc etc.

This can be weekly or monthly. There might or might not be any tax or NIC due, but no mind, you file the FPS at the appropriate time.

If in a tax month you don't make any payments at all to employees you file an EPS nil payment after the end of the month to mark a NIL month. This must be filed between 6th and 19th of the following month to report no payments to employees in the preceding tax month.

The fact that the nil EPS also indicates that there is no tax or NIC due to HMRC for that month is actually a subsidiary issue. The purpose of the report is to indicate that there are NO PAYMENTS TO STAFF - and not that the FPS is in some way late or otherwise missing in action. it effecxtively "signs off" the absence of FPS for the month.

ANYONE including Sage, HMRC staff or anyone else who has told any of you otherwise is WRONG.

I'll happily reiterate this as many times as anyone needs it, but I'm not going back to HMRC again as this is absolutely crystal clear to me!!

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Replying to Nichola Ross Martin:
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By Hazel Edwards
08th Mar 2013 11:50

Closure

Thank you Rebecca.. again :-)

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By Kazmc
07th Mar 2013 22:19

Thankyou so much Rebecca, I will be calling SAGE tomorrow insisting they review their guidelines for instructions on EPS submissions
Thanks again

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Replying to lionofludesch:
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By Hazel Edwards
08th Mar 2013 11:49

Ditto

And thank you Kazmc for reminding us all that we are in this together and to seek help and understanding when it is not always clear is a good thing.  Thank you Rebecca for continuing to contribute to this thread.  And Euan, perhaps re-read your responses and in future be a little more sympathetic to those of us who are dealing with conflicting information and can't just change software at the drop of a hat. 

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Replying to Portia Nina Levin:
Euan's picture
By Euan MacLennan
10th Mar 2013 12:30

Don't be impertinent

Hazel Edwards wrote:

And thank you Kazmc for reminding us all that we are in this together and to seek help and understanding when it is not always clear is a good thing.  Thank you Rebecca for continuing to contribute to this thread.  And Euan, perhaps re-read your responses and in future be a little more sympathetic to those of us who are dealing with conflicting information and can't just change software at the drop of a hat. 

I have been a member for 8 years and have posted 5,700 responses.  You have been a member for a week and Kazmc has been a member for 4 months.  Between you, you have posted 20 responses.  You will understand that I do not consider that either of you has earned the right to lecture me on my responses, none of which were either unnecessary or rude.

On this thread, you have been given the correct answer by both Rebecca and me.  We are professionals trying to help you, but you refused to accept our answers and instead, preferred to believe advice from Sage customer support.  You kept harping on (your words) challenging the answers we gave and asked Rebecca to look at it again.  We have both repeated the correct answer.  Finally, you have accepted that we were right, but you give copious thanks to Rebecca, who was more emphatic than I in her final response, but choose to criticise me for rudeness.  C'est la vie!

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Replying to Ruddles:
By cfield
10th Mar 2013 13:12

I'm with you Euan

Euan MacLennan wrote:

Finally, you have accepted that we were right, but you give copious thanks to Rebecca, who was more emphatic than I in her final response, but choose to criticise me for rudeness.  C'est la vie!

I'm with you on this one Euan. I thought your earlier post that obviously offended Hazel was perfectly reasonable in both tone and content. There's no helping some people I'm afraid.

I'm surprised there's not much debate about the overdrawn loan account issue though, given that this is quite relevant for one-person companies. I thought my post recommending a precautionary loan agreement to scupper any HMRC suggestion that cash payments were salary was the way forward here, but nobody seems to have commented on this one way or the other. What do you think? Any pitfalls we need to consider (apart from possible restrictions in the Articles which I've already referred to)?

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By daveforbes
08th Mar 2013 07:38

just for completeness

Agreeing with everything Rebecca says, my understanding is that the other reason for sending an EPS is to recover stat. payments and CIS, so you may be sending both FPSs and EPSs.

What I find confusing is the HMRC guidance " If this is your first EPS since starting to send PAYE information in real time you must include the year to date figures for any recovered payments in the same tax year - and this first EPS must be sent when you've sent your first FPS or by the 19th of the following month. "

What does the bit in bold mean ?

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Replying to annmd:
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By Herring
08th Mar 2013 09:58

just for completeness

 I believe, this is directed at those employers who are currently submitting under RTI and who during the year have recovered statutory payments.  This is so that HMRC can align the payments they have already received with the employers year to date records.  As most employers will be starting to submit under RTI from the start of the new tax year, there most likely won't be any statutory recovered payments in the time frame and therefore no first EPS will be required.

We are currently on the pilot and we did recover SMP during the year.  HMRC rang us and asked us to submit an EPS which showed the year to date figures and included the SMP we had recovered.

Hope this helps.....

 

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