membershipfocus advisory
need to use the EYU. You would enter the difference between what should be held on record, to what has already been reported.
Q: Recently I changed employment and my new company used to pay four-weekly. They always operated ‘Week 53’ to keep everything in line with the company’s financial year.
I
know this was not the correct method and I would like to demonstrate this to the management team. How can I put the past mistakes right? A: You are correct; a ‘Week 53’ cannot be routinely operated each year. Four-weekly payrolls can only be operated using ‘week 56’ if the final pay day for the tax year falls on or before 5 April. The tax allowance is for a complete tax year, and apportioned either monthly over twelve months or weekly over 52 weeks. Where a week 56 has to be operated due to the employer being compelled to comply with regulation 31 of the Income Tax (Pay As You Earn) Regulations 2003, the employee will receive extra tax relief. In the past, HMRC did not have the facility to contact all employees who underpaid tax in this way, but due to changes in the software used by HMRC more employees are being sent a tax demand for underpayment of PAYE. When correcting year-end reporting in previous tax years, you will need to amend the P14, P35 and provide the employee with corrected statements of year-end figures. However, if we are talking about correcting a number of previous tax years, either you may need to contact HMRC or your company may want to obtain assistance from a tax advisor.
As you need proof for the management team the following link demonstrates how tax should be operated when a payment is made before the end of the tax year, which would make the number of payments made to employees exceed the normal 52 weeks:
www.hmrc.gov.uk/manuals/ pommanual/
PAYE70015.htm
Q: I work for a payroll bureau providing payroll services to our clients and one of them has an office in Hong Kong. They transferred one of their employees to that office and requested that we make him a leaver on the UK payroll with a leaving date of 30 November 2013. A form P45 was
issued to him at the end of November 2013 with a tax code of K274. I have now received an instruction to pay the same individual a bonus of £1 million in January 2014 (i.e. tax month 10). I treated this £1 million bonus as payment after the P45 has been issued and applied tax code 0T Month 1 (i.e. non-cumulatively). However, I have now been
challenged by a colleague who claims that we should have continued to apply his previous tax code of K274. The reason she has given is that the individual is still working for the same company in Hong Kong, so there is no reason to operate 0T Month 1. Also, she said there is a ‘Tax Equality/Equalisation’ between UK & Hong Kong. I have no experience and knowledge about ‘tax equality/ equalisation’. A: This is a simple payment after the P45 has been issued to the employee, and tax equalisation will not usually apply here. The tax code that should be operated on this occasion is 0T non-cumulative basis. Tax equalisation is not necessarily something which needs to be agreed with HMRC; however it does have to be agreed with the employee. It would usually be a contractual issue; however, tax modification has to be agreed with HMRC. You should check with your client to establish whether: l the Hong Kong office is an office of the UK entity or an entity itself l the Hong Kong office is operating shadow national insurance contributions (NICs) l part of the bonus is for work in Hong Kong l the bonus is an annual one which is always paid in January or is discretionary. There are UK NICs liabilities of 52 weeks if this is a secondment outside of the UK. If the bonus relates to part of the time worked in Hong Kong, then you would apportion the bonus and make payments via both payrolls. If the bonus is a normal annual bonus paid at this time each year, then the payment after the form P45 has been issued would attract NICs at the normal pay reference period, but if it is not then NICs would be based on a weekly earnings period. If the Hong Kong office has to operate shadow NICs then you would need to let the Hong Kong office know what the earnings are.
PP PayrollProfessional 11
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