This month’s news focuses on when a payment is made for PAYE purposes
Although Real Time information (RTI) has not changed when a payment is made, it is more important than ever to understand when a payment is made for PAYE purposes. The law says that for PAYE purposes, a payment is treated as made the earlier of:
- The time when the payment is made
- The time when the person becomes entitled to the payment
The intention behind the legislation is to ensure that PAYE is operated at the right time and in the correct tax year. So, if the employee is paid late, the employer should still use the regular payday on the FPS where the employee is entitled to be paid on that date. If you pay the employee early, then this will bring the payment date forward and the employer should use this date on the FPS.
Paying by electronic means (such as BACS)
Payment is made when the money is in the employee’s account and they can use it. To ensure that the funds are in the employee’s account by their regular payment date, you may prepare a BACS transfer instruction on an earlier date. However, you should enter the date the funds will reach the employee’s bank account on the FPS.
Paying by cash or cheque
Payment is made when the cheque or cash is given to the employee, the date the cheque is cashed or put into the bank does not matter. Therefore, the date to be entered on the FPS is the date the cheque is given or the cash paid.
When the regular payment date falls on a non-banking day
An easement applies if the employee’s regular payment date falls on a non-banking day. This is currently on page 9 of the CWG2. It explains when you should make your submissions if the regular payday falls on a non-banking day (Saturday, Sunday or bank holiday) and as a result, you make payment on the last working day before the regular payday, or the next working payday after the regular payday.
This is to ensure that PAYE operates as normal so the employee receives the allowances they are entitled to and the payment is allocated to the correct payment period or tax year. For PAYE purposes, the payment can be treated as if it had been made on the regular payday. An important example of where this might apply is the end of this tax year, which falls over the Easter bank holiday. For example if the regular date of payment is the 3, 4, 5 or 6 April but the actual date of payment is 2 April, report the payment as being made on the 3, 4, 5 or 6 as appropriate.