HMRC has confirmed that it plans to amend the reporting requirements so that salary advances can be reported on or before the employee’s contractual pay day
This means that in future each payment of salary only needs to be included on a real time information (RTI) report once. Secondary legislation will be introduced to amend the rules.
Under the current rules advance payments are treated as a payment on account of earnings. This means that employers must submit additional RTI reports to record these advance payments.
This creates extra administrative burdens for both employers and HMRC because it requires employers to submit additional RTI returns.
Additional returns also impact on HMRC processes, increasing the risk of PAYE coding or Universal credit errors.
Salary advances are arrangements between an employer and an employee, allowing employees access to some of their earned salary before their normal payday. Employers may also make arrangements through a third party, the latter charging a small fee for their services.
Meredith McCammond, Low Income Tax Reform Group (LITRG) technical officer, said: ‘On 16 November, HMRC outlined their ‘view’ of salary advance schemes in an Agent Update.
‘The medium of the message is unusual and it is important that HMRC also communicate the message to key stakeholders outside the agent community, in particular employers who potentially face a liability risk - until HMRC confirm otherwise.
‘What HMRC have said in the Agent Update means that there has been widespread PAYE non-compliance for many years – and certainly since 2018 when these third-party schemes started to take off.
Given the importance attached by HMRC to the concept of ‘on or before’ in RTI and the fact there have been compliance activities in respect of RTI, it is surprising that there has not been earlier intervention from HMRC on this issue. The difficulties of dealing with the issue now have increased as they have become more widespread.
‘Now that HMRC have confirmed that there will be a legislative solution, we will want to study the legislation carefully to check what exactly they are proposing. We hope that any amendments that are made to secondary legislation will ensure that it is also possible for employers to offer their employees this access to funds directly, without being compelled to resort to using a third-party provider who will charge the employees a fee.
‘This is potentially a significant change to RTI reporting requirements. Depending on the legislation, the changes also may raise the question of whether it is fair that employers who pay weekly and file their RTI submissions at the correct time, should be at risk of making an inadvertent mistake and incurring a penalty four times more often than an employer who pays monthly and then uses a salary advance scheme.
‘We would urge HMRC to consult with stakeholders on any changes to legislation to ensure the legislation avoids further complexities, anomalies or unintended consequences as a result of trying to deal with this issue.’
Employers who are currently reporting salary advances on or before the contractual pay date may continue to do so until legislation is in place.
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