The cost of living crisis has seen an increase in the number of employees asking their employers to provide part of their salary/pay before their normal payday (akin to interest-free payday loans). Historically, HMRC viewed these payments as advances reportable under RTI on or before the date of payment. This resulted in additional employer reporting requirements.

To assist their customers, software providers created solutions. However, each requires a detailed analysis to confirm the actual reporting position.

In Agent Update 102, published on 17 November 2022, HMRC announced that legislation will be amended so that salary advances can be combined with regular earnings and reported on (or before) the employee’s contractual pay day as a single amount. 

While in principle this proposal is a welcome simplification, it will change the deadline for submitting a PAYE full payment submission (FPS). Currently the law governing the submission of RTI FPS (reg 67B, Income Tax (PAYE) Regulations 2003, SI 2003/2682) says that FPS must be submitted on or before the employee’s payday. This is the date on which the employee is actually paid – not their contractual pay date. This is confirmed in HMRC’s guidance Running Payroll.

In the interests of simplicity, ICAEW’s Tax Faculty has requested confirmation that the reporting deadline in new legislation will be harmonised with the existing legislation. This would ensure that the reporting deadline is the same regardless of whether an advance has been made.

For completeness the Agent Update announcement is as follows:

“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.

“Under current legislation, these 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.

“However, HMRC recognises that the statutory position, if applied to salary advances, creates extra administrative burdens for both employers and HMRC because it would require them to submit additional RTI returns.

“Additional returns may also impact on HMRC processes, such as the risk of PAYE coding or Universal credit errors.

“To address these issues, HMRC will amend secondary legislation, so that salary advances can be reported on or before the employee’s contractual pay day. This means each payment of salary only needs to be included on an RTI report once.”

Loans versus salary advances

The faculty notes that sometimes employers give employees loans that will be paid back out of future payments of earnings. Loans differ from advances and do not have to be reported to HMRC under RTI as payments of salary. However, there is a need to report a benefit-in-kind if the loan value exceeds the beneficial loans de minimis.

Date of payment to report in FPS

Even when employees are paid early or late when contractual payment dates clash with bank holidays, the date of payment that should be reported in the FPS itself is the contractual pay date. Each year before Christmas, HMRC reminds employers to report in the FPS the contractual pay date rather than the actual payday. This avoids complications for staff receiving universal credit.