Understanding Cumulative Tax Codes

Tax codes that are applied on a cumulative basis means that tax calculations look at the entire tax year when performing the tax calculation. Using a tax code on a cumulative basis means that every payday, the calculation performed is to work out the tax due on an employee’s earnings for the (tax) year to date then deduct from it the tax they have already paid on their earnings that (tax) year. The remaining figure is the tax due for the pay period.

A Cumulative Tax Code allows for an individual’s weekly / monthly Tax Free Allowance to be carried forward if it is not used. As an example – if an individual were to have a break from work (for example, due to unpaid leave or sickness etc), when they resume, it is often the case that they will pay little or no Tax until they have caught up with their Tax Free Allowances.

A non-cumulative tax code would be signified by an “X” or “W1/M1″ following the code. In these cases the tax would be worked out purely on the taxable pay for each individual pay period. Each payday is treated as if it is the first week or month of the tax year. Previous pay and tax details are ignored.

Spring Newsletter 2018

Spring Newsletter 2018

Our Spring Newsletter should have arrived with you by post – if it hasn’t please let us know by emailing us here, or download it here:

 Newsletter Spring 2018

In this edition we cover HMRC Rates and Threshold Changes, Independent Examination of Accounts, Charity Governing Document, Claiming Tax Back on Donations, Gift Aid

How to Register as an Employer with HMRC

You normally need to register as an employer with HM Revenue and Customs (HMRC) when you start employing staff, or using subcontractors for construction work.

You must register even if you’re only employing yourself, for example as the only director of a limited company.

You must register before the first payday. It usually takes up to 5 days to get your employer PAYE reference number. You can’t register more than 2 months before you start paying people.

If your business starts employing people on or after 6 April, you’ll get your employer PAYE reference number by 17 May.

To pay an employee before you get your employer PAYE reference number, you should:

  1. Run payroll
  2. Store your full payment submission
  3. Send a late full payment submission to HMRC

More information and help can be found here

Getting Financial Help With Statutory Pay

What you can reclaim

As an employer, you can usually reclaim 92% of employees’ Statutory Maternity (SMP), Paternity, Adoption and Shared Parental Pay.

You can reclaim 103% if your business qualifies for Small Employers’ Relief. You get this if you paid £45,000 or less in Class 1 National Insurance (ignoring any reductions like Employment Allowance) in the last complete tax year before:

  • the ‘qualifying week’ – the 15th week (Sunday to Saturday) before the week of the due date
  • the ‘matching week’ – the week (Sunday to Saturday) your employee was told they’d been matched with a child by the adoption agency
  • the date on the official notification if your employee is adopting a child from another country

How to reclaim

Calculate how much you’ll get back using your payroll software. To reclaim the payments, include them in an Employer Payment Summary (EPS) to HM Revenue and Customs (HMRC).

You can write to the PAYE Employer Office to ask for a repayment if you can’t set off the payments against the current year’s liabilities. You can’t do this until the start of the next tax year.

National Insurance Contributions and Employers Office 
HM Revenue and Customs 
BX9 1BX 

Complete and return an SP32 form to HMRC if you didn’t submit your PAYE information in real time (RTI) for a previous tax year.

You can find out more information here