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.

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

Company Tax Returns

Image result for charity company tax returnCompany Tax Returns

You must complete a Company Tax Return if your charity is a limited company or unincorporated association when this is required by HM Revenue and Customs. You need to include the supplementary pages for charities and community amateur sports clubs (CASCs).

A charity is a limited company if it was set up by a:

  • constitution
  • memorandum and articles of association
  • royal charter or Act of Parliament

Limited companies must also send annual accounts to Companies House. You must complete a tax return when HMRC asks you to, even if no tax is due. You may have to pay a penalty if your tax return is late or you don’t complete one when you should.

You can find more information about charities and tax here

Updating Your Tax Code

You may be put on an emergency tax code if you change jobs. HM Revenue and Customs (HMRC) will correct it automatically after you’ve given your employer details of your previous income or pension.

Your employer will get these details from your P45 – if you don’t have one, they should ask you for further information.

HMRC will also update your tax code when:

After your tax code changes

HMRC will adjust your tax code so you pay the right amount of tax across the year. They’ll write to you or email you when your tax code has been updated.

They will also tell your employer or pension provider that your tax code has changed. Your next payslip should show:

  • your new tax code
  • adjustments to your pay if you were paying the wrong amount of tax

Find out more here

Charity Registration

When to apply to register your charity

Usually, you must register with the Charity Commission if your charity is based in England or Wales and has over £5,000 income per year.  The commission will take action to secure compliance if it identifies a charity which isn’t registered but should be.

If your charity is a charitable incorporated organisation (CIO) it must register whatever its income.

Charities that don’t have to register

Small unincorporated charities

If your charity is based in England and Wales and isn’t a CIO, you don’t have to apply to register it if its annual income is less than £5,000.  But you can still apply to HM Revenue and Customs for recognition as a charity to get charity tax breaks and claim gift aid.

You can apply to the commission to register this sort of charity voluntarily, but the commission will only consider applications in exceptional circumstances.  For example, if you can prove that your charity has been offered significant funds but has to provide a registered charity number before it can receive the funds.

More details can be found here

Back to Work – but who is a worker?

Happy New Year everyone!  Now we are all back at work, maybe it’s time to clarify who is a ‘worker’ in your organisationLego Worker

A person is generally classed as a ‘worker’ if

  • they have a contract or other arrangement to do work or services personally for a reward (your contract doesn’t have to be written)
  • their reward is for money or a benefit in kind, for example the promise of a contract or future work
  • they only have a limited right to send someone else to do the work (subcontract)
  • they have to turn up for work even if they don’t want to
  • their employer has to have work for them to do as long as the contract or arrangement lasts
  • they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client

Employment rights

Workers are entitled to certain employment rights, including:

  • getting the National Minimum Wage
  • protection against unlawful deductions from wages
  • the statutory minimum level of paid holiday
  • the statutory minimum length of rest breaks
  • to not work more than 48 hours on average per week or to opt out of this right if they choose
  • protection against unlawful discrimination
  • protection for ‘whistleblowing’ – reporting wrongdoing in the workplace
  • to not be treated less favourably if they work part-time

More details can be found here

Statutory Maternity Payments Help

We received this cry for help recently – ‘My employee is entitled to Statutory Maternity Pay, but we can’t afford to pay it – what can we do?

Help is available from HMRC

If you can’t afford to make payments

You can apply for HM Revenue and Customs (HMRC) to pay you in advance if you can’t afford to make statutory payments.

How to apply for advance payment

Apply online to be paid in advance for:

  • Statutory Maternity Pay (SMP)
  • Statutory Paternity Pay
  • Statutory Adoption Pay
  • Statutory Shared Parental Pay (ShPP)

You can apply up to 4 weeks before you want the first payment

You can find more details here  

PAYE Forms: P45

The P45 is a certificate which contains earnings and tax payments over the financial tax year up until when an employee leaves a job, and it is issued to employees by the employer. Form P45 shows how much tax has been paid on their salary for the current tax year.

You must give all employees a P45 when they stop working for you. You can either:

You can’t download blank P45 forms

Lost P45

You can’t get a replacement P45.  Instead, you can use a ‘Starter Checklist’ (link below) or ask your employee for the relevant details about their finances to send to HM Revenue and Customs (HMRC)

Use this form if you’re an employer and need to record information about a new employee for PAYE

Informing HMRC about a new employee

You must tell HM Revenue and Customs (HMRC) when you take on a new employee and be registered as an employer.

Before you pay your new starter follow these steps:

  1. Check you need to pay them through PAYE.
  2. Get employee information to work out their tax code – if you don’t have their P45, use HMRC’s ‘starter checklist’ (which replaced the P46).
  3. Find out if they need to repay a student loan.
  4. Use these details to set up your new employee in your payroll software.
  5. Register your employee with HMRC using a Full Payment Submission (FPS).

Further information can be found here

Student Loan Repayment Plans

Student-LoansPlan types

With effect from the 2016 to 2017 tax year there are 2 plan types for student loan repayments:

  • plan 1 with a 2016 to 2017 threshold of £17,495 (£1,457 a month or £336 per week)
  • plan 2 with a 2016 to 2017 threshold of £21,000 (£1750 a month or £403 per week)

If you are unsure which plan to use, it is easy to find out by filling in the online survey here

More guidance for employers can be found here