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HMRC payroll best practice advice given to employers

December 19, 2014

In the latest edition of the Employer Bulletin, released yesterday, HMRC has published some best practice advice for employers to ensure that their payroll meets the requirements of HMRC and the Department for Work and Pensions to support Universal Credit.  Other RTI topics include information on using the online Penalty and Appeals Service and guidance on paying HMRC on time, as well as the introduction of an online tool for checking what a new employee’s tax code should be. 

Universal Credit continues to be deployed in Jobcentres across the country, and recent research identified several positive outcomes from the reform of the benefit.  For example, claimants reported that they were working more over a 6 month period with 65% of people finding Universal Credit is a better financial incentive to work.  The research also found that Universal Credit is easier to understand and consider it a better reward for additional work.  Additionally, households on Universal Credit do more to find work: compared to those on Jobseeker’s Allowance, a UC household does almost twice as many hours of job hunting.

In addition to these benefits, the Employer Bulletin states that UC has already had a positive impact on some employers already too, as they are now able to use those members of their workforce who are claiming UC more flexibly, because their benefit amount will adjust automatically to changes in earnings (as reported through RTI), allowing the employee to work as many hours as possible with much less administrative burden to the employer.  This new flexibility means that employers such as large retailers and recruitment agencies will be much more willing to employ UC claimants.

HMRC and DWP stress that in order for UC to work effectively it is crucial that information on earnings reported through RTI is as accurate and complete as possible, and also must be submitted on time.  The best practice advice for payroll, developed by HMRC and DWP, is as follows:

  • ensure pensions are marked accurately and not as earnings;
  • ensure that earnings are reported accurately and not as pensions;
  • ensure year to date figures are correct;
  • use the BACS process appropriately (although not mandatory for most employers);
  • use of the BACS hash process is good practice as it enables DWP and HMRC to check PAYE against payment data.

Using the BACS hash mechanism, where matching hash sub references are included in both the FPS sent to HMRC and the BACS payment file, works because it gives HMRC and DWP visibility of payments made to employees.  This allows HMRC and DWP to directly support UC claimants in the event of queries regarding their benefit amount, rather than having to refer them back to their employer for guidance.  The use of the hash code was built into the design of RTI in order to support the delivery of UC welfare reform, so it is unsurprising that HMRC have confirmed that the correct use of the BACS hash is best practice for payroll.

The Employer Bulletin also confirmed that agents will no longer receive a copy of penalty notices issued to clients.  Employers will be told to show the notice to their registered agent (if they have one) immediately, but some in the agent community have registered concern over the decision not to send the notice to them in the first place as it means they may be unaware the client has received a penalty notice.  However, HMRC is encouraging employers and agents to use its online Penalty and Appeals Service (PAS) when appealing a penalty, which uses the Generic Notification Service to provide status updates on penalty appeals.  Using the PAS should mean that agents are kept informed on their clients’ penalty liabilities.  The Bulletin contains guidance on how to use the online appeals service and on how HMRC (via the Generic Notification Service) will respond.

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