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RTI reporting may mean tax code errors for casual workers

June 10, 2013


Casual workers may end up with multiple employments in HMRC’s RTI systems if they fail to notify their intention not to return to work. This is because HMRC now relies on employers to signal a final payment to an employee to capture the termination of each individual employment. However, David Heaton, a tax partner at leading national accountants, Baker Tilly, said on Friday this is unlikely to prove reliable.

The intervention made in an article published on 7 June is significant because David Heaton was until recently the chairman of the ICAEW Tax Faculty and is a recognised expert on UK employment tax matters.

This latest development follows the issue of incorrect tax codes, reported by, being issued by HMRC because HMRC had assumed that each EAS and FPS submission received from an employer would contain a comprehensive listing of all employees in the PAYE scheme. An assumption which proved to be incorrect because of a number of employers operating mixed pay cycles, with some employees on a weekly pay cycle and others paid monthly.

Heaton posed the question, “How often do casual workers leave without the employer knowing that they will not be coming back?”

The scale of employment of casual, part time working in general and in the retail and entertainment sectors in particular suggests the problem may be considerable. Businesses who employ casual workers, such as pubs, restaurants and nightclubs, often find that workers do not inform them that they are leaving.  This is a commonplace occurrence, especially in the hospitality industry, but Heaton’s observations raise the question of whether HMRC failed to plan for this in their implementation of PAYE RTI reporting.

Heaton commented “This has always been an area where late or non-existent P45s have been a problem, but RTI has created a new problem.

“HMRC’s system reads the flag set when a final payment is made to an employee and marks that taxpayer as a leaver – the equivalent of a P45 arriving at the tax office. But what happens when a casual worker is paid after the shift, without being flagged as a leaver, and then does not return to the job?

“When the worker starts the next job, elsewhere, he or she is on the HMRC system as holding two jobs, so where is the tax code allocated?”

The answer is simply that the individual employees’ leaver’ status is not flagged in the employer’s Full Payment Submission to HMRC, and HMRC will not know they have left that particular job.  If the employee then starts working somewhere else, HMRC’s records will show that the employee has two jobs but it will not know how to allocate a correct coding.

Employers cannot submit an FPS where there is no payment – so cannot simply make another submission flagging the employee as a leaver.  The fact that there is now no longer a P45 which can be submitted to the Revenue means that there is no longer a simple mechanism for reporting such changes. 

David Heaton points out that keeping HMRC records on employees up to date has been a problem for some time, as some employers delay, or fail altogether, to file a P45. The scale of this problem was highlighted again recently when HMRC's publication of its 2012/13 Performance Review revealed some 5m individual PAYE taxpayer accounts were wrong.

He went on to say: “It seems the RTI system has tripped up over a fairly common circumstance, and it remains to be seen how it will be fixed – full reinstatement of the P45, perhaps, or a phantom amnesty?”

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