A guide for employers on topical payroll issues.
Employers need to keep an eye on changes affecting payroll so all employees have the right amount of tax deducted under PAYE. This is a round-up of the latest payroll-related developments.
Dynamic coding
In July 2017, PAYE tax codes became more refined. Under the new system, known as dynamic coding, HMRC issues an updated tax code once they become aware of a change that will affect the tax an employee pays, such as a new benefit in kind.
Previously, HMRC was seldom aware of changes in benefits until the employer submitted the P11D forms. HMRC would collect the resulting underpayment through an adjustment to the employee’s tax code for the following tax year.
Under the new system, HMRC adjusts the employee’s tax code to collect the right amount of tax for the current tax year. However, HMRC needs a ’trigger’ before they change the tax code.
This trigger could be the employer submitting a full payment summary (FPS) or a P46 form, which relates to putting car benefit through payroll, or the employee updating their personal tax account.
Once HMRC is aware of the change, it will recalculate the employee’s annual tax bill and include any underpayment of tax. More…