August Questions and Answers
Newsletter issue – August 2023
Q. We have a new employee who did not present a P45 and did not complete the Starter Checklist. Which FPS starter declaration and tax code should we use?
A: HMRC’s guidance in the PAYE Manual says that the starter declaration must be C and the tax code to use is 0T on a week 1 / month 1 basis. Starter declaration C, essentially, sets the employee up on HMRC’s systems with a secondary record, simply because HMRC do not know whether this is a primary employment or a second employment. Tax code 0T W1 / M1 means that the employee is not entitled to any personal allowances.
Use HMRC’s ‘Work out your new employee's tax code’ tool for confirmation. Failure to return the starter checklist is an all-too-common event and the employer should do everything they possibly can to get the checklist completed prior to the employee’s first payday.
Q. A client did not tell us that they were eligible for the Employment Allowance in tax year 2023/24 (despite us asking for confirmation!). After the July payrun, they did tell us. Can we indicate to HMRC that they are eligible even though the tax year is well underway?
A: Yes! Employers can claim the Employment Allowance going back 4 tax years, though only 1 through the payroll. Simply, in the next payrun, tick the Employment Allowance claim indicator in your software for the next submission of the Employer Payment Summary (EPS) and HMRC will apply the Allowance for the whole of the current tax year. The employer, though, will only notice that you have done this when they look at the National Insurance liability in the next payrun.
Do check the eligibility criteria on Gov.UK. Not all employers are eligible (and you will need to indicate their business sector on the EPS as well).
Q. We have an employee who is taking unpaid parental leave in September for 2 weeks. This is so that he can be with the child as they settle into their new school. The employee has told us that he took unpaid parental leave at his previous employment. Do we need to take this into account?
A: Unpaid parental leave is one of those employment rights that does impact payroll, as it means we must adjust their earnings for the pay period. Therefore, this is a relevant question and you are right to query this, as not all employers know the eligibility criteria. The employee is entitled to 18 weeks for each child up to the age of 18, taken in weekly blocks capped at 4 weeks per year. Yet, the entitlement is per child, not per employment.
So, yes, you do need to consider the unpaid parental leave taken at a previous employment to ensure the employee does not exceed their statutory entitlement (the 18 weeks per child up to their 18th birthday).