PAYE and NICs Procedures – When to work out NICs due on marginal items of payWednesday, June 30th, 2010
Chapter 1 of HMRC’s CWG2 Further Guide to PAYE and NICs provides instructions, under the heading “When to work out NICs and PAYE” on page 7, on how to handle marginal items of pay (such as expenses) for NICs purposes when notification that they have been paid is received by the payroll department too late for the NICs due on them to be calculated at the correct time. Another example would be the provision of non-cash vouchers, where the payroll department is advised too late to calculate the Class 1 NICs due in the current earnings period.
Note that these instructions do not relate to the payment of expenses through the payroll. NICs in such circumstances are properly calculated at the time the expenses are paid. Rather, these instructions apply to expenses that are paid outside of the payroll and, because the expenses are liable for Class 1 NICs (perhaps because they are not business-related expenses), the payroll department is subsequently informed of the payments.
HMRC has published replacement text for this section of the CWG2 booklet, in particular to clarify the treatment for NICs purposes of payments of earnings in the form of securities and shares.
There is no material change to HMRC’s general acceptance that, where the payroll section does not receive information about certain marginal items of pay until after they have been paid, they may be included in gross pay in a later earnings period, even if it is in the following tax year, rather than recalculating the NICs for the correct earlier period.
- marginal items of pay must be included in gross pay for NICs purposes without any undue delay – from tax year 2010/11 HMRC can impose penalties if NICs are not paid on time and in full unless, as a result of an unforeseeable or exceptional event, the employer has a reasonable excuse, based on the facts of the individual case.
- a payment must be allocated to the correct earnings period and the NICs recalculated if the deferred calculation is likely to have a material effect on the employee’s benefit entitlement, for example where the employee’s earnings are around the lower earnings limit.
- HMRC will require an employer to calculate NICs in the correct earnings period if it appears that the calculation is only being deferred in order to avoid or reduce NICs
- amounts that are paid, or treated as being paid, by way of securities, including shares and share options, are not “marginal items” and the NICs must always be allocated to the correct earnings periods and the NICs recalculated as appropriate.
When to work out NICs and PAYE – marginal items of pay