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Bye Bye P38(S)
Monday, March 19th, 2012
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HMRC’s Software Developers Support Team (SDST) made an informal announcement to software developers on 15 March 2012 saying that the P38(S) procedure and form will be withdrawn from tax year 2013/14. This will have an impact on any company that relies on the procedure and form for employing students during their vacation periods.
There are two groups of employers that this will impact:
1. RTI 2012/13 Employers
The first group is described in the announcement from SDST as being ‘if the employer knows that they will be going on to RTI’ at some point in 2012/13. One reason for this is all to do with the tax code that is used and declared for a student under the P38(S) procedure. HMRC guidance is that for these employees, tax indicator NI should be used, which ensures that the payroll system will only take NICs and not tax. However, when tax indicator NI is used, the P14 should submit a blank tax code field at year-end. If the employer is going to be an RTI-employer at some point in the 2012/13 year, the tax code field is a mandatory field and cannot be left blank. Therefore, code NI will become obsolete at the same time as the P38(S).
Importantly, for RTI 2012/13 Employers, both the P38(S) AND indicator NI is redundant from the point of go-live in RTI – remember that this is the group of employers who know that they are going onto RTI in 2012/13:
April Controlled Go-Live Pilot Employers
The P38(S) procedure must not be in place for any current or leaver employee at the time of the go-live. Student employees must be treated ‘in the same as any other employee’ (i.e. the P45 or P46).
May – June 2012 Joining Pilot Employers
These employers may have been affected if they have used the P38(S) and NI indicator route for any students that worked during the Easter vacation. At the point of go-live and payroll alignment, all such students must have been treated as leavers, with a date of leaving, and tax code NT.
July – September Volunteer Employers 1st Tranche
Again, these employers may have been affected if they used the P38(S) and NI route for Easter students. In this case, as above, at the point of go-live and payroll alignment, all such students must be leavers, with a leaving date and a tax code of NT.
Summer students must be treated as if they were any other starting employee via the P45 or P46
November and December 2012 and March 2013 Volunteers 2nd Tranche
For the employers who go live in November and December, the P38(S) and NI route may have been used for both Easter and Summer students. If so, all such students must be leavers with a leaving date and a tax code NT at the point of go-live and payroll alignment.
For the March 2013 tranche of employers, it is possible to have Easter, Summer and Christmas P38(S) and NI students. If so, these should all be leavers with a leaving date and a tax code NT at the point of go-live and payroll alignment.
For any employer thinking of entering the pilot (rather than knowing they are in it), remember that you will not be able to have any students on NI codes at the point of go-live and alignment.
2. RTI 2013/14 Employers
This is all of the remaining employers not in the first category. Simply, if the P38(S) and NI route have been used in the past, it will not be available from the start of the tax year 2013/14.
Given that Easter falls at the end of March / start of April in 2013, it is quite possible that a payment to a student in their Easter vacation period that falls into 2012/13 tax year could be processed using the P38(S) and NI route. However, at the time the 2012/13 P38(S) expires on 05 April 2013, it will not be available for the remainder of the vacation period and the P46 must be signed.
Comment
The PAYE system itself works well for people in stable employments, however, can break down when employments are intermittent, like a student’s may be. This was acknowledged by HMRC in their student taxation consultation back in 2008 and, more recently as one of the drivers for RTI.
I think it is acknowledged that working patterns for students have changed since the P38(S) was introduced – many continue through their holidays and work in term time, therefore, the P38(S) procedure is not relevant in these instances anyway. The form is a burden on employers – it is paper, has to be manually completed and retained in the department after the end of the tax year and is, therefore, increasingly out of favour.
Student taxation and the NT / NI code discussion has been with us for many years. Given the abolition of the P38(S) and the RTI requirement for a tax code to be shown, the argument is over.
The Learn Centre generally welcomes HMRC’s announcement on the withdrawal of the form from April 2013. However, we recognise that there are a great many employers who regularly employ students under the P38(S) who will need to consider changing practices, procedures and policies and will be inconvenienced by this announcement. As always – reduce the administration burden with one hand but give it back with the other!
Further Information
HMRC – Student Employees
