Salary advances have been simplified by HMRC

Recently, HM Revenue & Customs (HMRC) announced significant amendments to the Pay-As-You-Earn (PAYE) reporting process, specifically regarding salary advances.

Historically, salary advances – payments made to employees before their regular payday – necessitated additional Real Time Information (RTI) reporting requirements.

Employers had to submit a separate Full Payment Submission (FPS) for each advance payment, complicating the payroll process and increasing the administrative burden on both employers and HMRC.

The amendments now allow for salary advances to be reported alongside regular earnings on the employee’s contractual payday.

This approach aims to consolidate the reporting process, treating advances as part of the regular earnings for that pay period.

This simplification is a welcome change for payroll departments, potentially reducing errors in PAYE coding and Universal Credit calculations.

Implications for SMEs and payroll departments

But what does this mean for your business and your payroll department?

  • Reduced administrative burden: The streamlined process eliminates the need for separate FPS submissions for salary advances, reducing the time and resources spent on payroll administration.
  • Enhanced payroll accuracy: By incorporating advances into the regular payroll cycle, businesses are less likely to encounter errors related to underreporting or misclassification of payments.
  • Improved employee satisfaction: Simplifying access to earned wages without the added administrative complexity can lead to increased employee satisfaction and financial well-being.

Preparing for the changes

We have been advising our clients on strategies for preparing for the changes and on their compliance requirements.

We recommend that you:

  • Update your payroll systems: Ensure that your payroll software is up to date and capable of handling the new reporting requirements. Software providers are likely to release updates or guidelines on how to adapt to these changes.
  • Train your payroll team: Educate your payroll department on the new regulations to ensure a smooth transition. Understanding the specifics of how salary advances are now treated will be crucial in maintaining compliance.
  • Review your salary advance policies: Revisit your company’s policies on salary advances to align with the new legislation. It may be necessary to adjust the terms and conditions of advances or the process by which they are requested and approved.
  • Communicate with your employees: Keep your employees informed about how these changes might affect their pay, particularly if they are accustomed to receiving advances. Clear communication can help manage expectations and reduce confusion.
  • Monitor regulatory updates: Stay informed on further guidance from HMRC, especially as the implementation date approaches. Regulatory bodies may release additional information or clarification that could impact your payroll processes.

Alternatively, you could outsource your payroll responsibilities to a qualified and experienced payroll specialist who can keep up with the changes and ensure your business remains compliant with HMRC.

Adapting to these changes could promote a more efficient, accurate, and employee-friendly payroll process – if you stay up to date with the regulatory landscape.

For more information on your payroll requirements, please don’t hesitate to get in touch with one of our team.