How are tax and NICs handled for part-time workers?
Part-time workers must be treated as all other regular employees. They should be asked for a P45 when they start and, if they cannot provide one, the P46 procedures must be followed. However, one administrative concession applies which, if used, requires the employer to follow a special procedure at the year end.
If a part-time employee provides a form P45, even if it is not current, a payroll record must be created on a P11 Deductions Working Sheet or on a computerised payroll system. The appropriate tax code is determined using normal P45 procedures.
If no P45 is provided, the employee must be asked to complete a form P46 and, other than in one specific situation, a payroll record must be created and the appropriate tax code applied using normal P46 procedures.
The exceptional situation occurs where the employee's gross pay is less than the NICs lower earnings limit (LEL) (i.e. £87 per week or £377 per month for 2007/08, £90 per week or £390 per month for 2008/09, or the equivalent for other earnings periods). For as long as the employee's gross pay continues to be less than the LEL for the earnings period, the employer is not required to create a payroll record. Instead, a simple record must be kept of the employee's name, address and earnings in each earnings period. The completed P46 is retained by the employer.
If, in any subsequent earnings period, the employee's earnings equal or exceed the LEL, a payroll record must be created and the earnings already paid must be transferred to the payroll record. The employee should be paid using the tax code identified by the retained P46 or using code NI if the earnings are not more than the NICs earnings threshold (ET) (i.e. £100 per week or £435 per month for 2007/08, or £105 per week or £453 per month for 2008/09, or the equivalent for other earnings periods). (Code 'NI' is not a tax code and is used for manual recording on form P11 only. Most computerised systems use the tax code ‘NT' in this situation.) As soon as the employee has been paid, the P46 must be sent to the employer's tax office. All payments in subsequent weeks must be paid through the payroll, even if the payments revert to below the LEL.
If, when the year end arrives, the employee is still earning below the LEL and the employer still holds the P46, no P14 End of Year Summary is required. The employer must, instead, complete a P38A Employer's Supplementary Return. Unless the form is to be used for reporting other workers for whom no P14s are being completed, the employer has simply to sign the declaration on the front of the form, i.e.
"I declare that for each worker for whom I have not completed a form P14 End of Year Summary or a form P38(S) Student employees
I hold a form P46, that has been completed at either Statement A or Statement B by the worker and
the worker was paid less than [the NICs lower earnings limit for the year]."
Many employers with computerised payroll systems find it safer and simpler to put all part-time workers on the payroll, irrespective of their earnings. This is acceptable to HMRC. Handling the pay of part-time employees in this way removes the risk of forgetting to create a payroll record and submitting the P46 when earnings exceed the LEL. At the year end, a P14 End of Year Summary may be produced, even though there are no tax and NICs to report, and it is, as a result, unnecessary to complete a P38A Employer's Supplementary Return.
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