PayPerShop Forum

Hi,
I have a monthly paid leaver whose last day is 1st April. I want to pay her 1 day's pay for April, on an April payslip (dated 30.4.08). I want to do her a P45 as at Month 1, and give her a P60 as a current employee. The question is, can I? If she is leaving before 5th April, is she entitled to a P60? And if she actually gets the cash on the day she leaves, so before 5th April, does that have a bearing?
I'm hoping you will say that in this case practicalities come first!
Alison

Alison,

First off, by terminating the employment on April 1st the employee is not technically entitled to a P60 and it ought to be suppressed. Only those who are actually employed on April 5th are entitled to get one.

The reason for this is they are not supposed to have a P45 and a P60 for the same period.

The other issue you have is that by paying the person on April 1st you have to treat the payment as Month 12, in other words BR.

I have a problem with the employer treating the matter one way when the facts demand a completely different one. There is nothing wrong with wanting to deal with that one day as Month 1 but I am struggling to work out what benefit the employee will get unless there are residual payments, like holidays and bonuses to process and the employer wants to minimise the tax bill on leaving.

This can be achieved by making the final payment on April 6th but even here you cannot treat it as month 1 for NIC purposes because this will not be the "normal" pay day.

Whichever way you look at it there are problems to be faced in justifiably treating the payment as Month 1 and complications to overcome to get what you want.

Any chance you would elaborate on the reasons behind this? You mention that you are hoping practicalities will prevail, does this mean you are under some pressure to treat this final payment as month 1 and in fact you don't want to?

Ian Whyteside

Hi Ian,
That's very interesting - the only reason I wanted to treat it as April is because it is April earnings and the pay day before that is 31 March so it shouldn't be on that payslip - or should it? I just want to pay it as normal, either on 31 March payslip or 30 April payslip. If I can, I want to avoid making a 'payment after leaving', because this is normal wages, not something left off the leaver payslip. How would you deal with it? Would you make it April, and make the employee wait until 30th April for pay? Or add to March? What would you do re P60 / P45?
Alison

Hi Both

I have a similar situation with staff leaving on 6th April. I know not quite the same as this falls in the new tax year, but I'm planning on processing at the end of the month with everyone else...and making them wait until the end of the month for their money...and I wasn't planning on using BR either. Am I doing the right thing?

If I were Alison I would be tempted to make them wait until the end of the month and issue both P60 and P45 and I'm quite interested to see how this pans out.

Jenny

I think in this situation I would always add the odd day onto the previous month - i.e. March(month 12). My reasoning being if it were at any other time in the tax year, paying just one day's pay would generate a tax refund, and if the employee is going to another job, they would then be paying BR tax in their new job. Give a P45 dated 1 April at the time of leaving, and don't issue P60.

Hi all,
Thanks for your thoughts on this. Mary's plan sounds logical, like Jenny I am wondering what you would do with monthly leavers on the 2nd, 3rd, 4th or 5th April. From what Ian says it sounds like there is a definite correct approach, I'm keen to hear more about that and what he thinks of what we've said.
Alison

Hi Alison,

Is that a challenge?

Actually I don't have the answer and can only work on my instincts just like everyone else.

Yes there are definitive processes, like for example, if you pay on April 1st it must be treated as month 12, you cannot do anything else without committing a PAYE offence and if you have already paid month 12 then the new payment will attract taxation at BR. Similarly, for NIC's you would aggregate the additional payment so that any contributions will be based on the premise that the payment was made in March. So, for all intents and purposes, Mary's method would probably be better as it avoids the cost of an additional payroll process, a month 12 supplementary run in effect.

Alternatively you could do as Jenny suggests and make them wait till the normal pay day in April for their one day and this means no income tax and no NIC, because it is the normal pay day you can treat it as a month for NIC purposes.

But for one days pay?

Again I am not sure it is cost effective.

I fully appreciate the view that it is pay for April and should be paid in April, I can see that and cannot argue against that logic one bit, however from a practical point of view you can argue that it is due to be paid as soon as possible and that places it in tax month 12. You could also rely on the HMRC rules for P45's which state that the form must be issued on the final date of employment or as soon after as is practicable.

Personally, I'd avoid the aggravation and add it to March, but don't quote me!

Ian Whyteside

It's all challenging to me! I'm just glad to have everyone's brains to pick! I think I've got the point now - it's ok to put it on an April payslip so long as it is paid on the normal pay day. Pay it early, and you must apply the rules at date of payment. I'll definitely add this one day to March, do a P45 and no P60.
Would you agree (hypothical situation now) that if someone left on, say, 4th April, you could pay them 4 days at end of April on their normal pay day, and if so you would use normal tax code and Month 1 P45? Does it then follow that a P60 would be issued, even though the employee has left before 5th April? Mmm...

I have followed this thread with interest. Ian W's explanation of the statutory PAYE rules are spot on, but the practicalities often create situations that do not seem to fit.

Taking the hypothetical situation, Alison's logic is exactly right, despite its apparent consequences. The reality of tax law is that liability for tax arises when the money is paid, not when it is earned. The work is performed in one tax year and the employee left in that tax year. The money, however, is paid on the normal payday in the next tax year. The tax is due, therefore, in that next tax year and is properly taxed in that tax year and a P60 is issued for that tax year.

That's great, thank you all for input and clarification. I love this website! Now back to a deskful of year end prep...

Thanks for the input Ian W and Ian C. I'm glad I'm doing the right thing and I'm also pleased to see that someone who has vastly more experience than me also still asks the same sorts of questions!

As it happens, one of the staff that is leaving me in April may be leaving on the 6th, or on the 3rd, or not at all...or believe it or not leaving only to be TUPE'd back onto our payroll in September.

And no Ian W I'm not making it up, I only wish I were...but absolutely it's much easier for me to make them wait until the end of April even if it is only for a few days.

Jenny