The world of wages is full of specialist payroll terminology and acronyms that payroll managers need to be aware of before they can begin to administer employee wages.
Below we explain some of these phrases and terms in an easy to understand manner.
The Basics
PAYE – Pay As You Earn
PAYE is the system that HMRC uses to collect Income Tax and NICs from employees' pay as they earn it. Employers deduct tax and national insurance contributions from employee’s wages or pension (depending on the pension) before paying the wages or pension and pay these deductions to HMRC on a regular basis, either monthly or quarterly.
NI – National Insurance
Employees pay NI contributions to build up entitlement to certain state benefits, including the State Pension. Employers also pay NIC (National Insurance Contributions). The contributions paid depend on how much the employee earns and whether they are employed or self-employed. The employee stops paying National Insurance contributions when they reach State Pension age.
YTD – Year to Date
A Year to Date figure is a figure that is the total figure up to this point of the tax year.
Real Time Information
RTI – Real Time Information
The term used to describe the changes to Payroll from April 2013. Employers are required to report PAYE information to HMRC ‘on or before’ their employees’ pay date each time an employee is paid instead of at the end of the tax year.
EAS – Employer Alignment Submission
This document was used to align data with HMRC before the submission of an employer’s first FPS. It would only be submitted for employers with 250+ employees. This document was withdrawn in October 2017. .
FPS – Full Payment Submission
An RTI FPS is what should be sent every time employees are paid and closed, so every month for monthly, every week for weekly, every 2 weeks for 2 weekly etc. This should be sent to HMRC either on or before the day the employee is paid. If an FPS is submitted after an employee’s pay date then a ‘late submission reason’ should be included in the submission.
EPS – Employer Payment Summary
If the company has any recovery due from statutory payments like SMP, OSPP etc. or CIS deductions suffered then you would submit an EPS each month/quarter (depending on how you pay HMRC) to inform HMRC of a reduction in liabilities. The EPS is also used to claim Employment Allowance, report Apprenticeship Levy payments due, inform HMRC if the PAYE has ceased, if there are no more submissions expected to be made for the scheme in the tax year, or if no employees have been paid for the current or past periods, or if no employees are expected not to be paid for a period or periods in the future.
Period of Inactivity
A Period of Inactivity EPS would be submitted if you have not paid any employees in a tax period, so that HMRC do not expect any payment from you. If you do not pay any employees, then you wouldn’t submit an FPS and instead submit an EPS Period of Inactivity. A Period of Inactivity can cover future periods where employees are not expected to be paid.
Irregular Payment Indicator
This indicator should be set for any casual or occasional workers, particularly those who may not work for 13 weeks or more. This informs HMRC that the individual is still employed even if they do not appear in an FPS submission for many pay periods.
Statutory Payments
SMP – Statutory Maternity Pay
If an employee is expecting a baby, she may be eligible for Statutory Maternity Pay. This replaces her normal earnings to help her take time off around the time of the birth. SMP is paid for up to 39 weeks and is 90% of the employee’s Average Weekly Earnings (see AWE) for the first 6 weeks and a statutory and for the following 33 weeks a statutory amount, which changes annually, or 90% of the AWE, whichever is lower. SMP is paid at the same time and in the same way as you would pay wages for the same period.
MAT B1 – Medical Reference for SMP
The Maternity Certificate (MAT B1) enables a pregnant woman to claim SMP from her employer and Maternity Allowance (MA) from Jobcentre Plus. The certificate verifies the pregnancy and confirms the expected week of the birth, or the actual date if completed after the birth. A MAT B1 certificate should be provided by the employee to the employer within 21 days of the SMP start date (unless the baby is born early).
SSP – Statutory Sick Pay
SSP is paid to employees who are unable to work because of illness. SSP is paid at the same time and in the same way as you would pay wages for the same period. Employers cannot recover any SSP payments made.
SPP –Statutory Paternity Pay
Employees may be entitled to Statutory Paternity Pay if they and their partner are having a baby, adopting a child or having a baby through a surrogacy arrangement. Employees can choose to take either one or two consecutive weeks of paid leave. The length of time is the same even if they have more than one child. The leave cannot start before the birth and the start date must be either the actual date of birth, an agreed number of days after the birth or an agreed number of days after the expected week of childbirth, and the leave must finish within 56 days of the birth (or the due date if the baby is early). The start and end dates are different if the employee is adopting a child.
SC3 Form – Medical reference for SPP (birth)
An employee requires an SC3 form to request paternity leave and/or Statutory Paternity Pay (SPP). The employee must be the child’s biological father or the mother’s husband or partner-including female partner in a same-sex couple. The form can be filled out by the employee online, printed, signed and dated.
SC4 Form – Medical reference for SPP (adoption)
This form is required to apply for Statutory Paternity Pay and Leave if an employee is adopting a child or planning to adopt a child as part of a fostering for adoption arrangement, or is a parental order parent.
ShPP – Shared Parental Pay
Shared Parental Pay can be paid when a mother gives up her right to SMP before the end the 39 weeks of SMP has been paid, and the remainder of the SMP pay period can be shared between her and her partner.
SAP – Statutory Adoption Pay
SAP stands for Statutory Adoption Pay. If an employee is adopting a child with a partner, one of them may be entitled to SAP and the other may be entitled to Statutory Paternity Pay (SPP).SAP usually follows the same basis as SMP in terms of amounts of length of time.
SER – Small Employer Relief
An employer qualifies for SER if, in the previous tax year, the company paid less than £45,000 in total gross Class 1 NICs. Small employers who qualify for SER recover 100% of the SMP/SAP/SPP/ShPP paid to their employees and also 3% compensation. Employers not entitled to SER can only recover 92% of the SMP/SAP/SPP/ShPP paid to their employees. Both the recovery and compensation, where applicable, are deducted from the employer’s liability to HMRC and as shown on the P32 report.
To mark a company as a small employer in QTAC go to ‘Company > Company Maintenance > Tax and NI and tick the ‘Calculate Small Employer Relief….’ tick box.
SRP – Statutory Redundancy Payment
Employees are entitled to statutory redundancy pay provided they have been employed for 2 or more years. The amount of statutory redundancy pay is based on the employee’s age and length of service up to 20 years of service. Redundancy pay (including any severance pay) under £30,000 is not taxable.
Reports
P45
The P45 form is given employees when they leave an employment. It is entitled ‘Details of employee leaving work’. A P45 is issued by the employer when an employee leaves the company and shows how much tax the employee has paid on their salary so far in the tax year (6 April to 5 April).A P45 has 4 parts – Part1, Part 1A, Part 2 and Part 3:
P45 Part 1:
Employers electronically send Part 1 to HMRC– QTAC does this for you when you set an employee to be a leaver and then submit your next RTI submission.
45 Part 1A:
The Employee should keep Part 1A for their records.
P45 Part 2 and 3:
Part 2 and 3 are given to the employee who then should give them to the new employer (or to Jobcentre Plus if not working). By law employers must give employees a P45 when the employment ends. Since April 2020 HMRC have withdrawn their pre-printed P45 form so employees are likely to receive a ‘plain paper’ P45. However employers with a stock of the pre-printed forms can continue to use them until stocks run out.
P46/Starter Checklist:
The ‘Starter Checklist’ replaces the P46 but is similar in its design. Before RTI employees that joined a company without a P45 would have to fill out a P46. Under RTI, the P46 is replaced with the ‘Starter Checklist’, which is similar to the P46 but, even when an employee provides a P45, a starter declaration must be filled out as well.
P60
A P60 is an End of Year Certificate. It is a statement issued to employees at the end of a tax year detailing the gross pay, taxable pay, tax paid, National Insurance contributions, statutory payments received and student loan repayments. Employees should keep the P60 forms for six years, as they are/proof that tax has been paid by them. Because P60’s are a statement of totals for employees at the end of the tax year, they shouldn’t be given to employees who left during the tax year but only to employees who are still actively employed at the end of the tax year.
P11d: Form P11D (Expenses and Benefits)
A P11d is a tax form filed by employers for each director and employee earning over £8500 per year. They should be sent to HMRC. P11Ds are used to report benefits provided and expense payments made to employees by employers that are not put through the payroll. The employees are also given a copy, should they need it for a self-assessment tax return. This is not to be confused with form P11(Deductions Working Sheet), which is for tracking deductions made by PAYE. QTAC does not report or produce P11D’s as it is handled outside of the payroll software.
Auto Enrolment
Auto Enrolment is a government initiative and requires every employer of staff normally working in the UK to put their qualifying staff into a workplace pension scheme and to make contributions towards their employee's pension. People are living longer and many more people are reaching retirement age, the scheme was started to get people saving for retirement earlier.
The main concept of auto enrolment is that when the employee pays into the pension fund the employer pays as well. For more information and a guide to the percentages at which the contributions are taken see ‘Auto Enrolment: Contributions and Terminology.’
Employment Allowance
Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000.
The employer’s liability is reduced by the employers Class 1 National Insurance contributions due each time the payroll is run until the £4,000 has gone or the tax year ends, whichever is sooner. If the total claim does not amount to £4,000 in the tax year the remainder can be offset against other taxes.
Miscellaneous
BACS – originally Bankers Automated Clearing Services
The BACS system is an electronic method of processing of financial transactions. BACS payments usually take three working days to clear. See your bank for more details.
