Draft regulations: proposed amendments in respect of salary advances

This technical consultation seeks views on proposed amendment regulations, which allow employers to delay reporting an advance payment of salary (salary advance) made to an employee until payment of the remainder of that salary instalment, where certain conditions are met.

This change will impact employers, who would otherwise have to report the advance and regular payment of salary to HMRC separately. It will give clarity to employers on how to report advance payments to employees.

For income tax in respect of PAYE (Pay As You Earn) income, Regulation 67B and Schedule A1 of the Income Tax PAYE Regulations 2003 set out requirements for reporting relevant payments (including salary advances) to HMRC. On the basis of the current legislation, salary advances must be reported on or before the date they are paid.

In respect of Class 1 National Insurance contributions, a salary advance must also be reported on or before the date it is paid under the Social Security (Contributions) Regulations 2001. Paragraph 21A of Schedule 4 sets out requirements for real time returns of information about the payment of earnings (which includes salary advances), including the time by which the employer must deliver the information to HMRC. Regulation 7 provides for treatment of earnings paid otherwise than at regular intervals, with regulation 7(3) prohibiting a payment of earnings made in one tax year to be treated as made in another tax year.

The proposed amendments are intended to simplify the process for employers who pay salary advances. To ease the administrative burden, employers will delay reporting a salary advance to HMRC’s Real Time Information (RTI) system until the payment of the remainder of that salary instalment.

The proposed amendments will:

• give employers a clear and consistent approach in reporting salary advances to HMRC
• ease the administrative burden for employers, who will not need to submit extra reports to HMRC

The amendments are intended to simplify the reporting of salary advances. They are not intended to impact on other PAYE/RTI processes. The amendments will also not apply where the employee’s normal payment interval is less than a week or more than a month.

Further background to the proposed amendments:

Issue 102 of Agent Update

February 2023 issue of the Employer Bulletin

If you identify any issues for employers and payroll service providers in operating the changes set out in the draft amendment regulations, please email the policy team by 11.59pm on 9 October 2023.

1. Do the amendments meet the stated policy aims?

2. Will these changes cause any reporting difficulties for employers and their agents?

3. Employers who wish to make salary advances outside of a third party scheme will need to ensure that their software can report the salary advance at the next scheduled reporting date. Other than that, HMRC does not believe that these changes will require significant revision of current RTI reporting software. Do you agree? If not, what other changes do you anticipate will be necessary?

4. Will these changes cause any administrative difficulties for employers and their agents?

5. Will these changes produce any other consequences, for employers or their workers?