UK Payroll Terminology
A glossary of UK Payroll Terms
Attachment of Earnings Order (AEO) – An attachment of earnings order instructs your employer to stop money from your wages to pay back your debt. Your employer will send the payments directly to the court and the court will send the money to your creditor. … This is called the protected earnings rate.
Direct Earnings Attachment (DEA) – As an employer you may be asked to deduct benefit overpayments an employee owes the Department for Work and Pensions (DWP) from their pay. This is called a Direct Earnings Attachment (DEA).
HM Revenue & Customs (or HMRC) was created by the merger of the Inland Revenue and Her Majesty’s Customs and Excise in 2005. It deals with the collection of tax, national insurance contributions and VAT.
National Insurance – A compulsory deduction of a fixed percentage of an employee’s earnings in the UK, allowing access to benefits and services such as the National Health Service (NHS)
P6: Tax code notice – A P6 notice is issued by the HMRC to employers and provides details of an employee’s tax code.
P9: Tax code notice – A P9 notice is issued by the HMRC to employers and provides details of an employee’s tax code. There are two different types P9 tax codes, a P9 or a P9X.
P9X: Tax code notice – This is a general tax code change and can apply to more than one employee.
P11D: – Employers must use a P11D to tell HMRC about the value of any benefits in kind they’ve given to employees, including directors. This means benefits or expenses that effectively increase an employee’s income – such as a company car, private medical insurance or interest free loans. The employee pays tax on most benefits whilst the employer pays Class 1A National Insurance Contributions. A copy of the P11D must be provided to each employee affected, as this will be needed by them if they need to complete a self-assessment tax return. The P11D will generally be accepted by banks and building societies as proof of extra income for a loan or mortgage.
P11D(b): ER return to report Class 1A contributions on expenses and benefits and to confirm that P11D was completed
Postgraduate Loan Deductions – From April 2019, employers could receive instructions from HMRC to deduct repayments for a Postgraduate Loan (PGL) on behalf of one or more of their employees. PGL repayments can be for either a Postgraduate Masters Loan or a Postgraduate Doctoral Loan. The HMRC will issue a PGL1 or a PGL2.
PGL1 – Where a postgraduate start notice instructs the employer to start making deductions.
PGL2 – Where a postgraduate stop notice instructs the employer to stop making deductions.
Statutory Sick Pay (SSP) is paid by employers to employees for up to 29 weeks. Employees who are off work sick for at least 4 consecutive days can qualify for SSP. The employee will need to have earned above the Lower Earnings Limit.
Statutory Maternity Pay (SMP) – This is a legal entitlement to a certain amount of pay to help a mother take time off around the time of birth and lasts for up to 39 weeks. A further unpaid period of 13 weeks is allowed as time off work. The employee will need to have earned above the Lower Earnings Limit. The qualifying period of employment is for a continuous period of at least 26 weeks up to and into the 15th week before baby is due. Fathers and adopted parents are also entitled to pay & leave.
Student loan deductions – HMRC will issue an SL1 start notice to tell an employer to start operating Student Loan deductions (Plan 1 or Plan 2). The SL1 will contain the plan type that must be operated. The HMRC will instruct an employer to stop making loan deductions by issuing an SL2 stop notice to stop a Student Loan (Plan 1 or Plan 2).
SL1 – Is a student loan notice instructing the employer to start making deductions and which plan type to use.
SL2 – Is a student loan notice instructing the employer to stop making deductions.
Tax code: Each employee has a tax code to specify the way that PAYE income tax should be calculated and deducted from their wages. If an employee has more than one job, they can have a different tax code for each.
Real Time Reporting (RTI) – Under RTI, information about tax and other deductions under the PAYE system is transmitted to HMRC by the employer every time an employee is paid. Employers using RTI are no longer required to provide information to HMRC using Forms P35 and P14 after the end of the tax year, or to send Forms P45 or P46 to HMRC when employees start or leave a job.
Full Payment Submission (FPS) – Use your payroll software to send a Full Payment Submission (FPS) to tell HMRC Revenue and Customs (HMRC) about payments to your employees and what deductions you’ve made. Include everyone you pay, even if they get less than £118 a week.
Employer Payment Submission (EPS) – Send an EPS instead of an FPS if you’ve not paid any employees in a tax month.
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 employees pension.
The Pensions Regulator – The Pensions Regulator is the UK regulator of work-based pension schemes, giving guidance to trustees, employers, pension specialists and business advisers on what is expected of them.
Statutory Paternity Pay (SPP) – To qualify for paternity pay you must earn at least £113 a week (before tax). The statutory weekly rate of Paternity Pay is £140.98, or 90% of your average weekly earnings (whichever is lower). Any money you get is paid in the same way as your wages, e.g. monthly or weekly.
Statutory Adoption Pay (SAP) – statutory Adoption Pay for employees is: 90% of their gross average weekly earnings for the first 6 weeks. £148.68 a week or 90% of their gross average weekly earnings (whichever is lower) for the next 33 weeks.
Shared Parental Leave (SPL) -You and your partner may be able to get Shared Parental Leave (SPL) and Statutory Shared Parental Pay (ShPP) if you’re having a baby or adopting a child. You can share up to 50 weeks of leave and up to 37 weeks of pay between you. You need to share the pay and leave in the first year after your child is born or placed with your family. You can use SPL to take leave in blocks separated by periods of work, or take it all in one go. You can also choose to be off work together or to stagger the leave and pay.
Statutory Shared Parental Pay (ShPP) – is paid at the rate of £148.68 a week or 90% of your average weekly earnings, whichever is lower. This is the same as Statutory Maternity Pay (SMP) except that during the first 6 weeks SMP is paid at 90% of whatever you earn (with no maximum).
P45: Cessation Form – You’ll get a P45 from your employer when you stop working for them. Your P45 shows how much tax you’ve paid on your salary so far in the tax year.
P60: Statement of Earnings for the tax year – Your P60 shows the tax you’ve paid on your salary in the tax year. You’ll need your P60 to prove how much tax you’ve paid on your salary, for example: to claim back overpaid tax, to apply for tax credits, as proof of your income if you apply for a loan or a mortgage.
NINO Verification Request – The NINO Verification Request process archives the details of employees with unverified NI numbers and then generates the following: An XML file with details of the employees for delivery to HMRC. Audit Report identifying all employees included in the NVREQ file.
Gender Pay Gap Reporting (GPGR) – Organisations with 250 or more employees have to report on their gender pay gaps annually, based on a ‘snapshot date’ of 31 March for public sector organisations, or 5 April for private and voluntary sector employers.
LEL: Lower Earnings Limit for National Insurance – The lower earnings limit is set each tax year by the government. Even if an employee earns more than the lower earnings limit (LEL), he is not required to pay primary, class one national insurance contributions until his earnings reach the primary threshold. In the 2019-20 tax year, the LEL is set at £118 a week.
The Primary Threshold for National Insurance rates – If you earn between the Primary Threshold and the Upper Earnings Limit, then you will pay the standard rate of National Insurance (12% in 2019/20) on your earnings over the Primary Threshold. The Primary Threshold is £166 per week in 2019/20. The Upper Earning Limit is £962 per week for 2019/209.
Upper Earnings Limit for National Insurance rates (UEL) – For high earners who are paid over the Upper Earnings Limit, the National Insurance rate falls. On earnings above this limit, the employee pays a lower rate of 2%. The Employer continues to pay the standard rate of employer’s National Insurance (13.8%) on these earnings.
Mileage Allowance Payments (MAP) – If a business chooses to pay employees an amount towards the mileage costs, these reimbursements are called ‘Mileage Allowance Payments’ (MAPs). 45p per mile is the tax-free mileage allowance for the first 10,000 miles in the financial year – it’s 25p per mile thereafter.
Constructions Industry Scheme (CIS) – Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC). The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
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