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Annual PAYE process

Year end payroll tasks in simple terms.

In simple terms – annual PAYE process for most employers.

Step 1 – Send final FPS: this is a check box in the PAYE software which needs to be ticked confirming that it’s the final FPS of the year.

Step 2 – Issue P60: once step 1 has been completed, we need to issue P60 to all employees employed as at 6th April. Some software send P60s to all employees even those who left. So ensure to exclude the leavers when sending P60s. Also save a copy in your records.

Step 3 – Update Software: all PAYE software must be updated once the tax year ended. Usually the software will prompt you automatically to update it once you logging. Alternatively, visit software provider’s website for instructions.

Step 4 – Update tax code for the new year: please use HMRC guide P9X for this.

Step 5 – Update staff salary with National Minimum wage. Adjust director’s salaries where required.

Bonus points:

1 – Before every payment run employers need to download tax notices from HMRC website. HMRC has made a very good free software – HMRC Desktop Viewer Most software will have an inbuilt facility to download PAYE notices.

2 – We are using MoneySoft payroll for our payroll. We find it easy to use and value for money. We were recommend this software by good friends at 1 to1 accountants.

Employee on the road to Samarkand

Employee moving abroad.

A client’s employee wished to leave her job as she was moving back to India. Client requested her to keep on working for few months from India until they found a replacement.

As per HMRC guidance I advised them to submit P85 to HMRC.

Client called HMRC and was advised by the specialist team to complete DT individual form.  Print it off and get it stamped by the Indian Tax Authority.  Once it is stamped it will need to be passed on to HMRC who will issue employer with an NT code (no tax code) but until then employee has to pay tax in the UK and payroll will be run in usual manner. 

The moment employee is issued with an NT code employee does not pay tax in the UK.  Only when P45 is issued employee will be reimbursed any tax overpaid.

Watch this space.

Taxation of Interest Income from NRE and FCNR Deposits for UK Residents

NRE and FCNR get tax credit even without paying taxes in India

  1. Double Taxation Avoidance Agreement (DTAA) provides for credit to be given for tax `spared` (i.e. not paid) in India under the provisions of Indian law set out in Article 24 (4)
  • This tax ‘spared’ relief is restricted to a period of 10 years from first exercised – Article 24 (5)
  • Credit for `tax spared’ is limited to the amount of tax which would otherwise have been paid under the terms of the agreement. As per UK India DTAA interest can be taxed maximum @ 15% Article 12 (2). Thus, relief restricted to 15%.
  • DTAA does not mention any certification requirements.
  • Income under sections of Indian Income Tax Act 1961 is mentioned in DTAA:
SectionsType of Income
10(4)Non-Resident (External) Account
10(15) (iv)FCNR Deposits
Other sectionsNot relevant for present scenario

Conclusion:

NRE and FCNR Deposits will get a Foreign Tax Credit Relief for tax which would have been paid in India if NRE/FCNR interest was taxable . This relief is restricted to 15% of gross interest.

Sources:

  1. Double Taxation Relief Manual DT9553
  2. International Manual INTM161270
  3. UK India DTAA Agreement – Synthesized text
  4. Source of Indian Income Tax text
  5. Institute of Chartered Accountants of India – Taxation of Non-residents 2018 version.

Bonus:

  1. Prior to 1st April 2020 dividends distributed in India were subject to Dividend Distribution tax (DDT). Indian residents did not need to pay tax on dividends, but non-residents were at a disadvantage as they could not get credit for DDT.

Now DDT has been abolished, dividend will be taxable in the hands of the shareholders.

2. Interest on Fixed Deposits – interest arises and is taxable each year as it is credited. see Example 2 on SAIM2440

3. Interest Certificate – Your bank can easily provide this certificate for individual tax years. It will make tax computations much easier.

Is Pension a taxable benefit ?

It’s that time of the year when year-end reporting for PAYE is in focus.

Everybody is confused about the yearend tasks, taxable benefits, PAYE settlement agreements.

Due to auto enrolment many of the employers are now paying pension to their staff.

I was confused about whether employer’s contribution towards pension will be a taxable benefit.

No where I have heard that it is the case but it is always good to double check if a doubt comes to your mind.

I started searching – no answers !!!

Finally I came across HMRC guide CWG2 , it clearly states that Pension contributions are NOT to be included PAYE tax or NIC ; refer Chapter 5

March 2021 – Legislation reference 

Employer’s contribution to employee’s registered pension schemes do not count as earnings or taxable benefits under ITEPA 2003, s 308.

Plus, they do not attract employers’ NICs (SI2001/1004, Sch 3)

Budget Highlights for Hospitality Sector

Budget 2021 – Hospitality industry : What you need to know

  1. Furlough Scheme to continue till September 2021:

Employers           will receive 80% of wage. NIC and Pension to be paid by
employer.

                              From July 2021 employers will need to contribute 10%

                              In August and September contribution will increase to 20%.

Employees          No change they continue to get 80% of their wage for hours not
worked. Tronc not included.

  • Self-employed Grants

Fourth grant (Feb to April 2021)                        80% of profits                   Can be claimed in late April

Fifth grant   (May to Sep 2021)                          turnover criteria as below:                         

Turnover fallen.

More than 30% – 80% of the profits ; same like before.

Less than 30%    – 30% of the profits instead of 80% before.

  • National Minimum Wage increases to £8.91 from April 2021.
  • Apprentices – Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.

5.  Local grants to end in March. New Restart grant to be given @£18k per premises.       

6. Recovery Loan Scheme. From 6 April 2021 the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. This replaces Bounce Back loans and CBIL.

7. Business Rates. 100% relief for April to June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.

8. VAT. 5% to continue till 30th Sep 2021. Then 12.5% for next 6 months. Full 20% from 1st April 2022.

9. Corporation Tax. From 1st April 2023 main rate at 25%. Companies with profit less than £50k will still be 19%. Taper relief for companies with profits between £50k and £250k.

10. Super Deduction. In case you are feeling brave. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. 

11. Alcohol and fuel duty frozen for another year.

12. Help to Grow. The government will offer a new UK-wide management programme to upskill SMEs in the UK over three years. Over 12 weeks, and 90% subsidised by government.

13. Help to Grow: Digital – The government will launch a new UK-wide scheme in the autumn to help SMEs save time and money by adopting productivity-enhancing software.This will combine a voucher covering up to half of the costs of approved software up to a maximum of £5,000, and free impartial advice, delivered through an online platform.