In September 2023, ICB reported that HMRC had introduced draft legislation concerning the reporting of salary advances through Real Time Information (RTI) via the FPS.
These (for tax and National Insurance) were open for consultation but have now made it through to legislation:
This legislation is all to do with the reporting of salary advances via RTI but, as in 2023, bookkeepers may be confused by the word ‘advance’ which is used throughout the legislation. ICB needs to clarify what an advance is, as indicated by the legislation, and what we know as an advance:
A Salary Advance - definition
1. We are NOT talking about what payroll professionals / bookkeepers refer to as a ‘salary advance’ – an example being where we have missed something from the payroll run, made and estimation of the net pay and advance this to the employee
2. We ARE talking about what HMRC refer to as salary advances or, more correctly, payments on account. This is where an employee receives a payment in respect of some of their income ahead of the time it is due. For example, an employer engages with a third party provider to early allow access to earned income ahead of payday. This third party advances the employee some money, possibly with a fee attached
The legislation ONLY relates to these payments on account (number 2). Where an employer or third party has facilitated these payments on account, from 06 April 2024, employers must not send an FPS detailing that this has been made.
For Bookkeepers
So, we are looking at employers that have ‘early access to earned income’ arrangements, either through themselves or via a third party:
- Before 06 April 2024, employers / bookkeepers MUST send an FPS to HMRC on or before the payment was made
- On and after 06 April 2024, employers / bookkeepers MUST NOT send an FPS to HMRC detailing these payments. Instead, the payment on account and the regular payment must be reported on one FPS only
HMRC’s use of the words ‘advance’ and ‘certain advances’ may cause confusion for employers and bookkeeping professionals alike. Understandably, employers and bookkeepers need confirmation of this and in plain English this is provided in the Explanatory Notes to the Income Tax Regulations:
- 5.6 ‘The amendments apply where the employee’s salary is ordinarily paid at regular intervals of between one week and one month and the employer pays part of the salary in advance’
- 5.8 ‘Other advance payments to employees or loans are covered by existing HMRC rules and guidance. Such payments fall outside the scope of this measure’
