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Overview

If your payroll software provider has not made the changes necessary for you to correctly report the outstanding disguised remuneration loans, you should use HMRC鈥檚 Basic PAYE Tools (BPT) to send an Earlier Year Update (EYU) submission.

You鈥檒l need to calculate the tax, National Insurance and student loan deductions due. You may also need to calculate these deductions if you are using your normal payroll software to submit an EYU.

If your current payroll software product cannot perform these calculations for you, you鈥檒l need to use the PAYE and National Insurance contributions calculators or the manual tax, National Insurance contributions and student loan tables.

This guidance explains how to do this.

Payment after leaving

When reporting an outstanding disguised remuneration loan balance and deductions due for an employee who has left, follow the guidance on paying an employee after giving them a P45. You鈥檒l need to work out the National Insurance contributions due using a weekly earnings period and you should treat this balance as an irregular payment.

Calculate deductions

The loan charge arises on 5 April 2019 in the final pay period of 2019.

To calculate the deductions due on your employee鈥檚 outstanding loan amount, you鈥檒l need to add the loan amount to their pay for the final pay period in the tax year 2018 to 2019. You must then recalculate the deductions due for that pay period.

For National Insurance contributions and student loan deductions use the gross pay. For Income Tax use the gross pay minus any non-taxable deductions, this is referred to below as the 鈥榮tarting pay鈥� for PAYE Income Tax purposes.

Calculate the PAYE Income Tax due

Where a cumulative tax code was in operation for the employee at month 12, you need to carry out a revised month 12 calculation on the total year-to-date pay for tax year 2018 to 2019.

For example, the previously submitted total year-to-date pay for tax year 2018 to 2019 at month 12 was 拢36,000. The employee has an outstanding disguised remuneration loan amount of 拢20,000. You鈥檒l need to carry out a revised month 12 calculation on 拢56,000.

If the employee has a pay period other than monthly, follow the guidance at section 1.7 in the employer help-book CWG2 (2018 to 2019).

Using the PAYE 2018 to 2019 tax calculator

Before you start using the tax calculator you will need the following information:

• employee鈥檚 final tax code
• if PAYE should be operated on a week/month 1 basis, for example if you are reporting an outstanding loan balance for a former employee
• pay frequency
• outstanding disguised remuneration loan balance
• previous year-to-date starting pay
• previous year-to-date tax due
• payment date

You will now need to enter this information into the in order to get the income tax due.

You should enter the outstanding disguised remuneration loan balance into the 鈥楪ross pay鈥� field. Enter the previous year-to-date starting pay into 鈥楶revious total gross pay to date鈥� field.

If for any reason you are unable to use the online , you should follow the manual calculation guidance below.

Using the manual tax tables: calculate free pay

You鈥檒l first need to calculate the free pay. Free pay is the amount of tax-free income available due to the Personal Allowance.

For tax codes which have the suffix L, M, N or T, work out the employee鈥檚 free pay using .

1. Go to the weekly or monthly table that鈥檚 appropriate to the payment date. For monthly paid employees, this is on page 68 of tables A.

2. Using just the number in the tax code, look up the tax code in the table. For codes of 500 or less, note the free pay directly from the table (pay adjustment to date). For codes 501 to 1000, follow the guidance in the bottom corner of the table. For codes that exceed 1000, follow the guidance on page 3 of tables A.

3. Subtract the free pay from the starting pay to get the taxable pay.

For tax codes with a K or SK prefix, at step 3 add the free pay to the starting pay to get the taxable pay. Ignore the guidance covering completion of form RT11.

For tax codes BR, SBR, D0, SD0, D1, SD1 and SD2, use 鈥楬ow to use a tax code鈥� on page 2 of . No Income Tax should be deducted for code NT, but you鈥檒l need to consider National Insurance contributions and student loans deductions.

Non-cumulative tax codes (ending W1 or M1) are operated on a week 1 or month 1 basis. Follow the guidance at section 1.7 in employer help-book CWG2 (2018 to 2019).

Using the manual tax tables: example of working out the taxable pay

An employee is paid 拢3,000 per month during the tax year 2018 to 2019. They have the standard tax code 1185L. They have an outstanding disguised remuneration loan balance of 拢20,000.

Year to date (YTD) pay at month 12	拢36,000 +	听	听
Outstanding disguised remuneration loan	拢20,000	听	听
Total YTD pay	拢56,000 -	听	听
Free pay	拢11,859.12	tables A month 12	2 脳 500 = 拢10,000.08 +
听	听	听	185 = 拢1,859.04
听	听	听	拢11,859.12
Taxable pay 拢44,140.88	听	听	听

Using the manual tax tables: calculate the tax due

Using the , work out the PAYE tax due on the taxable pay. Ignore the guidance on completing and using form RT11.

Use the UK tables if the employee鈥檚 tax code does not have an 鈥楽鈥� prefix.

Go to page 4 and follow the guidance to check if the taxable pay is equal to or less than the figure in column 1 for the pay period.

1. If the taxable pay is equal to or less than the figure in column 1, use table B on pages 6 and 7 to work out the tax due. Where the exact amount of taxable pay is not shown, add together the figures for 2 (or more) entries that make up the amount of taxable pay to the nearest pound.

2. If the taxable pay exceeds the figure in column 1 on page 4, use monthly or weekly tables C and D, starting on page 8. Starting with table C1, the help text will guide you to the relevant tables for the amount of taxable pay. You鈥檒l need to add together 2 or more figures to get the tax due.

Use the Scottish tables if the employee鈥檚 tax code has an 鈥楽鈥� prefix. Go to page 12 and follow the guidance to see if the taxable pay is equal to or less than the figure in column 1 for the pay period.

1. If the taxable pay is equal to or less than the figure in column 1, use Scottish table B on page 14 to work out the tax due. Where the exact amount of taxable pay is not shown, add together the figures for 2 (or more) entries that make up the amount of taxable pay to the nearest pound.

2. If the taxable pay exceeds the figure in column 1 on page 12, use monthly or weekly Scottish tables C and D, starting on page 15. Starting with table C1, the help text will guide you to the relevant tables for the amount of taxable pay. You鈥檒l need to add together 2 or more figures to get the tax due.

Using the manual tax tables: an example of calculating the tax due

This example shows how to calculate the income tax due on the taxable pay of 拢44,140.88 worked out previously.

Taxable pay	拢44,140.88	听
Total tax	拢10,756	table C1 tax month 12, pay 拢34,500 at 20% = 拢6,900 +
听	听	table D1 tax, pay 拢9,640@40% = 拢3,856
听	听	拢10,756

Should the employee have a tax code that has an 鈥楽鈥� prefix (a Scottish taxpayer), the calculation would be as follows.

Taxable pay	拢44,140.88	听
Total tax	拢11,639.90	table C3 tax month 12, for pay 拢31,580 = 拢6,490.30 +
听	听	table D3 tax, pay 拢12,560@41% = 拢5,149.60
听	听	拢11,639.90

You submit this figure using the EYU.

Calculate National Insurance contributions due

Employee鈥檚 National Insurance contributions are not calculated on a cumulative basis, but by each earnings period.

For example, in month 12 the employee was paid 拢3,000 and National Insurance contributions were deducted from this payment. The employee has an outstanding disguised remuneration loan amount of 拢20,000. You鈥檒l need to carry out a revised monthly calculation on gross pay of 拢23,000.

For earnings periods other than monthly, follow the guidance at section 1.7 in employer help-book CWG2 (2018 to 2019).

Using the National Insurance contributions calculator

The National Insurance contributions calculator is used for employees other than directors. For directors, you will need to use the director鈥檚 National Insurance contributions calculator instead following the separate guidance below.

Before you start using the National Insurance contributions calculator you will need the following information:

• pay frequency
• gross pay for the last reported pay period
• outstanding disguised remuneration loan balance
• National Insurance contributions Category letter

You will now need to enter this information into the in order to get the National Insurance contributions due.

In the 鈥楪ross pay in this period鈥� field, you should enter the outstanding disguised remuneration loan balance plus the gross pay already paid in the final pay period.

If you are unable to use the online , you should follow the manual calculation guidance below.

Using the director鈥檚 National Insurance contributions calculator

Director鈥檚 National Insurance contributions are calculated on a cumulative basis.

For earnings periods other than monthly, follow the guidance at section 1.7 in employer help-book CWG2 (2018 to 2019).

Before you start using the director鈥檚 National Insurance contributions calculator you will need the following information:

• director鈥檚 National Insurance contributions category letter
• date of director鈥檚 appointment
• outstanding disguised remuneration loan balance
• year-to-date gross pay
• year-to-date employer National Insurance contributions paid
• year-to-date employee National Insurance contributions paid

You will now need to enter this information into the in order to get the National Insurance contributions due.

In the 鈥楾otal cumulative pay鈥� field, you should enter the outstanding disguised remuneration loan balance plus the year-to-date gross pay.

If you are unable to use the online , you should follow the guidance in the helpbook in conjunction with the manual calculation instructions below.

Using the manual National Insurance contributions tables: calculate the National Insurance contributions due

Using the National Insurance contributions tables, work out the employee (primary) and employer (secondary) National Insurance contributions due on the gross pay. The set of tables you use depends on the employee鈥檚 National Insurance category letter. Make sure you use the 2018 to 2019 tables.

1. Go to the weekly or monthly table for the employee鈥檚 category letter.

2. In the first column 鈥榚mployee鈥檚 earnings up to and including the UEL鈥�, look up the gross pay. If the exact gross pay is not shown, use the lower amount closest to the exact gross pay.

3. Look across the row for the National Insurance contributions due. Column 1d shows the employer鈥檚 National Insurance contributions due and column 1e shows the employee鈥檚 National Insurance contributions due. You should also note the figures in columns 1a, 1b and 1c for EYU reporting purposes.

4. If the gross pay exceeds the pay figure in the first column of the last row in the table:

• note the figures in columns 1a, 1b, 1c, 1d and 1e of the last row
• scroll to the bottom of the tables document to just below the final category letter table
• carefully follow the guidance to work out the employer鈥檚 and employee鈥檚 National Insurance contributions due on the earnings above the Upper Earnings Limit, Upper Secondary Threshold or Apprentice Upper Secondary Threshold

Using the manual National Insurance contributions tables: example

Pay @ month 12	拢3,000 +
Outstanding disguised remuneration loan	拢20,000
Total gross pay	拢23,000
Total employee National Insurance contributions 拢762.06	monthly table A for pay 拢3,863 (UEL) = 拢379.32 +
听	additional gross pay table 拢19,137@2% = 拢382.74
听	拢762.06

Total employer National Insurance contributions 拢3,077.13	monthly table A for pay 拢3,863(UEL) = 拢436.22 +
听	additional gross pay table 拢19,137@13.8% = 拢2,640.9
听	拢3,077.13

Total National Insurance contributions payable 拢3,839.19	employee National Insurance contributions 拢762.06 +
听	employer National Insurance contributions 拢3,077.13
听	Total National Insurance contributions 拢3,839.19

You add this amount to the National Insurance contributions made in months 1 to 11 of the tax year 2018 to 2019 and submit this figure using an EYU.

Calculate student loan deductions

If your employee or ex-employee is repaying a student loan, you鈥檒l also have to calculate student loan deductions. If the employee had to make student loan repayments during the tax year 2018 to 2019, their payroll record will state whether their repayments are made on plan 1 or plan 2.

Student loan deductions are not calculated on a cumulative basis, but by each earnings period.

For example, in month 12 the employee was paid 拢3,000, and student loan deductions were made from this payment. The employee has an outstanding loan amount of 拢20,000. You鈥檒l need to carry out a revised monthly calculation on gross pay of 拢23,000.

Using the 2018 to 2019 student loan deduction tables, work out the student loan deductions due on the gross pay.

Use the tables at section 5, 6, 7 or 8 for the appropriate plan type and earnings period interval. For:

• plan 1 employees who are paid weekly, use the table at section 5
• plan 1 employees who are paid monthly, use the table at section 6
• plan 2 employees who are paid weekly, use the table at section 7
• plan 2 employees who are paid monthly, use the table at section 8

For pay periods other than monthly, follow the guidance at section 4 in the student loan deduction tables.

In the relevant table, find the earnings range in which the gross pay falls. Round down to the nearest whole pound. This will show you the student loan deduction due.

If the employee鈥檚 gross pay exceeds the last earnings figure in the table.

1. Subtract the plan 1 or plan 2 pay period threshold amount from the gross pay.

2. Multiply the result (the excess) by 9% (0.09).

3. Round the result down to the nearest whole pound to get the deduction due.

The student loan pay period thresholds for the tax year 2018 to 2019 are:

• plan 1 weekly 鈥� 拢352.50
• plan 1 monthly 鈥� 拢1,527.50
• plan 2 weekly 鈥� 拢480.76
• plan 2 monthly 鈥� 拢2,083.33

Example

Pay @ month 12	拢3,000 +
Outstanding disguised remuneration loan	拢20,000
Total gross pay	拢23,000
Total student loan deductions 拢1,932	拢23,000 - 拢1,527.50 (monthly threshold) = 拢21,472.50
听	@ 9% = 拢1,932.52
听	Rounded down to nearest whole pound = 拢1,932

You then add this number to the student loan deductions made in months 1 to 11 of the tax year 2018 to 2019 and submit using the EYU.

Earlier Year Update 鈥� report tax due on an outstanding disguised remuneration loan balance for tax year 2018 to 2019

To report the employee鈥檚 outstanding disguised remuneration loan balance and deductions you have calculated, you鈥檒l need to use your normal payroll software to submit an EYU for the tax year 2018 to 2019.

If your payroll software does not support the submission of an EYU or the reporting of an outstanding disguised remuneration loan balance, you should use HMRC鈥檚 Basic PAYE Tools (BPT) to send an EYU submission. You鈥檒l need to enter the previously submitted year to date figures. You will be able to find these using your normal payroll software.

The process for reporting the additional pay is the same as correcting a payroll mistake for a previous tax year.

Follow the fix problems with running payroll guidance and the Basic PAYE Tools EYU guidance.

If you have used the online PAYE 2018 to 2019 tax calculator to calculate the income tax due, you should report the 鈥楾otal tax due to date鈥� figure as shown on the results screen, in the 鈥楥orrect amount (拢)鈥� field of the EYU.

When you submit the EYU for each employee or former employee, you should:

• enter the amount of the outstanding disguised remuneration loan balance in the 鈥楢mount of part 7A disguised remuneration income鈥� field
• include this amount in the taxable pay fields, the gross earnings for National Insurance contributions fields and if relevant the student loan deduction fields
• pay the PAYE tax, National Insurance contributions and student loans deductions due - follow the pay employers鈥� PAYE guidance

Calculate and report the apprenticeship levy

The increase to your 2018 to 2019 pay bill may mean that you need to pay an apprenticeship levy or pay an increased amount of apprenticeship levy.

If this is the case, you鈥檒l need to submit an extra Employer Payment Summary.