Further confirmation on advances

HMRC has updated it’s guidance given in Agency Update to confirm the status of payroll advances and their relationship to the RTI process.

This update reviews the arrangements between an employer and an employee, allowing employees access to some of their earned salary before their normal pay day. Employers may also make similar arrangements through a third party, the latter charging a small fee for their services. These arrangements are commonly known as salary advances and has been brought into far more focus with the escalation of pay-on-demand options and solutions.

Other forms of salary advance exist, including long-term advances, often made for specific purposes such as the purchase of a bicycle, season tickets or moving expenses. These are not considered payments on account of earnings, so fall outside the scope of this article.

On 16 November 2022, HMRC announced its view on the proper reporting of these salary advances in Agent Update 102. So, to summarise, under current legislation such advance payments are treated as a payment on account of earnings. The result is that employers must submit an additional Full Payment Submission (FPS) to record these advance payments.

HMRC recognises that the statutory position, if applied to salary advances, creates extra administrative burden on both employers and HMRC, due to the requirement of an additional FPS. Additional returns potentially increase the risk of PAYE coding or Universal Credit errors, inconveniencing employees.

To address these issues, HMRC will amend secondary legislation, so that salary advances can be reported on or before the employee’s contractual pay day. This means each payment of salary only needs to be included on an FPS once.

Employers who are currently reporting salary advances on or before the contractual pay date may continue to do so until new legislation is in place.