Salary Advances

When is a Salary Advance not a Salary Advance?       

An ad hoc payment would normally be reported to HMRC with the rest of the payroll on or before the usual pay date.  However a salary advance should be reported when or before it is made with current legislation, so potentially requiring additional Real Time Information (RTI) reporting to HMRC. 

A salary advance is an arrangement between the employer and employee  but an ad hoc payment would not normally be considered as one for the purpose of reporting.  Under current legislation the salary advance is treated as a payment on account of earnings and so subject to the PAYE rules of reporting RTI on or before pay day.

This statutory position, as well as being a little unclear, causes an additional administrative burden to HMRC and to employers.  HMRC have also recognised the potential impacts on Universal Credit and tax coding errors.

The Solution

HMRC are going to make changes to secondary legislation so the salary changes only need to be reported once, on or before the contractual pay day.  Employers who already report ad hoc advances on or before pay day can continue to do so, otherwise report with the rest of the payroll.

If an employer has regular advance payments to make to employees they may be better to consider a change of pay frequency, moving to weekly for instance.