In this weeks Ask LCM, we will be answering a question around payroll. More specifically, “can I keep my payroll position open if I am not using it?”
Ask LCM is a space that we have put together where every week we answer one of your questions. We aim to keep the answers in short format so everyone has the time to read, learn and progress together.
What do we mean by a payroll position?
Firstly, it is important to clarify what we mean by a payroll position.
A payroll position is simply like an account with HMRC.
If you want to run a payroll in the UK, you must register for payroll with HMRC. HMRC will then ask you a series of questions about the business, the business activities and the directors.
This can simply be thought of as a sign-up process.
At the end of the process, HMRC will provide you with two access codes. The Accounts office reference number and the PAYE reference number.
For security reasons, HMRC no longer provides these over the phone or over the internet. Instead, they are posted to you.
Once you receive these codes, the payroll registration is complete and you now have an active payroll position.
This means that you can now start paying your employees.
Accounts office refence number & PAYE reference numbers
These two numbers are vital to using your payroll position.
So, it is essential that you keep these numbers in a safe place.
When paying your employees you must also submit Real Time Information (RTI) to HMRC. HMRC will link this information directly to your account via the accounts office reference number & PAYE reference number.
Without these two codes, you cannot submit the information to HMRC.
Furthermore, if you ever need to speak to HMRC regarding the payroll, you will need both numbers in order to pass security.
Finally, you will also need your accounts office refence number in order to pay any PAYE & social security over to HMRC. This is because the accounts office reference number forms the majority of the payment reference.
Can you keep the payroll position open if you are not using it?
However, you will still need to make submissions to HMRC.
If you run a monthly payroll, these submissions will still need to be made on a monthly basis.
These are NIL submissions called an Employer Payment Summary (EPS).
They inform HMRC that the payroll position is still open, but that no employees were paid during the period.
If you fail to submit the EPSs, HMRC may issue penalties for non-compliance.
There are many reasons why you may wish to keep the payroll position open, even if you are not currently using it.
Firstly, if you have just one employee on the payroll, that employee may leave the business for whatever reason. It may then take the business some time to find and hire a new employee.
In the meantime the business can simply keep the position open and submit a NIL EPS.
Another example may be that the business owner is the only employee. Cashflow is tight and they want to stop paying themselves for a couple of months. Again, they can keep the position open and simply submit NIL EPSs to HMRC.
This offers a big advantage & a great deal of flexibility to the employer.
Otherwise, the employer would have to open and close a new payroll position every time they wanted to stop payments for whatever reason.
If you know that you will likely need the payroll position again in the near future, it makes perfect sense to keep the position open.
However, if you believe that you will not need the payroll position in the future, it may be worthwhile closing the position with HMRC.
We hope that you found this article useful. If you have any questions about payroll, please do get in in touch.