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Salary advances draft legislation may not work


Published: 11 Oct 2023 Update History

Draft secondary legislation to simplify PAYE RTI reporting of salary advances needs amending if it is to work as intended where payments are made by third parties rather than by employers.

HMRC intends to simplify the PAYE RTI reporting of salary advances so they are reported with the remainder of that salary. This is regardless of whether the advance was paid by the employer itself, or by way of similar arrangements through a third party.  

On 11 September, HMRC published for comment draft income tax and NIC regulations to provide legal vires for this welcome simplification.   

ICAEW’s Tax Faculty believes that the draft regulations will achieve this objective if the employer itself pays the advance.  

However, the Tax Faculty in its response ICAEW REP 101/23 to the invitation to comment has questioned whether the regulations will work as intended when the advances are paid by third parties. 

HMRC announced its plans to introduce this legislation in issue 102 of Agent Update and February 2023 Employer Bulletin. The Agent Update and Employer Bulletin articles, which provide background to the proposed amendments, both say that: 

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.

HMRC The Agent Update and Employer Bulletin articles

HMRC will amend secondary legislation, so that salary advances can be reported on or before the employee’s contractual pay day.

HMRC The Agent Update and Employer Bulletin articles

ICAEW’s Tax Faculty has therefore asked HMRC to consider amending the draft legislation to include payments of salary advances made by third parties.  

The faculty also recommended that HMRC checks with the Department for Work and Pensions that the proposed changes will not unintentionally adversely affect universal credit and tax credit claimants. 

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