New customers switch their payrolls to our system at all times of the year but there is always a peak at the start of a new tax year. This is because payroll works one tax year at a time, accumulating information as the tax year goes on and then resetting it for the start of the next.
The tax for most employees is worked out using cumulative figures for the tax year to date. Real Time Information submissions to HMRC also contain lots of year to date figures – for each employee, they cover tax, student loans, pensions, parental pay and national insurance, with separate totals for each of the NI earnings band.
If you move to a new payroll system in time for the first pay run of the tax year, you can safely start with year to date totals that are all zero. Otherwise, you need to transfer all of the figures across, even the ones that don’t affect the calculations, as they will affect your submission to HMRC.
When switching payroll systems, there is the potential for another, trickier problem to occur. If the personal details on the new system don’t exactly match the old system, HMRC sometimes creates a duplicate employment record. HMRC’s new record contains the correct figures and the old record contains the previously held year to date totals. HMRC’s system adds these together, artificially inflating the employer’s liability. Changing system at the start of a tax year doesn’t make the duplicate employment problem any less likely, but it does limit its impact, as the year to date totals in the old record are all zero.
For payroll purposes the tax year is based on the pay date. A pay date of the 5th April falls in the old tax year and a pay date of the 6th April is in the new tax year. If you decide to switch systems for the new tax year, you should start with your first pay date that falls on or after 6th April.