Ever wondered what all the different acronyms and keywords used in UK payroll mean? Do you know the difference between an FPS and an EPS?
Here are some of the most common used including links for further reading.
Apprenticeship Levy: Applies to all employers who have an annual pay bill of over 3 million. Any employers with an annual bill of less than 3 million won't pay anything as everyone gets £15,000 towards it.
Attachment of Earnings: orders that have been sent to the employer to deduct payments from an employees earnings. There are various orders and different prioties will be given to each order if an employee has more than one as there is a limit to how much an employee can be deducted per pay period. The letter should explain what type of order it is, how much needs to be deducted and where to send the money that has been deducted.
AEO: Attachment of Earnings Order is sent to an employer from a court telling them how much to deduct from an employees payments each pay period.
CMA: Child Maintenance Service can create DEOs (Deduction from Earnings Orders) and send to an employer to make deductions from an employees payments.
CTAEO: Council Tax Attachment of Earnings Order is a notification a council will send to an employer to deduct payments from an employee for overdue council tax, this is repaid in percentage bandings.
DEA: Direct Earnings Attachments is deduction made through payroll when an employee owes the Department for Work and Pensions (DWP).
DEOs: Deduction from Earnings Orders are a way of collecting child maintenance (created by CMA) directly from a paying parent’s earnings or pension.
EA: Earnings Arrestment (Scotland) is a way to collect debt from earnings.
AWE: Average Weekly Earnings is a term used when calculating an employees earnings for the benefit of working out entitlements such as holiday pay, pensions, statutory pay and redundancy.
CIS: Construction Industry Scheme contractors deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
CIS Deductions Reclaim Only limited companies can claim the deductions back through payroll to offset their PAYE liability.
Director Payrolls: are payrolls that only have directors on the payroll and no other employees. Directors need to be recorded in the payroll with a start date of their directorship as they have a different calculation for national insurance than other employees.
AN: Standard annual earnings period method is good for directors that are paid irregularly. National insurance contributions are only paid once thresholds have been reached.
AL: Alternative method National insurance contributions are calculated every month in the same way a normal employees is and might be good for directors that are paid the same every month. In the final pay period of the tax year, the calculation reverts to the annual method to make sure the director hasn't under or overpaid national insurance contributions.
DWP: Department for Work and Pensions is responsible for welfare, pensions and child maintenance policy.
Employment Allowance: allows eligible employers to reduce their annual National Insurance liability by up to £5,000 if the employer's Class 1 National Insurance liabilities were less than £100,000 in the previous tax year. An EPS is sent once a year to claim the employment allowance. Single director only payrolls are not eligible. Allowance not used within a tax year do not carry forward to the next tax year. EPS: Employer Payment Summary is sent to HMRC to claim either the employment alllowance, reclaim statutory payments, sending CIS deductions, pay apprenticeship levy or tell HMRC the employer has paid no employees within a tax month.
No Payment EPS: If the PAYE scheme has no employees or no employees have been paid in a tax month (6th - 5th) then an EPS needs to be sent to HMRC so that they do not send estimated charges or send a penalty for late filling.
Period of Inactivity EPS: This is the same as a No Payment EPS except that you can tell HMRC in advance that for tax months in the future, no employees are going to be paid.
Scheme Ceased EPS: Is sent to HMRC when the PAYE scheme is no longer needed.
EYU: Earlier Year Update is a submission to HMRC to make corrections for the tax year 2019-20 and before. For the tax year 2020-21 onwards, this has been replaced with a FPS correction.
FPS: Full Payment Submission is a summary of the payments and deductions made to employees every time they are paid. It needs to be submitted to HMRC on or before pay day.
FPS Correction: Additional FPS is used to send a correction to HMRC. This might be used if a payment was incorrectly recorded the previous tax year or if an employee has left and a correction to thier payment needs to be made in the current tax year.
HMRC: HM Revenue and Customs are the UK’s tax, payments and customs authority, and collect the money that pays for the UK’s public services.
NI or NIC: National Insurance Contributions are made by employees and self-employed to qualify for certain benefits and the State Pension. Those over 16 and under the state pension age who have earnings over the primary threshold pay national insurance contributions.
Category Letters: Employers use an employee’s National Insurance category letter when they run payroll to work out how much they both need to contribute. Most employees fall into Category A. But Apprentices under 25, would fall into Category H or those over state pension age would be C.
LEL: Lower Earnings Limit is the minimum amount employees need to earn to qualify for certain benefits and state pension but do not pay national insurance contributions. For tax year 2022, this is £123 per week, £533 per month or £6,396 per year.
PT: Primary is the threshold that employees start to pay national insurance contributions.
ST: Secondary: is the threshold that employers start to pay national insurance contributions.
UEL: Upper Earnings Limit is the threshold that employees pay national insurance contributions at a lower percentage.
NINO: National Insurance Number is unique to each person and is a way HMRC will identify an employee and match up records on that person. It is made up of 2 letters, 6 numbers and a final letter, for example AA 12 34 56 A
P32: Employer Payment Record shows a summary of all payments to be made to HMRC within a tax month including PAYE, Student Loans, National Insurance Contributions, Statutory Payments, Apprenticeship levy and CIS deductions. This information sums up what has been sent to HMRC in the FPS and EPS sent for the tax month.
P45: Given to an employee when they leave showing the gross pay and tax. Will also have tax code and if a student loan was applied during employment. In three parts. Part 1A is for the employee to keep and part 2 and 3 for the employee to give to their new employer to help send the correct information to HMRC when they process the new starter.
P60: An annual summary of gross pay and deductions made during the tax year for that employment. Given to all employees by the 31st May who are still employed on the 5th April. An employee should receive a P60 from all their paid employments.
PAYE: Pay As You Earn is the tax system where employers deduct income tax and employees national insurance contributions and pay over (alongside employers national insurance contributions) to HMRC.
PAYE Coding Notices: HMRC will send employers tax code changes and notices through the post or in their PAYE Online account. These can be a tax code change for an employee, a start or stop notice for a student or postgraduate loan or to update an employees national insurance number (NINO) in cases where the employee doesn't have one or an incorrect one has been entered.
PAYE Scheme: All employers need to register with HMRC and they will be set up with a scheme. The employer will receive references to enable them to submit information to HMRC about the payments and deductions they make to employees.
Accounts Office Reference: This is the unique 13 character code that is issued to the employer. This can be found on correspondance from HMRC and logging into the government gateway. Used in combination with the Employer PAYE Reference. You need to also use this reference when making payments to HMRC.
Employer PAYE Reference: A unique code for each paye scheme. It should look similar to 123/AA12345. It will always start with the 3 digits of your tax office code followed by a slash. There may be any combination of letters and numbers after the slash, but usually will include 2 digits and 5 numbers.
Payment After Leaving: A payment made to an employee after they have left and have received a P45 but they need another payment made, for example, due to unpaid holiday.
Pay Period or Pay Frequency: This is how often employees are paid and can be set up as weekly, fortnightly, 4-weekly, monthly bi-annual and annually. Changing pay periods, for example, weekly to monthly can be challenging and employees need to be consulted before this happens.
PILON: Pay In Lieu Of Notice is a payment to an employee when the employer does not want the employee to work their notice period.
RTI: Real Time Information reporting sent to HMRC of every payment and deduction made to employees.
SL: Student Loan is the amount deducted from an employee to repay their student loan. There are three types: Plan 1, 2 and 4. There is also a PGL - Postgraduate Loan. There are different rates and thresholds for each plan and employees need to be assessed and deductions made every time they are paid if they earn over the earnings thresholds.
SPA: State Pensionable Age is the earliest age you can start claiming your state pension.
Statutory Payments: Are minimum payments that employers must make to an employee when they become eligible. For example, when they are ill or when they have a baby. The employee must meet the eligibilty criteria to qualify for each payment and some payments can be claimed back from HMRC. Employers can pay above the statutory minimum and this would normally be referred to as Occupational Pay, for example Occupational Sick Pay and would depend on the employment contract.
SAP: Statutory Adoption Pay When an employee takes time off to adopt a child or have a child through a surrogacy arrangement they might be eligible for pay, which is 90% of their AWE for the first 6 weeks, and then £156.66 or 90% of the employee’s AWE, whichever is lower, for the remaining 33 weeks.
SMP: Statutory Maternity Pay When an employee takes time off to have a baby they might be eligible for pay, which is 90% of their AWE for the first 6 weeks, and then £156.66 or 90% of the employee’s AWE, whichever is lower, for the remaining 33 weeks.
SPBP: Statutory Parental Bereavement Pay When an employee takes time off work if their child dies before they turn 18, or if they have a stillbirth after 24 weeks of pregnancy they might be eligible for pay, which is £156.66 or 90% of the employee’s AWE, whichever is lower, for up to 2 weeks.
SPP: Statutory Paternity Pay When an employee takes time off because their partner’s having a baby, adopting a child or having a baby through a surrogacy arrangement they might be eligible for pay, which is £156.66 or 90% of the employee’s AWE, whichever is lower, for up to 2 weeks.
ShPP: Statutory Shared Parental Pay When an employee takes time off if they’ve had a baby or adopted a child and they may wish to share the leave with their partner, they might be eligible for pay and is paid at a rate of £156.66 or 90% of the employee’s AWE, whichever is lower.
SSP: Statutory Sick Pay is the minimum amount that must be paid to an employee if they are ill. To qualify for SSP, the employee must earn over £123 a week and have been ill for at least 4 days in a row (including non-working days). This is not reclaimable from HMRC.
Starter Checklist: A HMRC form that employers can give to new starters if they do not have a P45 or if they want to check they are being given the correct details. Available as an online form or a printable copy.
Tax Code: This shows the employees tax-free personal allowance for the year. The standard tax code for tax year 2022-23 is 1257L and means the employee is entitled to earn £12,570 a year and not pay income tax. If a tax code has a S in front, this means the tax code is Scottish and a C means it is Welsh.
Emergency tax codes: have a W1, M1 or X after the tax code and means the employee pays tax on all income above the basic personal allowance for that pay period and previous earnings in the tax year are not taken into account. This can happen when the employee starts a new job or gets company benefits.
Tax Month: Runs from the 6th to the 5th of the following month. For example, Month 1 is 6th April to the 5th May. Month 2 is 6th May to 5th June and so on. Unless the PAYE scheme has been set up as an Annual scheme, HMRC will expect at least one FPS or EPS to be submitted every tax month.
Tax Year: Runs from the 6th April to the 5th April the following year. Any payments and deductions to employees made on or within these dates will count towards that tax year. Tax-free personal allowances do not carry forward to the new tax year.
Worker Categories for Automatic Enrolment: Each pay period an employer needs to assess their workforce to ensure that anyone who is eligible to be in the pension has been automatically enrolled. In the assessment, workers can be categorised into one of three categories:
Eligible Jobholder: worker between 22 and State Pension Age, earning more than £10,000 per tax year.
Non Eligible Jobholder: workers between 16 - 21 or State Pension Age - 74 who earn over £10,000 per tax year or aged 16 - 74 earning over pension qualifying limit but under £10,000 per tax.
Entitled Worker: worker between 16 - 74, earning below pension qualifying limit.
Workplace Pension: Employers have to provide a workplace pension scheme for eligible staff as soon as their first member of staff starts working for them (known as ‘duties start date’).
AE: Automatic Enrolment Under the Pensions Act 2008, every employer in the UK must put certain staff into a workplace pension scheme and contribute towards it.
Declaration of Compliance: Is completed within 5 months of duties starting. There is an online form with The Pensions Regulator. The declaration confirms the number of workers on the payroll, how many were automatically enrolled, how many were not and which pension scheme was used.
Opting Out: When an eligible jobholder is automatically enrolled, the employee has the right to opt out of the scheme. The employee must opt out with the pension company and if done within 30 days of being enrolled, they can get a refund. If they opt out after 30 days, they will not get a refund. The employer no longer needs to make contributions.
Right to Join: Entitled workers have the right to join the workplace pension scheme but the employer does not need to contribute unless the scheme rules dictate the employer must.
Right to Opt In: Non eligible employees have the right to opt into a workplace pension scheme, even if they are not eligible under Automatic Enrolment. The employer must contribute.
Re-enrolment: Needs to be completed every 3 years from Staging Date/Duties Start Date and is when all employees need to be reassesed and re-enrolled into the workplace pension scheme if they have opted out before and are still eligible. Complete a re-declaration of compliance.
Salary Sacrifice Pension: A type of pension where the employee sacrifices part of their salary into the pension scheme which can reduce the tax and national insurance contributions of both the employee and employer.
Staging Date/Duties Start Date: The date when employers must legally comply with Automatic Enrolment duties. This starts on the day the employer takes on their first employee.
TPR: The Pensions Regulator is the public body that protects workplace pensions in the UK. They govern the automatic enrolment legislation and have the power to audit/inspect, fine and imprison non compliant companies.
YTD: Year to Date is the totals at each point in the tax year. For example, the total amount of employee national insurance paid.