Modified PAYE schemes: example 1
Example 1 – an employer operating a modified PAYE scheme has under-estimated their pay bill
An employer has a modified PAYE scheme and a total pay bill of £5 million, of which £3.6 million relate to earnings subject to Class 1 secondary NICs. They have a total levy liability of £18,000 and have full use of the £15,000 allowance and pay the £3,000 due at £250 per month.
At the end of the tax year, the employer’s pay bill subject to Class 1 secondary NICs for that year was actually £3.8 million. The employer sends a NICs settlement return to reflect the increase in Class 1 secondary NICs they are now liable to pay. The employer also re-calculates their levy liability for the year.
£3.8 million x 0.5% = £19,000 total levy liability
Offsetting the full £15,000 levy allowance means that the total levy owed for the year is £4,000. They have already paid £3,000 for the year based on their estimated pay bill of £3.6 million and now owe the £1,000 difference. They submit this recalculated amount via an updated EPS and pay the outstanding balance.