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HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
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PAYE operation: specific employments: local government councillors

How the council deals with new and ceasing councillors

PAYE: New councillors

Following an election, a council must send in a form P46 for each newly elected councillor. Form P46 should show the date that the councillor took office. This procedure does not apply to re-elected councillors except where

  • The council does not have a code authorisation

And

  • The councillor begins to receive taxable allowances

PAYE: Councillors leaving office

The council must issue a form P45 if a councillor stops holding office and

  • Is receiving taxable allowances

Or

  • A code authorisation has been received by the council but no allowances have been paid

The date of leaving is the date the councillor leaves office.

Note: The Employment Income Manual (EIM) at EIM65920+ gives details of the allowances paid to local government councillors and how to deal with claims to expenses.

HMRC action on notification of new councillor

When you receive a form P46 or a list, set up a record for each councillor.

Records of councillors must be distinguishable from those of council employees by both HMRC offices and council paying officers. For this reason

  • Add to the councillor’s records the note COUNCILLOR FROM (year)
  • Set the manual correspondence to employer indicator
  • Enter tax code BR on the record
  • Send a form P6 or code list to the council
  • Send form P280 to the councillor. Follow this up with a typed reminder if form P280 is not returned within a reasonable time and stress the importance of completing the form

Modified PAYE scheme

A councillor is given the choice between

  • Having PAYE operated normally on their attendance allowance

Or

  • Having tax deducted at basic rate on their attendance allowance, excluding any allowable expenses

By concession, you can extend this scheme to the special responsibility allowances.

Form P280

Form P280 explains the Income Tax position to the councillor.

It also

  • Asks for information to determine the councillor’s primary source

And

  • Allows the councillor to opt for deduction of tax at basic rate from attendance allowances instead of the application of normal PAYE

HMRC action when receiving completed form P280

Circumstances

  • The councillor does not sign the option for deduction of tax at basic rate

Action

1. Work out the appropriate tax code and issue a P2 and P6
   
   

Circumstances

  • The councillor signs the option for deduction of tax at basic rate

And

  • The council has other councillors for whom it operates this system

Or

  • The council has been told about the scheme before

Action

1. Acknowledge receipt of the option form
   
2. Agree the amount, if any, of the provisional expenses allowance claim
3. Write to the council saying
  * That the scheme applies to the councillor in respect of all payments made after receipt of the letter
  * What amount of expense allowance, if any, should be disregarded in working out tax deductions each week or month

Circumstances

  • The councillor signs the option for deduction of tax at basic rate

And

  • The council has no other councillors for whom it operates this system

And

  • It seems doubtful that the council knows how to operate it

Action

1. Specify the following procedures applicable to the scheme
   
  * For future years where the basic rate deduction scheme is to be applied, tax is to be deducted at the basic rate in force at the time of payment
  * Where a provisional allowance for expenses has been agreed with the councillor, tax should be deducted at the basic rate from the net amount of allowances after deducting the amount to be disregarded as expenses
  * The council is required to keep a record of the gross amount of the allowances, the net amount on which tax has been calculated and the amount of tax deducted
  * The tax deducted from each payment should be paid to the Accounts Office along with any tax deducted under the PAYE procedures. It is not necessary to pay the tax separately
  * At 5 April each year a return should be made of the gross and net amounts of the allowances and of the tax deducted. This return can be made on the form P14 or end of year substitute used for PAYE purposes. The councillor’s name and the amount of tax deducted should be entered on the form P35. The councillor should be given a certificate showing the gross payments and tax deducted. A form P60 or substitute form can be used for this purpose
  * If the councillor ceases to hold office the Inspector should be told
  * The date of cessation
  * The gross amount from which tax has been deducted
  * The amount of tax deducted

Councillor makes late option for basic rate scheme

An option may be made after deductions under the normal PAYE procedures have begun. If so, make no adjustment for tax deducted under PAYE prior to operating the basic rate scheme.

Councillor changes from basic rate scheme to normal PAYE

Circumstances

  • Tax has been deducted at basic rate from the gross allowance

Action

1. Tell the council as soon as you have worked out the correct code. You should normally be able to use a cumulative tax code
   
   

Circumstances

  • You instructed the council to disregard an amount for expenses

Action

1. Tell the council as soon as you have worked out the correct code. You may need to issue this tax code on a Week 1 / Month 1 basis. Make sure the council applies the correct tax code to the gross taxable allowances. It should not continue to disregard an amount for expenses
   

Council action when councillor ceases to hold office

Where a councillor within the scheme ceases to hold office, the council must tell you

  • The date the term of office ceased
  • The gross amount of taxable allowances paid since the preceding 6 April
  • The net amount from which tax has been deducted if this applies
  • The amount of tax deducted