Business mergers and changes of ownership - payroll issues explained

Newsletter issue - January 2020.

In the December 2019 issue of Employer Bulletin, HMRC set out the action required to avoid any problems when merging or changing ownership of a business, to ensure all employees' payroll details are transferred to the new business.

When a business merges or changes ownership, employers have to contact HMRC to confirm if the business change should be treated as a merger or a succession. This affects whether the business can continue to use its current employer reference or needs to apply for a new one.

HMRC have identified that in a small number of cases, after an employee has moved to a new employer reference because of a business change, previous pay and tax details are sometimes incomplete on the new payroll record. As a result, new tax codes are issued based on incorrect information which can cause financial difficulties for employees until their records are corrected.

Where a business s is merging or changing ownership the following steps should be followed to ensure all of the employees' payroll details are transferred to the new business.

If HMRC provides a new employer reference or the employee is moving to a new payroll within the organisation with a different employer reference, the employer should send a Full Payment Submission (FPS) with leaving details, including the year to date pay and tax figures for the employer reference the employee is moving from. The employee does not need to be given a P45, but the employer must provide them with the pay and tax details up to the date they moved to the new employer reference.

Once the leaver FPS has been successfully sent to HMRC, the employer can send the first FPS for the new employer reference. Employment is restarted for each employee affected by returning their year to date figures to zero and include the employee information. Record the start date for the new payroll, indicating on the starter declaration, C for BR codes or codes starting with a D prefix and B for any other code.

When operating the new payroll, calculate and deduct PAYE and NICs from any payments you make to the transferred employee from the date they moved payrolls. If using a cumulative tax code use the pay and tax details from the old employer reference.

The last FPS from the old employer reference must be submitted before the first FPS for the new employer reference.

If the employee moves to a new payroll under the same employer reference, the employer continues to operate PAYE and reports payroll information under the same employer reference.