Question
We have an employee who is being made redundant, her qualifying week falls before her end date of employment.
· Do I issue P45 before we process SMP?
· If she is on payroll is she entitled to employment rights does this affect her continuous employment?
· Or do we process SMP as a leaver?
Response
As the qualifying date is before the employment ends, then they are entitled to SMP. The date employment rights end is determined by the end date of the contract (redundancy point). So being on payroll does not determine rights or extend those rights.
The tax treatment is dependent at the point of issuing the P45 and notifying the leave date to HMRC. The actual end of employment date doesn’t, it’s dependent on when notified to HMRC.
So the employer may want to consult with the employee to determine if they want to receive their P45 when they stop working or later at the end of the SMP payments to benefit from their free pay entitlements.
If they are wanting to continue to pay SMP as normal each pay period – If the P45 is issued, then any subsequent payment applies tax code 0T W1/M1 (S0T if Scottish taxpayer and W0T if Welsh).
Where the employee requests their form P45 after termination but before all SMP has been paid or the form P45 is to be issued because you have made all payments of SMP then record the final payment date as their leaving date.
A lump sum payment of SMP can be paid to the employee where both the employer and the employee agree to payment in this way.
There are however risks associated with lump sum payments as both the employer and the employee may pay more in national insurance contributions (NICs) and the employee may pay more tax (although any overpaid tax would be repaid at the end of the tax year).
PAYadvice.UK 31/7/2020
