PAYE compliance after business mergers clarified

HMRC has clarified the rules on the treatment of PAYE employees and full payment submissions (FPS) in the event of business merger or company change of ownership

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 has warned 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.

HMRC has issued an update in the latest Employer Bulletin explaining the steps to take to avoid any problems when merging or changing ownership of a business, to ensure all employees’ payroll details are transferred to the new business. It has confirmed that HMRC guidance will be updated in due course.

If HMRC provides the restructured business with a new employer reference or the employee is moving to a new payroll within an organisation with a different employer reference, it is necessary to:

  • 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. It is not necessary to give the employees affected a P45, but you will need to provide them with the pay and tax details up to the date they moved to the new employer reference.
  • once satisfied that the leaver FPS has been successfully sent to HMRC, send the first FPS for the new employer reference.
  • restart the employment 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 work out and deduct PAYE and national insurance contributions (NICs) from any payments made 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 any of the above steps are not completed, employers must contact HMRC’s Employer Helpline.

Benefits and expenses

If the employee received or continues to receive company benefits following a change of payroll, it is necessary to submit forms P11D/P11D(b) under the new employer reference.

Send a P11D for each employee in receipt of a company benefit and the P11D/P11D(b) must contain the total information from both the old and new employer references.

If the employee moves to a new payroll under the same employer reference continue to operate PAYE and report payroll information under the same employer reference. As normal, submit one P11D for each employee in receipt of company benefits under the same employer reference.

HMRC guidance will be updated to reflect these changes.


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