Managing payroll during business changes like mergers or successions is important to make sure you’re following HM Revenue & Customs (HMRC) rules. Here’s a detailed guide on what businesses should think about and how to manage these transitions smoothly. It covers updating employee records, handling taxes, and meeting legal requirements to protect both employers and employees. By following these steps, businesses can manage payroll effectively during these changes, keeping things running smoothly and making sure they stay on the right side of HMRC. This proactive approach not only helps with a seamless transition but also strengthens the business to adapt better to new situations.

Understanding mergers and successions

Before addressing payroll changes during mergers or successions, it’s important to grasp their impact on operations. Here’s how these transitions influence payroll management and what businesses should consider for smooth navigation:

Mergers: When businesses merge, they typically combine their payroll systems, sometimes using a new employer reference number. This helps simplify things and makes sure they follow HMRC rules. They might also need to merge employee records and payroll systems to fit the new setup.

Successions: In a succession, when a business changes hands through a sale or insolvency, the new owner takes over payroll duties. They’ll likely get a new employer reference number. This switch involves transferring employee records and payroll responsibilities to make sure everyone gets paid correctly and meets legal requirements. They might also tweak how they handle payroll to match how the new owner wants things done, keeping everything stable and compliant during the transition.

First steps to take

If your business is going through a merger or succession, make sure to reach out to the HMRC employer helpline straight away. They can help work out if it’s a merger or succession and give advice on which employer reference to use. If you need a new reference, HMRC will sort that out for you.

Moving employees to new payrolls

Before deciding whether to use the same employer reference or a different one during a business transition, it’s important to understand how each option affects payroll operations and compliance. Here’s how you can manage these changes effectively:

Same employer reference:

• If moving employees to a new payroll but retaining the same employer reference, continue operating PAYE as usual under that reference.

Different employer reference:

• Transfer payroll records to the new employer reference.
• Submit a Full Payment Submission (FPS) under the old employer reference, including year-to-date pay and tax figures.
• Provide affected employees with details of their pay and deductions up to the transfer date.
• Submit an FPS under the new employer reference, making sure to restart year-to-date figures from zero and include full starting details for each employee.

Managing payroll obligations

When moving employees to a new payroll under a different employer reference, it’s important to handle PAYE tax and National Insurance Credits accurately. If you’re using cumulative tax codes, continue using the pay and tax details linked to the old employer reference until the transition is finalised. This consistency means that payroll calculations stay accurate and compliant with HMRC regulations throughout the transition. It’s essential for maintaining accurate records of employees’ tax deductions and National Insurance contributions. Managing these aspects carefully helps businesses smoothly switch to new payroll systems without disrupting employee payments or tax reporting.

Submitting P11D forms

P11D forms must be submitted depending on the type of change your business has experienced:

Merger of PAYE schemes:

• Submit two P11D forms per employee receiving company benefits:
  • One under the original PAYE reference covering up to the merger date.
  • One under the new PAYE reference covering from the merger date.

Succession:

• If HMRC has been notified about the succession, submit one P11D form per employee under the new PAYE reference, containing information for both old and new references.
• If HMRC hasn’t been notified, submit two P11D forms per employee:
  • One under the old PAYE reference up to the succession date.
  • One under the new PAYE reference from the succession date.

Part scheme transfer:

• Submit two P11D forms per employee:
  • One under the old PAYE reference covering up to the transfer date.
  • One under the new PAYE reference covering from the transfer date.

Compliance and reporting

Making sure you submit FPS and P11D forms on time and with accurate information is important to meet HMRC’s rules. Stick to the deadlines and give detailed information to avoid any fines or hold-ups in processing.

Navigating payroll changes in business transitions

Handling payroll adjustments during business mergers or changes involves careful planning and following HMRC guidelines. Understanding the differences between mergers and successions, transferring employees between payrolls correctly, and fulfilling P11D obligations are key steps. This makes sure payroll operations continue smoothly and comply with tax regulations. 

By following these steps, businesses can handle payroll responsibilities effectively during mergers, successions, or other significant changes, maintaining both regulatory compliance and smooth operations.

Need some help?

Connect with our experts for personalised advice. Call us today on 01603 630882 or fill out our contact form to get tailored support for your payroll transitions.