Employment Payroll Summary: what is an EPS as a contractor?

‘EPS,’ or to give it its full name; ‘Employment Payroll Summary,’ was mentioned in a ContractorUK article last month -- but with not much explanation, writes chartered accountant Matt Fryer, managing director of People2.0 company Brookson Group.

To grasp what EPS is, however, and truly understand what an EPS submission to HMRC truly is, I must first start with another acronym – ‘RTI.’

The basics of Real Time Information (RTI)

As many contractors with good memories will know, HMRC introduced Real-Time Information (RTI) for payroll, back in 2013.

The system required employers to submit payroll information electronically, by reporting details about employee earnings, tax deductions, and National Insurance contributions.

RTI aimed to improve the operation of the PAYE system by creating more up-to-date taxpayer records, making it easier for employers and HMRC to administer the process.

The key point regarding RTI was that employers were required to send PAYE information to HMRC each time they paid their employees, with the submissions typically being made through your payroll software.

RTI submissions: the Full Payment Summary and Employment Payroll Summary

There are a couple of submissions under RTI: the ‘Full Payment Summary’ – ‘FPS’ -- and the ‘Employment Payment Summary’ -- ‘EPS.’  

This article is designed to demystify EPS, but don’t worry I will outline what FPS is too.

Why is the Full Payment Summary important?

So FPS, the Full Payment Summary, includes all the details about the tax and National Insurance liabilities and deductions of all the employees, and these details in the summary are submitted to HMRC when an employer pays their employees.

However, the Employer Payment Summary is an important part of the RTI process, insofar as you would send an EPS if you did not pay any employees in a tax month. This needs to be done by the 19th following the month you did not pay any employees -- otherwise, this would give rise to an HMRC penalty.

Why is the Employment Payment Summary important?

There are circumstances where you would submit both an FPS and an EPS.

This dual submission would generally happen when, as an employer, you wish to advise HMRC of specific situations which would affect your PAYE liability for that particular month.

And this usually arises in three situations.

When you submit both an FPS and an EPS -- top three situations

1. If you wish to reclaim statutory maternity, paternity, adoption, parental bereavement and shared parental payments.

As an employer, you can usually reclaim 92% of employees’ Statutory Maternity, Statutory Paternity, Statutory Adoption, Statutory Parental Bereavement and Statutory Shared Parental Pay.

Potentially, as a small contracting company, you can reclaim 103% if your business qualifies for Small Employers’ Relief. You would receive this if you paid £45,000 or less in Class 1 National Insurance in the last complete tax year.

2. The EPS also allows you to claim the Employment Allowance on an annual basis if you meet the criteria.

For 2024/25, the Employment Allowance allows you to reduce your annual National Insurance liability by up to £5,000.

Essentially, under the EA, you will pay less Class 1 National Insurance each time you run your payroll until the £5,000 has gone or the tax year ends (whichever is sooner).

There are some exceptions regarding the eligibility criteria though.

In particular, for contractors, you cannot claim the Employment Allowance if you are the sole director and you are the only employee liable for the Employer’s National Insurance.

Also, you are unable to claim the Employment Allowance if your income is subject to the IR35 off-payroll working rules.

3. If your limited company has suffered Construction Industry Scheme CIS deductions, then submitting an EPS can allow you to offset the CIS against PAYE due on payroll

This is an important cashflow benefit when the company has had CIS tax deducted at 20% of its net income received from customers.

Where FPS and contractor best-practice come together

Accepted best-practice for contractors (subject to their own personal circumstances), to optimise tax-efficient withdrawals from their company, is usually to take a low salary (at the level of the personal allowance so no tax is due) and take the residual amount as dividends.

It’s crucial to note here that the salary should be processed under RTI -- and an FPS submitted to HMRC to evidence this.

If any statutory claims are required, either for yourself as a director, or for any employees on your payroll, then the EPS serves as a crucial mechanism for limited company contractors to report additional payments, deductions, and adjustments to HMRC, alongside their regular payroll submissions.

Final thought

In this respect, we would always advocate taking specialist and tailored advice from a qualified, experienced contractor accountant, to assist you in ensuring your payroll requirements are processed on a timely basis, and all relevant claims are applied correctly.