When it comes to end-of-year returns to HRMC, it pays to be fully prepared and familiar with the online filing process. Karen Thomson provides some background on this essential payroll procedure.
Click – is online filing that easy? In a word, yes. Filing your annual returns and in-year forms for starters and leavers electronically to HMRC can provide huge benefits for both your organisation and your employees. One Institute of Payroll Professionals (IPP) member stated that filing online their organisation saved approximately 2.5 weeks work across 1.5 FTEs compared to filing on paper.
Filing online is fast, secure and can be sent when convenient for you and your business. As the information is processed automatically by HMRC once the data has been validated, it results in an almost immediate turn around of an individual’s record being updated on HMRC’s new system (more on this later) and a new tax code being issued.
Why?
Lord Carter recommended in a comprehensive report that HMRC should receive information from their customers in an electronic format1. The government accepted these recommendations and HMRC began its long journey to ensure that their customers could send information to them electronically, whilst at the same time look to improve their internal systems to take advantage of the new world of ‘E’.
The regulations commenced for the 2005/06 tax year for those employers with more than 250 employees to send their year-end returns (P14/P35) electronically, and subsequent years saw those with 50 or more employees brought into the regulations. April 2009 saw the introduction of more regulations that meant most employers with 50 or more employees were mandated to submit in-year returns electronically which included:
- P45 (Part 1) – details of employee leaving;
- P45 (Part 3) – new employee details;
- P46 – details of employees commencing work without a P45;
- P46 (PEN) – new pension details; and
- P46 (Ex-pat) – details of those seconded to work either wholly or partly in the UK whilst remaining employed by an overseas employer.
So what are the new changes for the end of this tax year 2009/10?
All employers, except where exemptions apply2 with fewer than 50 employees must submit their end-of-year return i.e. P14/P35 electronically to HMRC by the deadline date of 19 May 2010. It is important to note that electronic submission does not include submission by sending in a CD-ROM or by using magnetic media.
Note also that employers who cease trading during 2009-10 and have fewer than 50 employees can still send their employer annual return on paper as long as HMRC receives it by 5 April 2010.
What are your options?
There are various options available to you; these include:
- HMRC’s free online return and forms – PAYE product; note meant for those with fewer than 50 employees;
- an ‘off the shelf’ commercial payroll software package (check it has the function to submit your returns electronically prior to purchase);
- using the HMRC CD-ROM if you have fewer than nine employees; or
- use a payroll bureau or tax agent to file it online for you.
If you are unsure how to submit your returns electronically HMRC offers plenty of advice as follows:
Online demonstrator
If you would like a demonstration of HMRC’s online services you can go to their website, click on ‘PAYE for Employers’ under the ‘Do it online’ menu, then ‘View a demo of their services’. This demonstrator will show you how to register for their online services and help you understand some of the benefits and key features.
The Learning Zone Employer CD-ROM
There is a PAYE Online lesson within the Learning Zone. Go to the Learning Zone in the main menu and select ‘PAYE online’, for a walkthrough on how to get started with PAYE online and how to file your employer annual return (P35 and P14s) online.
Revenue and Customs advice team
HMRC advice teams run free workshops and presentations on a variety of subjects at locations throughout the country, including ‘Do it online for employers’. This presentation will tell you all about sending employee starter and leaver forms and employer annual returns online.
They will help you to:
- understand your online filing obligations;
- tell you about the online filing benefits;
- find out which forms you will have to send online and when ;
- register and enrol for the PAYE online for employers – internet service and;
- know how to get more help if you need it when you are doing it online.
During February to May you can attend an HMRC end of year procedures workshop to explain how to complete your employer annual returns and which forms you need to send and when they are due.
For more information or to book a place visit www.hmrc.gov.uk/bst/index.htm , or phone the advice team on 0845 603 2691.
So what does 2011 hold?
You may think this is far away, but how quickly did 2010 come around? In addition to the many legislative changes announced in the Pre-Budget Report3 there are also further amendments to the PAYE regulations in respect of electronic filing expected to come into force on 6 April 2011.
This will mean that unless exemptions as stated above apply, all employers will be mandated to submit end-of-year and in-year (starters and leavers) forms electronically to HMRC.
What should I do now?
If you are a small employer it is vital that you ensure you have agreed your payroll processes to enable you to submit your end of year returns electronically to HMRC by 19 May 2010. You must ensure if you are using the internet that you have registered with HMRC first. To learn more about this process go to HMRC’s website, click on PAYE for Employers , and then click on ‘do it online’ menu.
If you employ more than 50 employees you will have been submitting your end of year returns online, but it is important that you ensure you have also submitted your in-year returns online. If you do not comply with these regulations you leave your business open to penalties!
It is also worth remembering that there are other forms that are not mandated for, that you can submit electronically such as P11Ds and P46 (car).
Penalties for non compliance
HMRC have been fairly lenient, and adopted a soft approach with those that have been mandated thus far. However you should note that if you are required to submit your end of year returns online, and do not, you will be liable for a penalty of up to a maximum of £3,000 per PAYE scheme; can you afford not to comply?
As you would expect there are also penalties laid in the regulations for those that are mandated to submit in-year forms. Again HMRC have adopted a light touch but employers who have not complied can expect to receive warning letters that began being issued by HMRC in December 2009. The letters will refer to any paper submissions made in the second (6 July 2009 to 5 October 2009) and third (6 October 2009 to 5 January 2010) quarters of 2009/10 tax year. Only one warning letter will be issued each quarter to each employer, and will only refer to one paper submission and not subsequent ones. The letter will confirm the details of the employee and the type of form submitted.
From 6 January 2010 HMRC will begin charging penalties to those with more than 50 employees who fall under the regulations who submit starter and leaver forms via paper when they should have been sent electronically. The penalties will range from £100 to a maximum of £3,000 depending upon the number of forms submitted. Those who do not comply can expect the first penalty notices to be issued from April 2010. Employers must ensure they are up to speed with these regulations to avoid receiving unnecessary warning letters and expensive penalty notices.
What might the future hold?
There are those that feel that employers have to submit information electronically to HMRC but are still required to produce paper for their employees. HMRC has invested a huge amount of time and money on their new PAYE system. This system now holds information against individual customers, rather than as previously, against employers. In time it is possible that new processes will be devised so that employers no longer have to provide forms to employees. The IPP has been lobbying HMRC to allow employers to provide the end of year form P60 that is required to be given to employees by 31 May each year electronically. There are many employers (have you considered this?) that provide their employees’ payslips electronically so why not their P60. The IPP awaits HMRC’s decision at the time of writing.
And finally
Were you aware of these changes? Do you have suggestions for HMRC to improve this process? Why not complete this simple questionnaire and help the IPP’s policy team, who are responsible for working with HMRC to improve legislation for payroll professionals and employers to obtain valuable research.
The survey can be found at: www.surveymonkey.com/s/VVH9FYR
[1] www.hmrc.gov.uk/budget2006/carter-review.htm
[2] These are:
- employers who are authorised by HMRC to deduct tax in accordance with regulation 34 of the IT (PAYE) Regulations (i.e. domestic employers operating a simplified deduction scheme);
- employers who are a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications; and
- ‘care and support employers’ as defined in the regulations
[3] See ‘Cold Comfort from the Pre-Budget Report’ in The People Bulletin, 17 December 2009