With the end of the tax year fast approaching employers need to make sure that their annual returns to HMRC are in order. Diana Bruce provides a helpful revision guide.
It is that time of year again when the employer annual returns are due to HM Revenue & Customs (HMRC). This article looks at some of the detail and ways of avoiding errors that could result in penalties.
Of course there is far more than filing returns involved at the end of the tax year for employers and the payroll department as you will from the table below which outlines some of the key tasks and deadlines.
| Task |
Deadline |
| Outstanding PAYE tax and Class 1 NICs - postal payments must reach your HMRC Accounts Office |
19 April |
Outstanding PAYE tax and Class 1 NIC - cleared electronic payments reach HMRC bank account
As the 22 April 2011 falls on a bank holiday, your cleared payment must reach our bank account no later than the last bank working day before that date |
22 April |
File your employer annual return (P35 and P14s)
If you are exempt from the requirement to file your employer annual return online your paper return must reach your HMRC office by 19 May |
19 May |
| Give each relevant employee a form P60 |
31 May |
File expenses and benefits annual return (forms P11D, P9D and P11D(b)) if applicable - give a copy to your employees
This is the last date for your from P9D and forms P11D, or substitutes. P11D(b) to reach your HMRC office |
6 July |
| Class 1A NICs - postal payments must reach your HMRC accounts office |
19 July |
| Class 1A NICs - cleared electronic payments must reach HMRC bank account |
22 July |
Almost all employers are now required to send their employer annual return, form P35 and forms P14, to HMRC online.
There are some exceptions to the rule where certain groups have the option of filing their return either online or on paper:
- Employers operating HMRC's simplified deductions scheme for domestic employees.
- Exemption on religious grounds.
- Employers who employ someone to provide care or support services at or from their home.
And there are also certain groups that must file on paper:
- Employers and certain employees who have special arrangements with HMRC for the direct collection of PAYE tax and/or National Insurance (NI).
- Employers whose business is a limited company and the only information you're submitting is an entry in Box 28 ('CIS deductions suffered') of form P35 relating to payments received for work in the construction industry.
Further guidance for filing on paper can be found within the E10: Finishing the tax year on HMRC's website.[1]
P11s Payroll deductions records
Employers must complete and file an employer annual return if they have had to maintain a form P11 or equivalent payroll deductions record for at least one employee during the tax year. A form P14 must be completed for each employee and a form P35 to summarise the end of year totals for all employees. This applies even if income tax or NI contributions (NICs) were not due and so not deducted from their employees during the year.
P38A Employer supplementary return
If an employer is required to file an employer annual return, form P38A will also have to be submitted to HMRC if both of the following has applied to any employees during the year:
- have not had to maintain a form P11 for them during the year (and therefore have not completed a P14 for them as part of the employer annual return); and
- have not completed a form P38(S) for them during the year, to indicate that they're a student who only worked during their holidays.
P38A can be filed online and HMRC recommends this method but there is no statutory requirement to so paper filing is acceptable.
Penalties
If the return sent to HMRC, or part of the return is on paper or magnetic media, when the requirement is to file online, there may be a penalty charge.[2] The precise amount of the penalty depends on the number of P14s included in the return and is up to a maximum of 3000. The penalty applies regardless of whether the return was filed on time or late and it will still apply even if attempts are made to put things right by filing the return again online.
As outlined in the table above, the return must reach HMRC no later than 19 May following the end of the tax year. There are also penalties for late filing.[3] Care must also be taken to ensure the returns are correct as if the file is rejected and not submitted correctly by 19 May, again penalties will be incurred. A return can be checked against HMRC's quality standard to make sure the information provided is in the correct format and many commercial payroll software packages will allow a test submission. HMRC also provide a list of common errors to avoid.[4]
The penalty regime for late returns came in last year but it is this year that you may find you have been issued a penalty![5]
Correcting errors
If an amendment needs to be made to the return after it has been sent to HMRC then they must be notified writing explaining why the return needs to be amended. new versions of the forms will need to be sent but it is important to remember that it is only the difference recorded between the original figure filed and what the new figure should be. For example if 300 was entered but it should have been 3,000 then the new figure would be +2,700. If it should have been 30, then it would -270. A new P35 must also be sent if any P14s are amended, even if the actual figures remain the same.
Care must be taken to file returns in plenty of time to allow for any corrections that may have to be made to ensure the correct return will still meet the 19 May deadline.
Sending your P14s and P35 separately
Best practice dictates that you should file your P14s and P35 together to make checking any inconsistent information easier. They can be filed separately and indeed it may be more practical to do so if for example a payroll agent deals with the P14s and the employer files the P35 themselves.
You will however need to check that your filing method allows you to file your return in parts.
Record keeping
Copies of the P35 and P14s submitted do not need to be kept, however if HMRC requests it the an employer must be able to provide supporting evidence so it is advisable to keep a copy of the records used to prepare and file the return. Some employers do prefer to keep paper records so a copy of the form P35[6] and forms P14[7] could be downloaded to record the information.
National insurance numbers
A common error is incorrect employee NI numbers when filing PAYE forms online and HMRC will reject forms containing invalid numbers. The correct format for an employee's NI number is two letters followed by six numbers followed by one optional letter which is always A, B, C or D. The first two letters must be from of a set number of valid prefixes. These never include the letters D, F, I, Q, U or V. There is a table on HMRC's website where you can check if a national insurance number includes a valid prefix.[8]
If an employee's NI number is unknown then this field must be left blank but the fields for date of birth and gender must be completed.
You can trace an individuals NI number by sending HMRC a completed form CA6855.
You must inform HMRC if no employer annual return required
Employers who have a 'live' PAYE scheme but haven't had to complete a P11 deductions working sheet during the tax year are not required to send HMRC an Employer Annual Return. However they must inform HMRC of this to ensure records are up to date and to prevent unnecessary reminders and penalty notices being issued. You can do this by letter or phone but if you notify online then it is easier, cheaper and you will receive confirmation.
A couple of weeks ago HMRC published two new forms on the web for employers and agents to use to inform them of no return.[9] They will confirm by email when notification is received and then send a further email when records have been updated. The forms will not be processed until after 5 April so employers may not receive the second email quickly but there is no need to contact HMRC.
If you do use this facility, please check carefully that the PAYE employer reference is correct as last year several were received which contained incorrect references and it makes it extremely difficult for HMRC to process a claim without having to contact the employer. If you are in any doubt about the reference it will be shown on the P30B payment booklet or on the electronic PAYE reminders HMRC send out each year.
So as one mammoth task has now been completed, the payroll records for 2010/11 tax year need to be finalised, new payroll records need to be set up for the new tax year, there are the P60s to send out, P9Ds, P11Ds, P11D(b)s to file and send to employees and the list goes on life is never dull in the payroll department!
[1] www.hmrc.gov.uk/helpsheets/e10.pdf
[2] www.hmrc.gov.uk/paye/problems-inspections/wrong-filing-method.htm
[3] www.hmrc.gov.uk/paye/problems-inspections/annual-return-late.htm
[4] www.hmrc.gov.uk/paye/payroll/year-end/errors.htm
[5] For details of HMRC’s penalty regime see also Lorraine Owens’ article ‘Late for a very important date’, in The People Bulletin, 10 February 2010
[6] http://search2.hmrc.gov.uk/kbroker/hmrc/forms/viewform.jsp?formId=3711
[7] http://search2.hmrc.gov.uk/kbroker/hmrc/forms/viewform.jsp?formId=1260
[8] www.hmrc.gov.uk/paye/payroll/year-end/errors.htm
[9] For employers and for agents