Amended year-end returns

The Inland Revenue has given a reminder that, where an employer submits an amended year-end return to replace an earlier P14, the employee should be given a document, on letter-headed paper, that shows the amendments that are being made to the original P60 End of Year Certificate.

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...back to 14 May 2004


Source: www.inlandrevenue.gov.uk/comp/notes-10-18.pdf

Replacement of multi-part and multi-channel submissions

Where an employer's electronic submission fails to meet the Quality Standard validation, it will be rejected. The employer or agent must correct the error(s) and resubmit the returns. If the original return was a single submission, it must be resubmitted in its entirety.

However, if the original submission was in parts, only the part that contains the error(s) has to be resubmitted. The replacement part does not necessarily have to be submitted using the same channel (e.g. Internet, EDI), but it must bear the same unique identifier as the original submission.

Example: An employer's returns are submitted by EDI and consist of four P14 parts and a P35. The submission fails the full Quality Standard validation and the P35 is rejected. The reason for the rejection is that the P35 does not balance with the four P14 parts as one of those parts is missing a P14 record. A new P14 part is submitted to replace the faulty P14 part, using the same PAYE reference and unique identifier, but this time it is submitted using the Internet. All of the returns are now revalidated and the P35 now balances with the four P14 parts.

Similarly, if an employer's multi-part P14 and P35 returns pass the Quality Standard validation and are accepted but, subsequently, the employer needs to submit an amended return, the amended return may be sent by the same or a different channel to that used for the original submission.

Example: An employer's returns are submitted by EDI and consist of four P14 parts and a P35. The submission passes the validation tests and is accepted in full. The employer subsequently finds that one P14 record was incorrect and submits amended P14 and P35 returns to adjust the original submissions, this time using the Internet. The amended returns could alternatively have been submitted on paper forms.

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...back to 14 May 2004


Source: www.inlandrevenue.gov.uk/comp/notes-10-18.pdf

Testing of electronic year-end returns

The latest issue of the Inland Revenue Notes for Software Developers (Series 10 Number 18, dated May 2004) provides information about the testing facilities that are being provided by the Inland Revenue for both payroll system developers and employers in advance of the introduction of mandatory electronic filing of year-end returns.

Developers
Developers are already able to send test submissions, including multi-part submissions, i.e. separate sets of P14 records followed by a separate P35 record. From October 2004, these facilities will be extended to multi-channel submissions, i.e. the submission of full sets of multi-part submissions by a combination of EDI or Internet. This will allow, for example, a developer to test the ability of payroll software to send some P14 part submissions by EDI, others using the Internet, and the final P35 by either method. Each P14 part submission will be individually validated and held until all of the parts are received. When the final P35 arrives, it will also be separately validated and, if that is successful, it will be fully validated against the P14 part submissions. The developer will then be informed about the overall success or failure of the submissions.

The test facilities from October 2004 will apply to 2004/05 submissions (against the 2004/05 Quality Standard) and also for 2005/06 submissions (against the 2005/06 Quality Standard). Initially, there will be some restrictions on the size of files that may be tested but these will be removed from February 2005, allowing developers just a short period of time to test very large submissions, including files that use compression. The facility to submit large live files over the Internet, using compression, will be available from April 2005.

Users
Employers and agents wishing to test their submissions will be able to do so from 6 April 2005 onwards. There is no separate test facility for this. Instead, the "test-in-live" facility, as it is known, is a function of the live Internet or EDI submission service. Any submission can be sent as a test, whether it is a complete or part submission, an original or amended submission, or for the current or the past year. It is sent in exactly the same way as a live submission and will be tested in full, up to and including the final Quality Standard validation. The responses from the Revenue to the user are identical to those sent for live submissions. The test facility is intended to provide users with reassurance that their data is acceptable, to allow them to test their own procedures, and to provide staff training. No records or Revenue systems are updated as a result of the test transmission.

Payroll system developers will have to provide access to the test submission facility by allowing users to set or unset the test indicators. Users will have to take particular care that the test indicators are correctly set if they are sending multi-part submissions using different software systems.

There will be some restrictions placed on the use of the "test-in-live" facility. For example, the service may be withdrawn during periods of peak filing activity in the days leading up to 19 May 2005.

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...back to 14 May 2004


Source: www.inlandrevenue.gov.uk/comp/notes-10-18.pdf

Magnetic media returns for 2004/05

The Inland Revenue has published booklet CA51/52 Technical Guide - Submitting Year End Returns on Magnetic Media for the 2004/05 tax year and it is available to download on the Inland Revenue website. It is not published in paper form.

Open-reel tapes are no longer acceptable for magnetic media P14 returns; they may only be provided on flexible diskette, CD-ROM or data cartridge.

There are substantial changes to the technical specification for the coming tax year in order to bring P14 returns for 2004/05 into a format that is equivalent to those that will be submitted electronically by ISP or EDI. There are also additional validation rules that are intended to mirror those that are enforced for electronic returns by the Quality Standard for 2004/05. Information about the testing arrangements for the new format returns is to be provided at a later date.

As employers will be able to submit P14s for 2004/05 in any combination of four formats, i.e. paper, magnetic media, EDI and the Internet, all magnetic media returns will, for the first time, be converted into the same format as electronic returns prior to processing. This change has two implications for employers:

• there are no longer any facilities for producing fiche or paper listings from the data submitted, and
  
  
• permit numbers are now known as "unique identifiers" and may be given any meaningful name, up to 12 characters in length, by an employer to identify the particular payroll. For example, if an employer has four payrolls within the same PAYE Scheme and, as a result, is submitting four separate sets of P14 files, they could be called "Weekly", "Monthly", "Temporary" and "Directors". The employer may continue, if preferred, to use the existing permit number.

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...back to 7 May 2004


Source: www.inlandrevenue.gov.uk/leaflets/ca51-52.pdf

Quality Standard

The Inland Revenue has published the technical Quality Standard for the tax year 2005/06. This document is intended for use by payroll system developers and provides the standards against which electronic P14 and P35 returns for the 2005/06 tax year will be validated.

Among the changes in this new document are

• the removal of the employer's address as a piece of information to be sent with each electronic submission.
  
  
• the removal of the reporting facility for the NIC holiday, as the six year claim back period expires at the end of 2004/05.
  
  
• the inclusion of an accounting field for incentive payments on form P35, for use by small employers who receive or are credited with a payment for filing their returns electronically. It will appear at the last stage of the reconciliation, after deducting the amount of NICs and tax already paid from the amount payable for the year.
  
  
• the inclusion on form P35 of an entry field to show, where relevant, the number of P14 part submissions that are included in the P35 totals.

The document also makes the cryptic comment that "National Insurance Numbers will be updated for 2006/2007". The changes under consideration have not yet been announced.

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...back to 7 May 2004


Source: www.inlandrevenue.gov.uk/ebu/qual_stand_05.pdf

Mandatory electronic payments for contractors

New regulations come into force on 28 April 2004 that extend the requirement to make payments to the Collector electronically to contractors in the Construction Industry who are "large" employers and who have received an e-payment notice. All of the provisions that apply to large employers, i.e. those with 250 or more employees, apply equally to contractors, including the new later filing deadline (22nd of each month) and the surcharge penalties for failing to pay electronically.

Source: www.inlandrevenue.gov.uk/si/2004-1075.pdf
...back to 9 April 2004

Mandatory electronic filing

A number of new points of guidance and clarification are included in the latest Inland Revenue Notes for Software Developers.

P35 and P14 returns
The version of form P35 that will be issued to employers that cease to trade during 2004/05 is very similar to that being used for the 2003/04. However, the version that will be issued to employers at the end of 2004/05 will be changed to allow their use by employers who are not required, at that time, to file electronically.

Form P35(MT), currently used by employers who file by EDI or by magnetic media, will be withdrawn. In its place, form P35 for 2004/05 will include a separate section, similar to the on-line version, to show the number of P14 part submissions that the employer intends to make. If an employer is making multiple P14 submissions, whether they are made by paper, ISP, EDI or magnetic media, or any combination of those methods as permitted, only one form P35 may be submitted for each PAYE scheme. A special form will be provided to accompany a part-submission of paper P14s.

Starting with the 2005/06 return, employers that cease trading during the year must file their returns electronically if they are large or medium-size employers. Otherwise they will be liable for a non-filing penalty. Similarly, small employers who cease trading and who file electronically will be entitled to the incentive payment for the tax year.

Employers are reminded that form P35 is signed as a complete and accurate return ("fully and truly stated") and, if it is necessary to submit an amended or additional return, the Inland Revenue could decide to impose a penalty.

Payroll agents
Payroll agents are reminded that each of their clients must either

• complete a form FBI2 to authorise the agent to file year-end returns on their behalf, or
• provide the agent's details when registering at the Government Gateway to file electronically.

If the client completes and sends form FBI2, there is no need for the client also to register at the Government Gateway. The form authorises the agent to file returns and receive documentation such as coding notices on behalf of the client.

Employer has more than one agent
Employers cannot authorise more than one agent to file year-end files on their behalf. Only one agent may be nominated to file returns and receive notices. If an employer uses two or more different agents for the payroll, the options are as follows:

1. The employer could register to file returns through a nominated agent but that agent would opt-out of receiving notices electronically. In that case, all document and notices would be sent to the employer who could then distribute them to the appropriate agents.
2. The nominated agent could opt to receive all of the client's notices on paper and then distribute them as appropriate to the other agents. To do this, the employer would also have to complete form 64-8 in order to authorise the agent to act on the employer's behalf on payroll matters, as distinct from filing returns electronically on the employer's behalf.
3. The employer could choose to apply to set up one or more additional PAYE schemes, each of which could have a different nominated agent. This would allow separate year-end returns to be filed by each agent.

Employers acting as agents
If an employer has two or more PAYE schemes and handles them in the same payroll office, it is possible for all of the documents and notices sent by the Revenue for each scheme to be sent to a single mailbox. To do this, the employer would have to register and enrol as an agent for one of the PAYE schemes, and deregister as the employer for that scheme. To achieve this, the employer must

• register as an agent
• complete and send forms FBI2 for each of the schemes to the Electronic Business Unit
• ensure that the mailbox for each scheme is emptied
• deregister the main employer for electronic filing.

Employers interested in this arrangement can receive step-by-step guidance from the Online Services Helpdesk.
(Source: www.inlandrevenue.gov.uk/comp/notes-10-17-v1-1.pdf )
...back to 19 March 2004

Electronic filing incentives

Small employers, those with fewer than 50 employees, can receive up to £;825 in incentives between the years 2004/05 and 2008/09 if they file their P14 and P35 returns electronically.

The payments, whether paid to the employer, or used to reduce the employer's PAYE account, must be shown in the employer's accounts, for example as "other operating income". As the payments are not taxable, the tax computation should be adjusted accordingly.
(Source: www.inlandrevenue.gov.uk/workingtogether/publications/wt-16.htm#g )
...back to 20 February 2004

EDI Certification

The Inland Revenue has updated the list of software developers whose payroll systems offer Electronic Data Interchange (EDI) capability.
(Source: www.inlandrevenue.gov.uk/ebu/eb4_paye_edi.pdf )
...back to 6 February 2004

Mandatory Electronic Payments

Summary: These notes update the review of the electronic payment Regulations that appeared in the newsletter of 20 June 2003. All "large" employers must make their payments to their Accounts Office electronically from the start of the 2004/05 tax year. The payment deadline is extended to the 22nd of each month. If payments are not cleared by the new deadline, the employer will incur surcharges that could amount to tens of thousands of pounds.

From April 2004, mandatory electronic payment of PAYE will be introduced for the around 8,000 large employers with 250 employees or more. The stated intention is to "prevent the unfair exploitation of the current cheque payment rules, which can be used to delay transfers to the exchequer".

Currently, payment is treated as having been made when the Accounts Office receives a cheque. However, as it does not normally clear from the employer's bank account until two days later, there is a cash flow advantage from paying by cheque that is not matched by BACS direct credit payments. The Inland Revenue has also found that a minority of employers always send their cheques late as there is no penalty for doing so, and a few employers pay with cheques drawn on overseas banks which take longer to clear.

Of the various options considered to encourage electronic payments and prevent abuse, the Government decided to impose electronic payments only on large employers as they are better able to accommodate the change and pay nearly two thirds of the income tax and NICs yield. In addition, evidence from BACS suggests that, by moving to electronic payments, larger employers are likely to make savings over the current costs of cheque payments.

All large employers were issued with an e-payment notice in November 2003, informing them of their obligations from the 2004/05 tax year.

For further information, take a look at the full Article .
...back to 30 January 2004

Using an agent to file PAYE returns

The new requirement to file P14 and P35 returns electronically will affect all employers over the next few years. Mandatory filing starts with the returns for the 2004/05 tax year and all employers have been told when they must first comply with the electronic filing requirement.

Some employers may wish to use an agent, such as a payroll bureau, accountant or bookkeeper, to file returns electronically on their behalf. To achieve this, such employers must advise the Revenue that they have authorised their particular agent to act on their behalf by completing form FBI 2. As well as providing the contact details for the agent, the agent's Government Gateway Identifier must also be provided.

Employers wishing to use an agent and who have already registered on the Government Gateway to file returns online may alternatively notify the Inland Revenue of their choice of agent by completing an online version of the FBI 2 form.

Form FBI 2 is not the same as form 64-8, which is used to authorise an agent to act generally on behalf of an employer and allows the Inland Revenue to communicate directly with the agent about matters relating to the employer. Note that, if an employer has already appointed an agent to act generally, form FBI 2 must still be completed to give authorisation for the agent to act specifically in the electronic filing of P14 and P35 returns.
(Source: www.inlandrevenue.gov.uk/...shtml )
...back to 16 January 2004

Inland Revenue Online Services

The latest copy of the Notes for Payroll Software Developers provides various items of clarification about the use of the Inland Revenue electronic services.

Gateway secure mailbox

When an employer activates the Inland Revenue's Internet-based service for PAYE, the system is automatically set up to send messages to the employer's secure mailbox or to the employer's agent's secure mailbox, as appropriate.

Such messages include P6 and P9 coding notices, and tax credit and student loan notices. These messages are no longer sent in their paper form. Employers must, therefore, check regularly for incoming mail. An employer's mailbox has a capacity of 1MB (around 2000 to 3000 coding notice); an agent's mailbox has a capacity of 10MB. There is provision in the Gateway setup for an employer to be sent an email automatically whenever a message is sent to the Gateway mailbox.

Employers who would prefer to continue to receive paper messages can arrange this by contacting the online services helpdesk 08456 055999. In Spring 2004, employers will be given the option during setup of receiving messages electronically or on paper.

Penalties

The application of the penalties for not filing electronically (by Internet Service for PAYE (ISP) or Electronic Data Interchange (EDI)) has been clarified. A penalty is incurred if an employer, who is required to file electronically for a particular year, makes a return, or part of a return, by paper or magnetic media. The penalty is not withdrawn if the employer subsequently resubmits the return by ISP or EDI.

The application of the penalty is also not affected by when the return is made. There is a separate penalty regime that applies if returns are not made, electronically or otherwise, by the 19 May deadline.

Magnetic media and EDI

Until electronic filing becomes mandatory for a particular employer, the employer may continue to submit year-end returns by magnetic media. From April 2004, starting with the returns for 2004/05, the Inland Revenue will no longer issue permit numbers to employers who file part returns by magnetic media. Instead, the employer may choose a 12-character identifier that is unique within each scheme reference, for each part, or fragment, of a multi-part return. The identifier should mean something to the employer, e.g. the name of a geographical region, type of employee, as they will be used to identify each submitted part of that scheme. Existing permit numbers may continue to be used, but no new numbers will be issued.

The same situation will also apply to EDI users from April 2004.

Fiche and P35(CS)MT schedules

Starting with the year-end returns for 2004/05, all magnetic media submissions will be converted into the same electronic format as used for other online submissions. Coupled with the withdrawal of permit numbers (see above), this change in the method of processing magnetic media returns means that the Inland Revenue will no longer be able to produce fiche or P35(CS)MT schedules for employers after processing is completed. Employers who have been dependent on these fiche or paper records will need to check that, instead, they will have full access to the payroll records for the closed years.

Amended returns

Although the submission of year-end returns will be mandatory for large employers from 2004/05 and for other employers in later years, there is no statutory requirement for amended returns to be filed electronically. The Inland Revenue hopes that employers will make amendments online but, if paper forms are used, this will not incur a penalty, nor will it prevent a small employer from receiving the incentive.

An amended P14 should show only the adjustment that needs to be made to the initial P14. For example, if the first P14 overstates the pay for the year by £;1000, the amended P14 should show "-1000". Similarly, the accompanying P35 must be consistent with the amended P14s - the accounting totals must reflect only the P14 data in the amended return.
(Source: www.inlandrevenue.gov.uk/comp/notes-10-16-v1.pdf )
...back to 12 December 2003

Electronic filing and payments

The Inland Revenue's website now provides specific guidance for employers on the requirements to file year-end returns and make payments electronically from April 2004. There are separate sections for

• large employers, i.e. those with 250 or more employees, who are required to file P14s and P35s electronically from tax year 2004/05 and make their monthly payments to the Collector electronically from April 2004.
  www.inlandrevenue.gov.uk/employers/largeemp.htm
  
  
• medium-sized employers, i.e. those with 50 to 249 employees, who are required to file P14s and P35s electronically from tax year 2005/06.
  www.inlandrevenue.gov.uk/employers/medemp.htm
  
  
• small employers, i.e. those with up to 49 employees, who are required to file P14s and P35s electronically from tax year 2009/10 but who may receive up to £;825 in incentives if they start to file electronically earlier.
  www.inlandrevenue.gov.uk/employers/smallemp.htm
  
  

(Source: www.inlandrevenue.gov.uk/employers/onlineindex.htm )
...back to 7 November 2003

Reminder - e-filing and e-payment notices

Starting on 1 November, and over the following three weeks, the Inland Revenue is sending out statutory notices to all one and a quarter million employers, explaining their liabilities from the 2004/05 tax year onwards for filing electronically and, if relevant, making their payments to the Collector electronically. The notice will be accompanied by a new publication entitled Do it Online: Your Guide to Filing PAYE Returns and Paying Electronically.

Some of the notices incorporate a tear-off section that may be used to appeal against the requirement to pay electronically, or against a decision that the employer does not qualify for the small employer incentives for early filing. Appeals must be made within 30 days of receipt of the notice.

The Inland Revenue is not sending a copy of the notice to employers' designated agents and accountants, so those who use an agent must ensure that the notice is passed to whomever handles their payroll.

Employers should contact their tax office if they have not received the notice by the start of December.
(Source: www.inlandrevenue.gov.uk/workingtogether/...htm )
...back to 31 October 2003

Mandatory filing and payments "snapshot"

The Inland Revenue, in recently published Board directions, has confirmed that the date on which the "snapshot" of each employer was taken to determine the number of employees in each PAYE scheme was Sunday, 26 October 2003.

The count will be used to determine the size of each employer so that they can be told in the "e-filing" and "e-payment" notice, which will be sent to all employers in November, the tax year when they must first file P14 and P35 returns electronically, and whether or not they will have to make their monthly payments to the Collector electronically from April 2004. The "snapshot" includes all employees for whom a P45 or P46 has been provided and for whom no leaving details have been sent.
(Source: www.inlandrevenue.gov.uk/ebu/boards-directions.pdf )
...back to 24 October 2003

Electronic filing and payments - guidance

The Inland Revenue has provided further guidance for the introduction of mandatory filing of year-end returns and electronic payments starting in the 2004/05 tax year.

Notification

During November, every employer in the UK will receive a letter from the Inland Revenue informing them whether they are large, medium-sized or small for the purposes of electronic filing and payments. The decision will be based on a "snapshot" of the number of employees for each employer on a date at the end of October. A booklet will also be sent to explain the significance of being allocated to one of the three sizes and how appeals against the allocation can be made.

Registration

If they have not already done so, employers need to register in order to make use of the Inland Revenue Internet services. It is no longer necessary to visit the Government Gateway site first; employers may register on the Inland Revenue site and enrol for the PAYE online service. Those employers using a payroll bureau or other agent to process payroll will need to inform the Inland Revenue of the Agent's Government Gateway Identifier. This may be done as part of the on-line registration process, although employers may, if they prefer, simply complete form FB12 and send it to the Revenue's Electronic Business Unit.

Electronic payment deadline

Employers classified as "large", i.e. with 250 or more employees, must make their payments to the Collector electronically, starting with the payment due on 19 May 2004. Acceptable methods of payments are BACS direct credit, CHAPS, internet payment services offered by banks and building societies, Girobank BillPay using a debit card, and telephone banking. The payment deadline will the 22nd of each month instead of the 19th, but the Inland Revenue must have received the cleared payment by the 22nd. This is likely to mean that the payment must be initiated, other than in the case of CHAPS same-day transfers, by the 19th. If the 22nd falls at a weekend or on a bank holiday, the payment must be received by the last banking day before the 22nd. For example, if the 22nd is a Sunday, the payment must be received by the 20th, the Friday.

The 22nd deadline for payments is available to all employers who pay electronically from 2004/05 onwards, not just the large employers for whom electronic payments are mandatory.

Multi-part submissions

Starting with the 2004/05 tax year, employers and agents/bureaux will be able to file P14s in fragments, followed by a single P35, using a mixture of the different submission methods, i.e. Internet, EDI, paper and magnetic media (other than large employers who, from 2004/05 onwards, will only be able to file using the Internet or EDI). Employers needing to use this facility will be those with separate payrolls for geographical or other practical reasons.

The facility to file P14s in different ways for different employee groups will be an issue for those payroll software developers that do not already provide the option. Employers who anticipate making multi-part submissions should start talking to their software supplier to ensure that the facility will be available at the end of the 2004/05 tax year. The latest issue of Notes for Payroll Software Developers provides guidance for developers on the intricacies of multi-part submissions

P35 NIC Schedules

A few employers have only Class 1 NICs to report at the year end because they pay fees that are subject to NICs but not to income tax. The current practice of submitting a specially-designed schedule will end following the submission of returns for 2003/04. From 2004/05, returns may only be made using P14s and a P35, electronically where the law requires it.

P60 continuous version

Many employers who currently use continuous P14/P60 stationery will need to print just P60s for their employees for the 2004/05 tax year when mandatory electronic filing commences. The Revenue has announced that a continuous version of form P60, suitable for impact printing, will be available from the Employer's Orderline in February 2004.

Temporary NI numbers

From the 2004/05 tax year, electronic P14s must contain either a valid NI number or, if it is not known, the employee's date of birth and sex. A temporary number (e.g. TN310747M) will not be acceptable on a P14 and its use will mean that the P14 will be rejected. As a result, software developers have been asked to consider removing the automatic allocation of a temporary number when the correct number is not known. Instead, the NI number field should be left blank and the user required to complete the date of birth and sex fields. While ever the NI number and the date of birth fields are blank, the system should give automatic reminders to the user to obtain the information before the end of the tax year. Employers should expect to see this change in their systems from April 2004 - but they should also ensure that their own internal procedures require the tracing of missing NI numbers.

Net of tax credit schemes

Employers who give employees credit for the tax deducted from their overseas employment when they pay tax in both the UK and abroad will be required to file their P14s electronically for such employees instead of on paper. Payroll systems should, from April 2004, have the facility to record the amount of tax actually paid by the employee, i.e. the tax paid under PAYE, less that credited in respect of overseas employment, so that the amount of income tax reported on the P14 is correct.
(Source: www.inlandrevenue.gov.uk/comp/notes_10_15.pdf )
...back to 4 October 2003

Electronic filing and payments - regulations

The final versions of the Regulations for the introduction of mandatory filing by large and medium-sized employers, mandatory payments by large employers, and incentives for small employers have been made and come into force on 20 October 2003. A few changes have been made to the draft Regulations as the result of feedback to the consultation process, as follows:

• The specified date at which an employer's size (i.e. large, medium-sized or small) is measured has been defined as not later than 30th November prior to the tax year in which the employer's size classification will apply. The date by which employers must be informed of the classification is 31 December. (Compare Notification in the above news item)
• The draft Regulations provided two exceptions to mandatory electronic filing, namely individuals who, and partnerships where all the partners, are practising members of a religious society or order whose beliefs are incompatible with the use of electronic communication. Added to this list of exceptions is a company where all the directors and the company secretary are practicing members of a religious society or order whose beliefs are incompatible with the use of electronic communication.

Readers interested in the Government's response to the comments received from employer's representatives and individuals to the draft regulations can read a summary at www.inlandrevenue.gov.uk/feedback...pdf .
(Source: www.inlandrevenue.gov.uk/ria/large-employers.pdf
and www.inlandrevenue.gov.uk/si/2003-2495.pdf )
...back to 4 October 2003

New Inland Revenue website

In preparation for a new-look website in October 2003, the Inland Revenue has given the name "Inland Revenue Online Services" to all of its electronic services, covering Internet, Electronic Data Interchange and Electronic Lodgement Services. The Electronic Business Unit (EBU) helpdesk has been renamed "Inland Revenue Online Services Helpdesk".
(Source: www.inlandrevenue.gov.uk/comp/notes_10_15.pdf )
...back to 4 October 2003

Filing year-end returns by magnetic media

Electronic filing of year-end returns becomes mandatory for large employers from the 2004/05 tax year onwards, and for smaller employers in the following years. The only permitted methods of electronic filing will be Electronic Date Interchange (EDI) or Internet Service for PAYE (ISP), but not magnetic media, i.e. diskette, tape or CD-ROM. On receipt, the Inland Revenue will validate the EDI or ISP returns against the Quality Standards.

Until it becomes mandatory to file by EDI or ISP, employers may continue to file by magnetic media or, as explained in last week's news, they may make part submissions, e.g. P14s for one group of employees by ISP and P14s for another group by magnetic media. If this is done, the magnetic media returns will be validated against the Quality Standards and held until all of the employer's returns are received, at which point they will be merged and processed in full.

The Inland Revenue has never given clear reasons for scrapping magnetic media submissions, other than to point to the comments in the Carter Review which stated that magnetic returns are "often of dubious quality". The announcement that magnetic media returns could be validated against the Quality Standards - thereby assuring their quality - prompted us to ask the Inland Revenue to provide objective reasons for not permitting magnetic media returns when year-end electronic filing becomes obligatory.

The questions we asked, and the Inland Revenue's replies, are as follows:

1. How many employers used magnetic media to file their year-end returns for 2002/03?
   
   To date 42,211 employers have submitted End of Year Returns by magnetic media. You should note however that employers may have several submissions by magnetic media e.g. weekly, monthly, Directors etc. Hence 45,426 Permit Numbers for 2002/03 have been used.
   
   
2. How many P14s were filed using magnetic media for 2002/03 and what is that number as a percentage of all P14s filed for that year?
   
   To date 30,097,026 P14s have been received for 2002/03 from magnetic media returns. This is 1 million above our planning assumption of 29 million. The total expected volume of P14s for 2002/03 is 55,200,000. Therefore the percentage received against the total number expected is 54%.
   
   You should note that processing is still ongoing for 2002/03. Although the bulk of magnetic media will have been processed there are still schemes in "suspense" remaining to be cleared. Paper processing continue through to November therefore there could be some change to the percentage of magnetic media against the total P14 figure for 2002/03.
   
   
3. What are the Inland Revenue's/Government's objective reasons for excluding magnetic media submissions from the options available for mandatory electronic filing?
   
   Many magnetic media submissions create high levels of re-work for Inland Revenue and subsequently for the submitter. As Patrick Carter's report noted, "the majority [of large employers] file by magnetic media often of dubious quality." Magnetic media transmission does not permit automated validation, effectively in real time, nor fast automated messaging from Inland Revenue. The current practical experience is therefore unsatisfactory, and the nature of the transmission medium limits the scope for improvement. So the Carter report explicitly ruled out magnetic media as a permitted medium for mandatory e-filing.
   
   
4. And, while we are on the subject, what are the Inland Revenue's/Government's objective reasons for making electronic filing of year-end returns mandatory? The Carter Review certainly did not give any objective reasons for this recommendation and the Inland Revenue/Government have refused to release the views of respondents to the consultation that followed the publication of the Carter Review.
   
   Having been pressed to consider one aspect - the end-of-year return - employers will inevitably consider the other facilities that software may provide for e-filing. Employers who have made the switch to e-filing confirm that it's a good investment, taking payroll as a whole, not just the specific return that will be mandatory. And that's before any effect on the wider business's adoption of new technology. That is a point particularly relevant to small businesses eligible for the Carter incentive "to switch early but also ease the transition to the new way of working".

As over half of all P14s are filed by magnetic media, it is clearly a successful and well-established process. There are around 8,000 large employers who will have to file electronically by EDI or ISP by the end of the 2004/05 tax year, and a further 30,000 medium-sized employers who must follow a year later. It would appear, therefore, that the majority of the 42,000 who have filed by magnetic media this year will have to make the change to EDI or ISP.

It is true that magnetic media submissions cannot be validated automatically against the Quality Standard. Each file must be loaded onto the Revenue's computers before the checks can be performed. However, the Revenue is already putting the two key measures in place that would ensure the accuracy of all magnetic media submissions; (1) developers must include the Quality Standard validations in their payroll software, and (2) the validation on receipt of each file is being developed so that part submissions can be checked.

Replacing a tried and tested process with new technology is a high risk project. Rather than forcing the issue, the Inland Revenue should consider phasing out magnetic media returns over a period rather than forcing 38,000 employers to make the change and fining them if they don't.

Returning to the electronic recommendations of the Carter Review, the Inland Revenue has much to gain by making electronic filing mandatory. The Carter Review identified direct savings for the Inland Revenue of "around £;105 million in total over 5 years, and at least £;35 million per year thereafter". What are the benefits for employers? As can be seen from the answer given to the request for objective reasons for making electronic filing mandatory, the best the Revenue can come up with is that, once employers have tried it out, they will see the advantages of using the new technology on a wider scale.

The case for compulsion has still not been made.
...back to 25th July 2003

Quality Standard

Version 2 of the Quality Standard has been published. The Quality Standard defines the validations that payroll software developers need to build into their systems in order to ensure that year-end returns filed electronically will not be rejected by the Inland Revenue.
(Source: www.inlandrevenue.gov.uk/ebu/qual_stand_valid_spec.pdf )
...back to 18th July 2003

Electronic filing

The Inland Revenue's latest guidance for payroll software developers provides an insight into many of the issues that employers must face in order to meet the requirement to file year-end returns electronically. Employers with 250 employees or more must start filing electronically for the 2004/05 tax year, those with between 50 and 249 employees a year later, and small employers from 2009/10. The Inland Revenue, however, is keen to encourage all employers to start as early as possible.

Multi-part submissions

The Inland Revenue expects that most employers will file their P14s and P35 together as one single submission. But what will employers do whose returns are prepared in different locations, or who handle a part of the payroll themselves and use a bureau for the rest? The solution is a new facility for multi-part submissions, allowing P14s to be sent in several batches, followed afterwards by the P35. Some batches of P14s may be sent using the Internet Service for PAYE (ISP), others using Electronic Data Interchange (EDI).

For example, a large employer has a head office and two distant branches. The employer has a single PAYE reference number and submits one P35. Each of the three sites prepares P14s for its own employees. The two branches submit their P14s separately, using ISP, and the head office sends its own P14s and the P35 using EDI.

As each batch of P14s is received by the Inland Revenue, it is recognised as a part submission, validated against the Quality Standard and, if the fragment is accepted, it is put into a "holding bay". If the submission is rejected, the submitter is notified. Each subsequent part submission is checked and held until the final P35 arrives. All of the parts are then merged and a full validation is performed against the Quality Standard. If the full submission is acceptable, the whole return meets the electronic filing requirements and the employer avoids any filing penalties.

Taking another example, a small employer uses a local payroll bureau to process the payroll, but the company accountant pays the directors. The bureau and the accountant both submit P14s for their part of the payroll using ISP and both are validated successfully against the Quality Standard. Finally, the employer submits a paper P35. Although a paper return is acceptable from small employers until 2008/09, the employer has not filed a complete electronic return and does not qualify for the incentive payment for that year.

If an employer submits several parts of the year-end returns in this way and one part fails the validation test, the whole submission will not be acceptable until the faulty part is resubmitted with the errors corrected. If, as a result of the faulty part, the filing deadline is missed, the filing penalty will be based on the total number of employees in the complete submission, not just those in the faulty part submission.

Employers who already use ISP for filing forms and returns will be used to receiving an immediate acknowledgement from the Inland Revenue that the submission was received. Where P14s have been filed in parts, employers may experience a delay when submitting the P35 while the P35 is matched with its other parts and validated.

The Inland Revenue is recommending that all payroll software developers build the Quality Standard validations into their systems so that unacceptable data cannot be input in the first place. This should minimise the prospect of year-end returns being rejected when they are filed electronically.

Details of the penalties for large and medium-sized companies, the incentives for small employers, and the Quality Standard were provided in the Newsletter of 18 April 2003.

Large returns

The maximum number of P14s that may be filed at one time using ISP is currently 22,000. The ISP service is being enhanced to accept compression, i.e. "zipping" of files. This will allow up to 150,000 P14s to be sent at one time. Because "zipped" files use less Internet bandwidth, the Inland Revenue is encouraging developers to use compression when sending returns of any size.

Although there are no size restrictions on files submitted by EDI, the Inland Revenue is encouraging part submissions as a single large submission would be rejected if even one P14 were invalid. It would be better to send several fragments so that, if one were rejected, the cost of re-submission would be minimised.

Magnetic media

The Inland Revenue is continuing to be adamant that magnetic media returns using CD-ROM, diskette or cartridge do not count as electronic returns. If, for example, a large employer uses magnetic media for filing returns for 2004/05, a penalty will be incurred. The Inland Revenue cryptically states: "In due course it is our intention to evaluate our Magnetic Media service." And a warning is given that "developers should not assume that facilities to submit employer end of year returns via Magnetic Media will continue until 2010."

The Inland Revenue has never provided any objective reasons for refusing to accept magnetic media submissions as "electronic" for year-end submissions. The reason generally quoted is that the Carter Review said that magnetic media submissions should not be accepted, without explaining why. The reason appeared to be that magnetic media submissions could not be validated adequately.

However, this reason is now shown to be incorrect. The facility to accept multi-part submissions, as described above, is also being extended to magnetic media submissions. The Inland Revenue's systems will be able to accept submissions using ISP, EDI and magnetic media, validate them against the Quality Standard, and merge them on receipt of the P35.

We have asked the Inland Revenue to give the Government's objective reasons for refusing to accept magnetic media submissions, successfully used by thousands of employers, as one of the methods of filing electronically in future.

Open reel tape

From 1 October 2003, the Inland Revenue will not send information to employers using open reel tape and, from 1 October 2004, information will not be accepted using open reel tape.

E-filing notices

The Inland Revenue will take a "snapshot" of each employer in October to determine the number of employees in each PAYE scheme. This will be used to determine which size category each employer falls into, over 250, between 50 and 249, or below 50. The count will include all employees for whom a P45 or P46 has been provided and for whom no leaving details have been sent. The count will not include low-earning employees for whom a P14 is filed even though there are no tax and NICs figures to report, as long as no P45 or P46 has been submitted. See P38A supplementary return, below.

Subsequently, the Inland Revenue will write to all employers to tell them the size category that they fall into, the effect that will have on the requirements for electronic filing and electronic payments, whether they qualify for incentive payments, where they can obtain help and support, and the appeals procedure. No copies will be sent to agents or intermediaries.

Payroll system developers are encouraged to build the same "snapshot" facility into their systems so that employers can compare accurately the Inland Revenue's count of employees with their own and have a basis for making an appeal if necessary.

Inland Revenue Personal Reference numbers

The first issue of the Inland Revenue's Quality Standard indicated that the Inland Revenue Personal Reference (IRPR) number could be used on P14 returns in the absence of an NI number in order to meet the validation requirements.

After consulting with employers and representative bodies, the Inland Revenue has decided not to introduce IRPRs during 2004/05. The requirement for developers to build software that can handle IRPRs for 2004/05 has now been withdrawn.

As a reminder, all P14s must give an NI number or, if it is not available, the employee's date of birth and sex must be shown. TN numbers are not acceptable. The second version of the Quality Standard has been published. See the separate news item.

Net of tax credit schemes

Filing of P14s electronically will also apply in the case of employees who work partly in the UK and partly abroad and have a liability for tax on the same income in more than one country. Employers, when directed to do so by the Inland Revenue, may give such employees credit for the tax deducted from their overseas employment. This is done by reducing their UK income tax and, currently, submitting a paper P14 with the amount of tax deducted and remitted to the overseas authority written in red at the bottom of the form.

From 2004/05, the P14s must be filed electronically as for any other employee, and the amount of tax deducted in respect of the overseas employment sent to the local tax office under separate cover.

P38A supplementary return

Following the pattern set by the introduction of multi-part submissions, the P38A supplementary return may be filed separately from the other parts of the annual return, i.e. P14s and P35, from the 2004/05 tax year. They may all be submitted at different times, as long as they all meet the filing deadline. Note, however, that form P38A does not have to be filed electronically; the paper form may continue to be used.

The P38A return is used principally to confirm that, for all employees for whom a P14 is not being filed, the employer holds a completed P46 and each employee did not earn more than the tax and NICs threshold at any time during the year. The Inland Revenue has confirmed that the current practice of many employers, to file P14s for such employees instead of the P38A, is acceptable, even though there are no tax and NICs figures to report. Such P14s will still be validated against the Quality Standard, in particular the requirement to show an NI number, or date of birth and sex.

It is also acceptable to the Inland Revenue for such P14s to show NI table letter 'X' for these employees, as used by some payroll systems. If this is done, the earnings and contribution fields on the P14 must be zero-filled to show that earnings did not exceed the LEL in any earnings period. If earnings exceed the LEL in any earnings period, the P14 must show the correct table letter for the employee.

Low-earning employees for whom a full payroll record is maintained and a P14 filed are not included in the count of employees used to determine the employer's size category for electronic filing and payment purposes. See E-filing notices, above.

Amendments and cessation of trading

Employers will be able to file amendment returns electronically to correct errors in the initial return. Also, starting with the 2005/06 tax year, the facility to file returns mid-year will be provided for employers who cease trading.
(Source: www.inlandrevenue.gov.uk/comp/notes_10_14.pdf)
...back to 18 July 2003

Mandatory electronic payments

The Government has published, in draft form, the amendment regulations that will introduce the requirement for large employers to make their payments to the Collector electronically from 6 April 2004. The draft regulations are somewhat confusing because they make amendments to the draft regulations on mandatory electronic filing which themselves are still subject to consultation! Comments are invited and the closing date is 5 September 2003.

As currently defined, the regulations will impose the following requirements.

• Payment must be made electronically every period by employers with 250 or more employees who have received an "e-payment notice". This notice must be issued to employers affected not later 31 January prior to the tax year in which mandatory payments start. The Revenue's intention is to send the notice at the same time as the equivalent notice is issued for mandatory filing for large employers from 2004/05.
• Employers will be able to appeal against an "e-payment notice" if they believe they are not a large employer.
• Payment may only be made by electronic means approved by the Inland Revenue. The methods will include BACS and CHAPS, but other methods may be approved.
• As long as payment is made by an approved method, the payment deadline will be within 17 days of the end of every tax month or quarter, i.e. 22nd of the month, instead of the normal 19th. (Although it is probably impossible that a "large employer" could qualify for quarterly payments.)
• As with mandatory electronic filing, the regulations impose the same restriction on employers making an election to set up a number of separate PAYE schemes with their own employer's reference, simply in order to take them out of the "large employer" category.
• A surcharge will be imposed automatically if an employer is repeatedly late, i.e. three or more times in a "surcharge period", in making electronic payments, unless the employer has a reasonable excuse and payment is made without unreasonable delay. The amount of the surcharge is the prescribed percentage of the total payments of tax, NICs, student loan deductions and construction industry tax due for the tax year.
• The proposed percentages are as follows:
  
  

  Up to two defaults	0%
  Three to five defaults	0.17%
  Six to eight defaults	0.33%
  Nine to eleven defaults	0.58%
  Twelve and subsequent defaults	0.83%

  
  
• The prescribed surcharge percentages apply according to the number of times the employer defaults in making payments on time in the "surcharge period". This is the period that
  • starts on the day following the day on which the employer is first in default, and
  • ends at the end of a subsequent tax year during the entire period of which the employer has not defaulted in a payment.

• Where defaults have occurred, a surcharge notice will be issued against the employer at the end of the tax year and the surcharge will be payable within 30 days of issue to the Collector under the normal payment arrangements. There will be an appeal process against a surcharge notice.

(Source: www.inlandrevenue.gov.uk/consult_new/mandepayment.pdf and www.inlandrevenue.gov.uk/consult_new/epayment_largeemp.htm)
...back to 20 June 2003

Compulsory electronic filing

This news item is in two parts. The first considers the implications of draft regulations; the second describes the Revenue's proposed service enhancements for filing electronically in non-standard filing situations.

Draft Regulations

The Government has published draft regulations to enable the introduction of mandatory electronic filing of P14s and P35s (but not P38(S) and P38A) for large employers (i.e. those with 250 or more employees) for the 2004/05 tax year, and for medium-sized employers (i.e. those with 50 to 249 employees) for the 2005/06 tax year. Consultation on the proposals contained in the draft regulations will continue until 7 July, but the arrangements are expected to take the following form:

• The only employers that will be exempted from the requirement to file electronically will be those that are either
  • an individual who is a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communication
  • a partnership where all the partners are practising members of a religious society or order whose beliefs are incompatible with the use of electronic communication.

• Employers will only have to file electronically by the appropriate deadline if they have been issued with a notice to that effect. The Revenue intends to issue the first notices in October 2003 and in each following October. The allocation of each employer as a large, medium-sized or small employer will be made by taking a "snapshot" of the number of tax records linked to each PAYE reference. The snapshot in October 2003 will remain valid even if employee numbers have increased or decreased by the end of the 2004/05 tax year.
• New employers with PAYE schemes created after the snapshot in any particular year will be treated initially as a small employer. For example, an employer whose scheme is set up in December 2003, after the October 2003 snapshot, will be sent a notice in October 2004 that will allocate the correct employer size for the 2005/06 tax year.
• There will be a procedure for appealing against a notice allocating an employer to any particular employer size.
• The returns that are filed electronically must meet standards of accuracy and completeness set by specific or general directions given by the Inland Revenue, otherwise they will be treated as not having been delivered. See item Quality standards for electronic end-of-year returns , below.
• The only acceptable means of electronic filing will be the Internet Service for PAYE (ISP) or Electronic Data Interchange (EDI). Filing by magnetic media (i.e. CD-ROM, flexible disk, data cartridge and open reel tape) will not count as electronic filing. Large and medium-sized employers who continue to file by magnetic media will be liable to a penalty for failure to file electronically. Small employers who file by magnetic media will not qualify for incentive payments.
• Penalties for non-filing will be on a sliding scale, as follows. There will be a procedure for appealing against penalties.

• Employers with fewer than 50 employees will be entitled to receive incentives in respect of any tax year between 2004/05 and 2008/09 in which they file electronically. An "employer" means a separate PAYE scheme with its own employer's reference. An example of this situation is where an executive or directors' payroll has a separate employer's reference. (See item Creating more than one PAYE scheme , below.) The incentives are as follows:

  Year of assessment	Amount of incentive payment
  2004/05	£;250
  2005/06	£;250
  2006/07	£;150
  2007/08	£;100
  2008/09	£;75

• Entitlement to the incentives will be determined on a year-by-year basis. The incentive for each year will be paid if the employer has filed electronically for that year. Employers who start filing earlier than 2004/05 are not disqualified from receiving the incentives. Incentives will not be paid to intermediaries.
• Incentive payments will be credited to the employer's IR collection record so they can offset against future payments to the Accounts Office. Alternatively, the incentive may be paid direct to the employer. Existing regulations already provide that incentives are not regarded as taxable income.

Details of the consultation process on these proposals are available at www.inlandrevenue.gov.uk/consult_new/efiling.htm
(Sources: www.inlandrevenue.gov.uk/...pdf and
www.inlandrevenue.gov.uk/...pdf )

Proposed service enhancements

On the introduction of compulsory electronic filing, local extra-statutory arrangements will be discontinued. In particular, the Revenue will no longer accept multiple P35s for a single PAYE scheme. However, the following flexible options are being considered within the context of individual PAYE schemes:

• the employer files a single P35 but the P14s are filed by intermediaries, e.g. a bureau files P14s for the workforce and an accountant files P14s for the directors
• the employer files a single P35 but makes separate P14 submissions for the workforce and the directors
• the employer files a single P35 but makes multiple P14 submissions for different employee groups or sites for which separate payrolls are processed

In each of these situations, the P14 part-submission will have to carry a unique alpha-numeric identifier that is created by the employer, in case one part needs to be re-submitted, and the P35 will have to state how many part-submissions make up the full return.

If an intermediary files P14s for an employer and that employer does not wish to file form P35 electronically, the employer may ask the intermediary to file the P35 as well. Currently, in this situation, the intermediary completes part of the P35 and then gets the employer to complete the sections and questions that the intermediary cannot answer. If an intermediary takes on the job of filing form P35 for an employer, arrangements will have to be made to obtain the necessary information from the employer in time for the filing deadline.

From the 2005/06 tax year, employers will be able to file mid-year returns in the event of cessation of business, and additional or corrected returns.

At present, the maximum file size that may be submitted using the Internet Service for PAYE (ISP) is 25Mb, equivalent to 20,000 P14s. Changes to P14 filing specifications are planned that will increase this limit to 30,000 P14s. However, as some employers using ISP have more than that number of P14s to file, the Revenue is exploring the use of file compression that will allow up to 150,000 P14s to be filed within the 25MB limit. These improvements will allow some very large employers to look seriously at Internet submissions instead of the more expensive EDI option.
(Source: IR Notes for Payroll Software Developers, www.inlandrevenue.gov.uk/comp/notes_10_13.pdf )
...back to 18 April 2003

Quality standards for electronic end-of-year returns

Large employers (i.e. those with 250 or more employees are required to file their P14 and P35 returns electronically at the end of the 2004/05 tax year. Other employers will have to follow suit in later years. There is a potential fine of £;3000 for each year in which an employer fails to file electronically.

There is also the potential for a late filing penalty if the returns do not meet the Revenue's Quality Standard. The returns will be treated as not having been made. Consequently, employers and intermediaries (such as bureaux and accountants) must ensure that their computerised payroll systems meet these Standards. The Quality Standard has been published so that payroll system developers can introduce the comprehensive validations defined in these new specifications. For example, the P14 for the 2004/05 will allow the new IR Personal Reference (IRPR) Number to be entered instead of the National Insurance Number (see item Inland Revenue Personal Reference , below). A P14 that is submitted without an NI number, IRPR number, or date of birth/sex details, will be rejected under the Quality Standard.

Developers that have obtained accreditation for their systems as meeting the IR Payroll Standard will also be tested to ensure they meet the Quality Standard.

The Quality Standard also provides the validations that will be required for the P12 and P37 returns used under the Simplified PAYE Deduction Scheme.

As the Quality Standard for P14s checks that the earnings on which NICs are calculated between the LEL, ET and UEL do not exceed the annual maximum, the form may be rejected if the P14 figures exceed the maxima because holiday pay is paid to the employee in the last week of the tax year. In this situation, to prevent the P14 being rejected, the employer will have to submit an additional P14 for the employee, showing the excess NICs.

To support the introduction of the Quality Standard, the Revenue intends to introduce extensive testing facilities in autumn 2003 to allow developers to check that the standards have been accurately built into their software. It is also intended to provide the facility for employers and intermediaries to test their final submissions before they are sent electronically to the Revenue.

Employers and intermediaries using computerised payroll systems are dependent on their system provider introducing and successfully testing the system against the Quality Standard. Any P14s or P35s filed electronically that fail the submission tests will be rejected and the employer, as a result, may incur penalties. As this situation creates potential contractual issues between employers and system providers, employers should start discussions with their suppliers in autumn 2003 to ensure that they are fully protected against the failure of their submissions.
(Source: www.inlandrevenue.gov.uk/ebu/qual_stand_valid_spec.pdf )
...back to 18 April 2003

Creating more than one PAYE scheme

Employers wishing to make separate P14 and P35 returns for different groups of employers must contact their local tax office and make the appropriate election. The implications of creating separate PAYE schemes with their own employer's reference is that each employee must be allocated to the correct scheme and, when employees move between schemes, P45s must be issued and processed by each scheme.

For the purpose of compulsory electronic filing, the number of employees in each scheme determines when each scheme must start filing and whether a particular scheme qualifies for early filing incentives. However, the draft Regulations (see item Compulsory electronic filing , above) includes anti-avoidance provisions to prevent the creation of PAYE schemes simply to avoid filing or to obtain incentives.

Note also that, in determining whether an employer is a "small employer" for the purposes of recovering SMP, SPP and SAP, entitlement to the higher recovery rate applies across all of an employer's PAYE schemes, not to each scheme. Similarly, the qualifying service entitlement to these statutory leave and pay provisions is the service with the employer, not service in a specific scheme. (Source: IR Notes for Payroll Software Developers ,)
...back to 18 April 2003

Electronic filing

Many of the measures recommended by the Carter Review to help employers with payroll compliance are to be introduced under the title "Payroll Process Improvement Programme" (PPIP). These include

• the compulsory filing of year-end P14 and P35 returns from 2005 onwards, supported by financial incentives for smaller employers
• a more consistent approach by tax offices to the issuing of dispensations
• further developments to the Revenue's website, in particular to provide more calculator-type functions to assist employers
• using compliance visits to employers to provide assistance and support, not just to check for non-compliance.

Initial information about PPIP is available at www.inlandrevenue.gov.uk/employers/ppip/index.htm .

The Revenue has also reissued two of the booklets providing guidance on Electronic Data Interchange, or EDI. This is one of the two methods that employers will be able to use to meet the coming requirement to file returns electronically.

• Booklet EB3 EDI Step by Step Implementation Guide helps employers decide if EDI is a suitable method of electronic submission for them to use, although employers should first obtain the EB2 (PAYE) Information Pack.
• Booklet EB4 (PAYE/EDI) Software Developers lists suppliers of payroll and EDI software that has been evaluated and approved by the Revenue as capable of transferring payroll data using EDI.

The section of the Revenue's website dedicated to EDI can be found at www.inlandrevenue.gov.uk/ebu/edi/paye_intro.htm . Employers preferring to explore the Filing by Internet (FBI) method of electronic filing should visit www.inlandrevenue.gov.uk/efiling/help/mainhelp.htm and www.inlandrevenue.gov.uk/ebu/psu.htm .
Payroll Briefing 16 - 13 February 2003

No Feedback on Carter Review

The Carter Review of Payroll Services was published in November 2001 and has led to the Government's plans to compel all employers to file their year-end P14 and P35 returns electronically. The new reporting requirements will be phased in over a six-year period starting with the 2004/05 tax year.

Following publication of the Revenue, there was a period of consultation that ended on 31 January 2003. The only feedback on the comments submitted during the consultation period appeared in a document that was published at the time of the 2002 Budget. It said: "The majority of respondents supported the recommendations on support and policy simplification. On compulsion, whilst there was broad acceptance of requiring large employers to transact with the Inland Revenue electronically there was much less support for requiring small employers to do the same."

While compulsory electronic filing may be accommodated by the larger businesses in the UK, over a million small and medium size businesses have a serious problem with payroll compliance, one of the key findings of the Carter Review. Although the Review made many sensible and welcome suggestions for reducing the burdens on employers, there is nothing in the Review to explain how mandatory electronic filing will help achieve that objective. The proposal appears to have more to do with helping Government achieve its targets for electronic communication than with helping employers cope with statutory compliance.

Contrary to its normal practice, the Government has not produced a more detailed summary of the comments submitted during the consultation period. In response to a press question asking why the Government accepts that compliance with payroll legislation is a significant burden on employers but is only adding to that burden by making year-end filing mandatory, the Revenue's press office stated only that "as far as I am aware, there are no plans to publish any further detail of the consultation feedback".
Payroll Briefing 14 - 21 January 2003

Payroll Standard

To display the Payroll Accreditation Scheme logo on their marketing materials, payroll software developers must put their systems through the Revenue's rigorous accreditation process. This involves demonstrating that the software satisfies the requirements of the Payroll Standard. The latest version of the standards, issued in July, defines what capabilities accredited systems must have by April 2003 for the handling of the existing and new statutory payments.

All payroll system developers have been provided with the specifications for processing SSP, SMP, Statutory Paternity Pay (SPP) for both births and adoptions, and Statutory Adoption Pay (SAP). Some payroll systems are already able to calculate and pay SSP and SMP automatically; others only make the payments and leave the employers to calculate the amount of the payment manually. The latest version of the Payroll Standard requires accredited systems, and those seeking accreditation, to provide at least

• automatic calculation, recording and payment of SSP, SMP and SPP for births, and
• payment of SAP and SPP for adoptions, but not automated calculations.

Payroll systems that are not yet accredited do not have to meet the standards but they must be capable of recording and making the payments, even if the employers have to calculate the amount of the payments themselves. Nevertheless, many developers are expected to provide the full calculation facilities, even if they are not yet accredited.

Information about accreditation and the Payroll Standard is available at www.inlandrevenue.gov.uk/ebu/psu.htm .
Payroll Briefing 6 - 12 September 2002

PAYE Internet service

The number of computerised payroll systems that have been approved under the Revenue's accreditation scheme has increased to 12, from 10 different suppliers. All of these systems, plus others that have not yet been accredited, are equipped to file P14 and P35 returns over the Internet. It is only the ability to file these two returns that is necessary for accreditation.

On the other hand, the Revenue's own Internet filing service now offers a wide range of documents and returns that can be exchanged electronically. By April 2002, the full list of forms that may be sent or received in both directions will be as follows:

P9D

P11D

P11D(b)

P12

P14

P35

P37

P38A

P38S

P45(1)

P45(3)

P46

P46(Car)

P160/P46/P45(3)

--

AR1N

AR1MN

AR2N

AR2MN

AR6

P6

P6B

P7X

P9

P9X

SL1

SL2

--

--

As these forms have to be completed individually on-line, the service is not of help to employers with large number of forms to complete regularly. However, the ability to complete and send less frequently used forms and to receive coding notices and other messages in return may be a useful facility for many employers. Information is available at www.inlandrevenue.gov.uk/efiling/help/mainhelp.htm
Payroll Briefing 216 - 17 January 2002

Gateway to the future

It may be a slow process, but the Revenue is moving step-by-step towards a full Internet service for employers. The facility to submit P14s and P35s in this way was available well in advance of May submission deadlines. The forms could be completed on-screen, subject to the employer having registered and receiving the necessary security codes. In addition, at least two payroll software suppliers now provide the facility for submitting returns over the Internet and it is anticipated that all systems will be enhanced to provide this facility over the coming year. However, using the Internet service is not dependent on having any particular payroll software; only an Internet connection is necessary.

Submission of P46 forms and P11D and P11D(b) returns using the Revenue's on-line service is now available.

Registering

Before using the Revenue services, employers must formally register with the new Government Gateway. A special digital certificate, that provides encryption codes, is required before the Gateway can be used to submit VAT returns, but a simple password is all that is needed to register for the Revenue's services. Within seven days of registering, the employer will receive a User ID and activation PIN, and the PIN must be used to activate the service within 14 days of its despatch, otherwise registration has to start all over again.

The Government Gateway is a web site, and is the single point of access to the government's electronic services. Anyone wishing to use the current and future services must register with the Gateway and then, by entering the Gateway, electronic communication will be possible with any government department, using a single set of access codes. The system, however, is in its infancy and the only government departments currently offering any of their services in this way are the Inland Revenue, Customs & Excise for VAT returns, and MAFF for farming services.

The Revenue is developing further services for introduction during the coming year. Details of all the existing services and registration procedures are available at www.inlandrevenue.gov.uk/efiling/help/mainhelp.htm. - Payroll Briefing 204 - 21 June 2001

Internet service

On 21 February, the Revenue opened the registration facility for employers wishing to submit their P14, P38A and P35 returns over the Internet for 2000/01. Submission of these returns may commence at any time from 9 April. The service will be extended from June 2001 to include P46 notices and P11D and P11D(b) returns. The news item in issue 194 of Payroll Briefing describes the discounts available to all employers as an incentive to start using the Internet service.

Employers will need a PC or Mac with an up-to-date configuration and recent-version browser, and payroll software that permits file output in the correct format. Many developers are in the process of upgrading their systems, prompted by the requirements of the Revenue's Payroll Standard. The procedures involved in registration are set out on the Revenue's web site, at www.inlandrevenue.gov.uk/efiling/help/mainhelp.htm. Employers using a payroll bureau may also use this service. - Payroll Briefing 198 - 29 March 2001