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Whose job?
As well as promising regulatory reform for small businesses, in the small print of this year's Budget is a new requirement that all employers send a 'targeted letter' to each employee, explaining the changes to the way that working tax credits are to be paid, i.e. the system whereby employers make the payments is to be phased out.
Simon Sweetman, vice chair of the tax policy unit of the Federation of Small Businesses explained that the Revenue has come up with a number of alternatives, all of which entailed it having to tell employers what to say, and the employers then having to write the letters. He described this as 'quite absurd', and said that no-one seemed able to explain why the Revenue could not deal with the matter itself. While the matter itself is not up for discussion, the Revenue is consulting about arrangements for phasing out payments via employers.
Similarly, Kate Upcraft, policy and research manager of the Institute of Payroll and Pensions Management said that this was 'an unnecessary burden on business'. She pointed out that 'communication on tax matters is more appropriately and efficiently carried out by the Inland Revenue'. Anne Redston, chair of the personal taxes subcommittee of the CIOT said that she would 'like the Government to change its mind on this targeted letter', as this would be a sign that it was listening to businesses and really meant to reduce the regulatory burden.
Entertainers
The Revenue has made some minor amendments to the version of the guidance notes published in October 2004. One of these confirms the ending of the concession which waived the legislation restricting refunds claims to two years on 5 April 2005.
(www.inlandrevenue.gov.uk)
Online filing from April
With more than 500,000 employers, agents and payroll bureaux registered to use its online services, the Revenue has published an advance Tax Bulletin article explaining more about online filing of employer's annual returns. Extracts of the article follow.
The Revenue says that most employers file online between 10am and 4pm, but they might get a slightly speedier service if they can try to send returns outside those peak hours. Furthermore, it will help to avoid the peak filing days, usually 18 and 19 May.
Form P35
Employers must not send a paper P35 if they send their P35 online, even if they get one through the post. If the Revenue does receive both, and the paper return is accepted before the online return, it will treat the return as being made by paper. This means that large employers (250 or more employees) who must file online would incur the online filing penalty and small employers (fewer than 50 employees) would not get the tax-free incentive.
Special online filing arrangements for 2005
It has proved necessary for the testing of the Revenue's new computer systems for employer's annual returns to stretch into May. The new computer for sending information from employer's annual returns to the Revenue's other systems will go live towards the end of May, later than the original planned switch-on date of 6 April. The Revenue has taken every step to ensure that it is 'open for business' for 2004-05 online filing on 6 April.
From 6 April it will:
- apply initial quality checks on returns sent over the Internet at the Government Gateway;
- where these initial checks are passed, send an on-screen message saying that it has accepted the return (Internet filers who have provided an e-mail address and electronic data interchange (EDI) filers will get an e-mail);
- store successful returns until the new computer is up and running;
- later, pass returns to the new computer.
If the return fails the initial checks at the Government Gateway, it is vital that it is corrected quickly and re-submitted by the 19 May filing deadline. So we urge employers and agents to allow plenty of time to file, and not leave it until the last minute and risk getting a penalty for not meeting the deadline.
Filing within seven days of 19 May
Extra-statutory Concession B46 allows employers up to seven more business days after the employer's annual return filing deadline of 19 May to submit their return before a late filing penalty is charged. This concession is intended to address the situation where a return is delayed by something beyond the employer's control, such as postal delays, but it also applies to online returns as well as those sent on paper or by magnetic media. Although online transmissions are much faster than post, they are not always instantaneous. Sometimes, computer problems or problems with Internet connections can cause delays in online filing. So, if the Revenue receives the return by 26 May 2005, it will not charge a late filing penalty.
May and thereafter
The Revenue's new computer will apply further quality checks on P14s sent via the Internet, and then on the whole return, including the P35. But a return will not be rejected if it fails any of those further checks, as long as the Revenue has a full return with no parts missing.
Where a return fails the further checks, the Revenue will look into the reason for the failure, and will correct it with the help of the sender (probably by telephone). A late filing penalty will not charged if the original return was sent online by 19 May.
P14s sent by EDI will be validated immediately on receipt and returns that include errors will be rejected for correction. Checks to see that the totals are correct will be done later, after the end of May.
The non-online filing penalty will apply where the complete original return is not sent online.
Re-submitting incorrect returns
Very exceptionally, the sender may need to correct a return and re-submit it. Where this happens, the Revenue will attach the original submission date to the return and provided the original was received on time, the Revenue will not seek to charge a late filing penalty. If the employer is unable to re-submit the replacement online because of limitations in their software, we will not seek to charge the non-online filing penalty and would be willing to pay the incentive to a small employer, as long as all of the original return was sent online.
Sending returns in parts
If employers or agents file in parts, for example, P14s in batches, the further quality checks will be applied to each P14 part separately and then to the whole return. Whoever sends in each part will get the same acceptance message, even if there may be more parts to follow. The Revenue recommends that the P35 is sent last.
Internet and EDI filers can replace a part as long as the replacement has the same unique identifier as the part that it replaces. A replacement must be done before the P35 has had the acceptance message.
Any changes or additions instigated by the employer after all parts of a return have been accepted, must be made as an amendment.
Internet and EDI
EDI users who want to send their P35 over the Internet must register to use PAYE Online for Employers — Internet, then choose to de-select the option to get P6s, P6Bs, P9s, student loans and tax credits forms sent to their Internet secure mailbox. Otherwise these will be sent to their secure mailbox and EDI output will stop.
To change the setting when activating, EDI users need to select 'want to change' under the 'Statutory notices over the Internet' section. Details of all the above notices will be shown as automatically selected 'Yes'. EDI users need to change the answer to 'No' for each of the notices they do not wish to get over the Internet. Preferences can be changed later by selecting 'change your statutory notice' option from the PAYE service page.
Incentive payments
The Revenue will not be able to write to small employers to confirm that it is crediting £250 to their account until their return has gone through all the quality checks. Employers cannot claim the £250 back from the Revenue as a cheque repayment until they get that letter.
But small employers do not have to wait for that letter to get their incentive payment. The on-screen message from the Revenue saying that it has accepted an online return is the assurance that the employer has qualified. Anytime after getting that message, small employers can deduct £250 for filing online from their next payment, without having to wait for the Revenue to credit it to their payment record. It would be helpful if employers could send a 'nil' payslip for any complete month(s) or quarters covered by the tax-free payment to avoid unnecessary payment reminders. The Revenue must have written authority from an employer before it sends the employer's tax-free incentive payment to a third party, such as a payroll agent. The payment is only tax-free to the employer.
Changes to the incentive regulations introduce an anti-avoidance provision in order to refuse an incentive (or recover it where already paid) where the employing entity appears to have been set up, or to have paid PAYE income, wholly or mainly to gain the tax-free incentive payment. This provision will have no impact on the Revenue's processing routines and is not intended to prevent the genuine small employer from benefiting from the incentive payment.
The Revenue does not intend to use the provision to deny incentive payments to businesses that appear to have incorporated mainly to take advantage of wider tax breaks such as the zero rate of corporation tax and/or the National Insurance treatment of dividends.
The amendments to the regulations also clarify how the incentives will be applied or paid. With effect from April 2005, when any request for a cheque repayment of the incentive is made, the Revenue will first set the £250 against any outstanding arrears of tax, National Insurance, student load deductions and related penalties and interest, and send a cheque for the balance. Cheque repayments of the incentive can only be considered after the employer has received written confirmation that the incentive has been credited to their payment record. These changes do not affect our advice to employers about using the incentive credit by deducting it from future payments.
National Insurance numbers
Temporary National Insurance numbers starting with TN must not be used in the National Insurance number field. Returns sent on paper will be sent back if temporary numbers are used. If the actual number is not known, the National Insurance number field must be left empty and the date of birth and gender fields completed. Temporary numbers allocated by software during the year must be removed before the return is sent.
National Insurance number prefix 'PZ' is also not acceptable for 2004-05, and must be removed before the return is sent.
Details of all the initial validation rules that can cause a paper return to fail are in Finishing the tax year 2004-05 (booklet E10) available on the Employer's CD-ROM 2005. National Insurance number prefixes NC, NK, NO, ZZ, XX and QQ will not be acceptable on returns for 2005-06 and later years.
(www.inlandrevenue.gov.uk)
