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On 5 April 2010 compulsory online filing of end of year returns will be extended to nearly all employers. Prepare for the deadline in advance to avoid late filing penalties.

The Changes – from Paper to Online

In 2002, following a recommendation by Lord Carter in his 2001 Review of Payroll Services, a gradual process began to move all employers, depending on their staff numbers, away from paper end of year returns towards compulsory online filing.

The tax year 2009-10 (ending on 5 April 2010) sees the end of this transition.  For the first time, employers with 50 or fewer employees will no longer automatically receive a paper P35 end of year return from HM Revenue & Customs (HMRC) and, with few exceptions (see below), must now file these forms online together with accompanying P14s for all employees by 19 May.  Instead of the usual paper return, employers will only receive a notice reminding them to file online this year.

Details of these changes and how to get help with filing online are given in HMRC’s February 2010 Employer Bulletin but in this short article we try and give some help to those employers who are new to online filing.

Start Planning Now

Registering

In order to file online you need to be registered with HMRC’s Online Services.  You can do this on the HM Revenue & Customs  website following the link under ‘Do it online’.  You will need to have to hand your employer PAYE reference number and your Accounts Office reference number to do so.  It can take up to a week for the activation code to come through so this needs to be done soon. 

You should note that if you have previously used HMRC’s online services (for example if you are self-employed and filed your Self Assessment online) you will already be registered to access the system, but you will still need to log in using your existing details and activate the PAYE online service – again, it could take up to seven days to receive your activation PIN so make sure you do it in good time. 

Software

The end of year PAYE information from the paper P11 deduction sheets can be entered directly onto HMRC’s free online return but the system is only designed to cater for up to 50 forms.

If you have fewer than 10 employees then the Employer CD-ROM has a P11 calculator where all the payments to and deductions from employees can be entered and then the end of year returns can be submitted directly from it.

If you cannot use either of the methods above (i.e., entering the details on HMRC’s website directly, or electronic filing via HMRC’s free CD-ROM), you will have to get hold of commercial software to file online.  Many providers sell PAYE products and those which have been accredited are listed on HMRC’s website. ( See Pay As You Earn (PAYE) Online - Software and Online Forms ) Page 15 of HMRC’s February 2010 Employer Bulletin gives details of two companies offering free products to small employers (up to a maximum of 9 employees).  

Computers/Internet Access

Last year’s report on Digital Britain highlighted the fact that not all small businesses used a computer or had access to the Internet in their area.  However HMRC expect employers to make every effort to file online and we are awaiting further information of what help or consideration, if any, they will give to employers who are not able to do so. 

Exceptions

There are still some groups of employers which can continue to submit paper returns if they wish to.  However for two of these groups HMRC require a written claim to be submitted now giving their details so that they can issue a paper form P35 after 6 April. 

The groups are:

• Those who are practising members of a religious society or order, whose beliefs are incompatible with the use of electronic communications;
• Certain ‘care and support’ employers.  Basically, this means people who employ a carer or personal assistant to provide domestic or personal services at or from their home.

Further details of the exemption for care and support employers are given on HMRC’s website, together with information regarding two other groups for whom HMRC will provide paper forms P35 for completion.  Any other end of year stationery can be obtained from the Employer Orderline 08457 646 646 (Textphone 0800 95 95 98) or online.

Penalties

If you miss the deadline date of 19 May or file a paper return when you should have filed online and do not have a reasonable excuse for doing so then you can be fined up to £3,000 depending on how many employees you had.

If you receive a penalty notice and believe that you had a reasonable excuse such as illness or family bereavement which caused you to file late then you should enter an appeal against it within 30 days.  If you encountered difficulties filing online and then either filed late or had to submit a paper return then an appeal should be made outlining the problems you had.  

From 6 April 2010, HMRC are also introducing a new penalties regime for late paid PAYE.  More information can be found in HMRC’s Factsheet FPI1 - Penalties for Late Payment of Employer and Contractor PAYE.

VAT Online

Finally, you should also be aware that online filing and payment of VAT will also be compulsory from 1 April 2010 where your annual turnover (excluding VAT) as at 31 December 2009 was £100,000 or more, or if you first register for VAT on or after 1 April 2010.  Visit Online VAT Returns on HMRC's website for more information. 

Useful Links

Guidance on HMRC’s website on How to Regiser Online 

Employer stationery on HMRC’s website 

Guidance from LITRG on how to make appeals against HMRC penalties