Employers across the UK are being urged to file their Employer Annual Return (Forms P35 and P14) online by 19 May, or they could face a penalty.

Changes came into effect this year, which mean Employer Annual Returns sent to HMRC after the 19 May filing deadline will almost certainly result in a late-filing penalty:

• Previously, an Extra-Statutory Concession gave employers extra time before HMRC charged a penalty. This has now been withdrawn.
•  From this year, employers will be liable to a penalty if they file their annual return on paper (with some very limited exceptions, such as certain individuals who employ their own carer or those with religious objections). Last year, no penalty was charged for employers with five or fewer employees. But these transitional arrangements have now ended.

Smaller employers, or their agents or bureaux, can file their employee data securely online using HMRC’s ‘Online Return and Forms – PAYE’ product, while larger employers can purchase a range of commercial software.

You can file your return online at any time of day. This means, if it’s more convenient, you can send your return outside of peak times (10am-4pm on working days and 13-19 May).

Employers with fewer than 10 employees can use HMRC’s Basic PAYE Tools (formerly Employer CD-ROM) to file their Employer Annual Return online.

To help you get your return right first time, HMRC has published a list of common errors to avoid on its website at Avoiding and Correcting Errors in Your Employer Annual Return (Form P35 and P14s)

Further help is available from HMRC via its Employers Helpline on 08457 143 143 or online at PAYE for Employers.

Enrol for Online Filing

If an employer has not previously sent their return online, they must act now by registering for HMRC’s online service. More information on filing online and registration can be found at Understanding and Using PAYE Online for Employers.

What to Do if You Don't Need to File an Employer's Annual Return

If an employer has not had to maintain any forms P11 during the last tax year (and so had no requirement to complete a P14 or P35) they will not need to complete an Employer Annual Return – but they will need to tell HMRC that they won’t be completing one, otherwise they may receive unnecessary reminders or penalty notices. The easiest and quickest way to do that is by notifying HMRC online that they have no Employer Annual Return to make. More information on doing this can be found at Notifying HMRC if You have No Employer Annual Return to Make.

HMRC has today announced an invitation to 'settle' outstanding enquiries as part of its strategy to deal with 'Disguised Remuneration' - very broadly, using vehicles such as Employee Benefit Trusts to hold funds in favour of employees so that those employees may derive some benefit from those funds without incurring PAYE and NIC charges.

The basis of this new Settlement Initiative echoes Dave Hartnett's Guest Editorial on TaxationWeb earlier this week, wherein he said,

"Our litigation and settlement strategy seeks to apply a highly transparent framework within which decisions can be made as to whether to litigate or settle tax disputes. This approach is designed to maximise tax flows to the Exchequer whilst freeing HMRC and taxpayers from interminable and highly marginal negotiations. 

When it comes to settling tax disputes, we will fight to the death when a well understood principle appears to be at stake. In cases that are less clear-cut, we are committed to a more collaborative approach to resolving disputes so that we can maximise the revenues that are due under law, whilst reducing costs to ourselves and business."

So, on the one hand, this could be seen as an opportunity for both sides to come to an 'amicable' arrangement without resorting to litigation that would cost both the taxpayer and HMRC (and therefore 'the taxpayer' again!) significant sums.

On the other hand, the cynical tax practitioner/taxpayer might wonder just exactly how confident is HMRC that it would win if these cases were taken all the way through the courts? HMRC doesn't exactly have a perfect track record when it comes to EBTs and PAYE and some might decide that HMRC is being overly optimistic. What happens to any settlement agreed, if HMRC subsequently takes other cases to litigation and loses?

(And on the other hand, what happened to the policy of litigating where there was 'more than a 50% chance of winning'?)

Bearing in mind how widely the new legislation has been drafted - excluding MPs of course - it might be tempting for the courts to interpret as narrowly as possible, and HMRC could then find itself on the wrong side of such a decision.

It seems likely that at least some taxpayers and their advisers will be sufficiently confident in their own particular arrangements that a percentage of cases will end up in court. To their credit, HMRC has put no deadline on this incentive, but they have also said that they will look to progress enquiries formally where taxpayers haven't 'signed up' by 31 December. Which may simply be an incentive to 'do nothing', at least for a while!

For further details on the settlement initiative, see Employee Benefit Trusts, Settlement Opportunity