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Busy Practitioner by Mark McLaughlin ATII TEP

Voluntary and mandatory e-filing and e-payments by employers, together with key tax dates, are outlined by Mark McLaughlin ATII ATT TEPPractitioners offering payroll services or advising clients on computerised accounting packages could help them obtain taxfree payments from the Inland Revenue. Recent guidance from the Revenue for employers on filing end of year pay as you earn returns electronically (‘Do it Online: online filing’) was supported by a press release and letter to small employers entitled ‘Do it online and get up to £825 tax-free!’

Cash incentive payments are available for ‘small employers’ (i.e. those with less than 50 employees) to file their PAYE returns (i.e. P14 and P35 data) by an approved method of electronic communications for the tax years 2004/05 to 2008/09 inclusive (The Income Tax (Incentive Payments for Voluntary Electronic Communication of PAYE Returns) Regulations, SI 2003/2495).

The incentive payments available (in respect of PAYE returns that satisfy the Revenue in terms of ‘accuracy and completeness’) amount to a maximum of £825, spread over a five-year period as follows:

Year of assessment

2004/05 - £250
2005/06 - £250
2006/07 - £150
2007/08 - £100
2008/09 - £75

Total - £825

There is a right of appeal against a decision by the Revenue that the employer is not entitled to receive an incentive payment. The appeal must be made within 30 days of a notice of the Revenue’s decision.

Mandatory e-filing

There is a requirement for ‘large’ employers to use electronic communications to deliver end of year PAYE returns for 2004/05 and subsequent years, and for ‘large or medium sized’ employers to electronically deliver end of year PAYE returns online from 2005/06. It is proposed that small employers will have to ‘e-file’ returns for 2009/10 and later years.

A ‘large’ employer is a person treated as paying PAYE income to 250 or more recipients, and a ‘large or medium sized’ employer is a person treated as paying PAYE income to 50 or more recipients in the relevant period. The employer may appeal against an e-filing notice issued by the Inland Revenue within 30 days of issue, if sufficient grounds exist (see the Income Tax (Employments) (Amendments) Regulations, SI 2003/2494 which amend The Income Tax (Employments) Regulations (SI 1993/744)). The rules apply to the delivery of information by means of an approved method of electronic communication, and to electronic payments.

Failure to transmit the required information for 2004/05 electronically, or to deliver it by an approved electronic means to an official computer system, renders the employer liable to a penalty of up to £3,000, subject to a ‘reasonable excuse’ exception and an appeal process (Regulation 46ZG).

Mandatory electronic payments

From April 2004, large employers must make payments of PAYE income tax, National Insurance contributions and certain other deductions electronically. For emoluments paid after 5 April 2004, the time limit for making such payments by an approved method is within 17 days from the end of each income tax month. The first monthly electronic payment for 2004/05 must therefore reach the Inland Revenue by 22 May 2004 (SI 1993/744, Reg 40(1)).

A default surcharge can arise if the Collector of Taxes does not receive an electronic payment in full by the due date, unless the employer has a ‘reasonable excuse’ for the default and the payment is received in full without unreasonable delay after the excuse ended. Inability to pay is not considered as a reasonable excuse. The surcharge is calculated by applying a specified percentage (determined according to the number of default notices in the surcharge period) to the tax due for the year.

Payment of the surcharge is due within 30 days following issue of the notice. There is a right of appeal against the surcharge and default notices. In addition, the Board of Inland Revenue have discretionary powers to mitigate or remit the surcharge (Reg 42B).

‘Voluntary’ electronic payments

Small or medium sized employers making electronic remittances benefit from a later payment date for 2004/05 monthly or quarterly payments, i.e. payment is due within 17 days from the end of each tax month (or quarter), as opposed to the normal period of 14 days (Regulation 41(1)).

Key dates

30 December 2003

Taxpayers (or agents) using the Internet Service must file self- Assessment tax returns for 2002/03 by this date if the Revenue is to collect underpayments of up to £2,000 through PAYE notices of coding, if possible.

31 December 2003

Claims for refunds of Class 2 National Insurance contributions paid by the self-employed for 2002/03 must be made by this date, if actual earnings were below the small earnings exception limit of £4,025 for that year (Social Security (Contributions) Regs, SI 2001/1004, Reg 47(2)).