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TaxationWeb by Peter Arrowsmith, FCA

Peter Arrowsmith, FCA, with a timely warning for employers and their advisers regarding PAYE end of year returns for 2004/05.The Inland Revenue has announced, albeit not very prominently, in this year’s Employers’ Pack an even harder line with employers end of year returns.

For the filing of employers end of year returns (P35 and P14) for 2004/05 onwards by electronic means the position is simpler. The Inland Revenue has introduced a Quality Standard and such returns will be rejected if they fail to meet this standard. Software will automatically assist in making such filings less susceptible to rejection on these grounds. And any rejections will be almost immediate.

’Paper’ filing

But for returns made on paper (the vast majority), the Revenue has published – without any consultation – its requirements in the new version of booklet E10, page 2 (‘Finishing the year up to 5 April 2005’). The validity of this imposition is said to stem from TMA 1970, s 113 – ‘Any returns … shall be in such form as the Board may prescribe …’ Firms of accountants and other agents will need to educate clients to follow the instructions carefully if businesses are to avoid late filing penalties for what might be considered by most people very trivial occurrences. Since in practice the Inland Revenue will often not be able to reject ‘unacceptable’ paper P35s and P14s that relate to 2004/05 until after 19 May 2005 (and may not do so even if they are in fact able), a late filing penalty will usually be inevitable if the first filing that is made is not perfect – since the remedial work cannot then be undertaken by the due date.

The penalty would amount to £100 per 50 employees (or part) per month – for up to a maximum of twelve months.

Rejected returns

Booklet E10 says that paper returns will be rejected if –

• the stationery used has not been approved by the Inland Revenue;

• the form P35 is not signed;

• the form P35 has not been fully completed;

• the form P35 has not been enclosed;

• the forms P14 are not the correct version for the year;

• the forms P14 are not enclosed with the form P35;

• there is not enclosed a form P14 for every employee listed on the P35;

• the forms P14 do not have a valid entry in either the National Insurance Number box (ie, not ‘TN’ numbers) or the date of birth and gender boxes;

• the forms P14 do not all have an entry in the employee name box;

• the National Insurance contribution boxes on the forms P14 are not fully completed;

• the entries on forms P14 are unclear. The entries should not therefore be faint, should fall within the white boxes, the carbon should not be smudged, the font size of the print should not be too small (but the Revenue does not state in its list what constitutes a small font size), the forms should not have been hole-punched where entries were made or the forms otherwise damaged;

• the forms P14 have not been split correctly;

• the forms P14 are attached together with either glue or staples;

• sticky labels or correcting fluid has been used on forms P14;

• the sprockets have not been taken off the forms P14.

The position is further confused as when the ‘same’ requirements are listed in the latest Employers Bulletin (Number 19), the detail is in fact slightly different. And different again on a cover sheet sent with all Employers Orderline deliveries of paper P14s. So which set of requirements will attract a problem, and which will not? Hopefully, the Revenue will clarify its conflicting and imprecise instructions very soon.

Synposis

Employers are in for a hard time this year if they file paper forms P35 and P14, according to new instructions from the Inland Revenue. Many employers will incur a late filing penalty – even though they thought that they had filed on time.

March 2005

Peter Arrowsmith, FCA

Peter Arrowsmith provides technical support to accountants and similar professional firms in respect of National Insurance contributions and related matters. He is Chairman of the ICAEW Tax Faculty’s Employment Taxes and National Insurance Contributions Committee.