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Busy by Mark McLaughlin ATII TEP

This month's 'Points of Practice' looks at important PAYE deadlines during the month of May 2003, and some practical issues involving end of year PAYE return forms.

Pay As You Earn

The month of May is particularly significant in terms of deadlines for pay as you earn (PAYE) end of year return forms. Employers, and agents involved with client payrolls, should ensure compliance with the following key dates.

19 May 2003

The 2002/03 end of year PAYE return forms P35 and P38A (including ‘nil’ returns, if they are appropriate) and P14 (i.e. the top and first copies) must reach the Inland Revenue by 19 May 2003. Penalties are chargeable in respect of return forms received after this date, and they are automatically charged for forms received after 26 May 2003.

However, a potential relaxation in the penalty regime for PAYE returns applies to personal service companies and other intermediaries, where an IR35 ‘deemed payment’ calculation for an individual cannot be completed by 19 May. If the intermediary submits form P35 to the Inland Revenue by 19 May 2003 with a separate sheet indicating that the amount of the deemed payment is provisional, penalties will not be charged if all PAYE tax and National Insurance contributions (NIC) in respect of the deemed payment is paid by 31 January 2004.

Additional information on year end PAYE procedures can be found in Inland Revenue employer help book E10(2003) Finishing the tax year up to 5 April 2003.

A number of common mistakes in the completion of end of year forms P35 and P14 by employers and agents were recently highlighted in the Inland Revenue publication Working Together (Issue 12) and these are summarised below. Practitioners should be aware that such mistakes can lead to PAYE investigations.

• The wrong version of form P14 being used, i.e. an earlier version of the form, and/or an unsuitable computerised format.

• The wrong number of paper forms P14 being submitted to the Inland Revenue with form P35.

• Missing or incorrect employee National Insurance numbers.

• Incorrect National Insurance category letters recorded on forms P14.

• Earnings and National Insurance details not recorded correctly on forms P14 (i.e. columns 1a to 1e concerning ‘National Insurance contributions in this employment’).

• Employer’s Contracted-out Number not recorded on the form P35, and Scheme Contracted-out Number not recorded on form P14.

A further practical point regarding end of year PAYE returns concerns employees whose earnings were within the ‘nil rate’ for employees’ NIC. If an employee’s earnings were equal to or greater than the ‘Lower Earnings Limit’ (that is, £75 per week for 2002/03), but less than the ‘Earnings Threshold’ (i.e. £89 per week for 2002/03), National Insurance is chargeable at 0%. This rate entitles the employee to benefits as if Class 1 contributions had been paid (SSCBA 1992, s 6A). However, to secure this benefit entitlement, the employer must complete a form P14 for the employee, and an entry must be made on form P35.

31 May 2003

Employers have until 31 May 2003 to provide a 2002/03 form P60 to each employee who worked for them at 5 April 2003, and for whom a deductions working sheet (form P11) or equivalent has been completed (SI 1993/744, reg 39). Penalties apply equally to failures to comply with the requirement to provide end of year particulars to employees, as to failures to provide information to the Inland Revenue (TMA 1970, s 98).