Switching on to electronic filing

Valerie Woodland discusses the electronic filing of in-year HMRC forms

Ever since the introduction of the PAYE income tax system in 1946, employers have had to complete forms such as the P45 for HM Revenue & Customs (HMRC) and its predecessors. Traditionally, employers have been obliged to complete paper forms, but with the growth of universal computer use and the internet, HMRC has been encouraging – and latterly obliging – employers to submit such forms electronically.

It is already possible for employers to submit P45 part 1 (details of employee leaving work) and part 3 (new employee details), P46 and PENNOT (occupational pensioner notification) forms electronically. Electronic submission of form P46(Pen) will replace PENNOT and P160 and will become mandatory for all employers with 50 or more employees from 6 April 2009 and for all employers from 6 April 2011.

P45s are to be redesigned to include date of birth and gender information. The new forms will be available from October 2008 and will be immediately valid. From 6 April 2009, submission of P45s (parts 1 and 3) and P46s must include date of birth and gender. Any old style P45s submitted will automatically be rejected, as will any forms where this information is missing. All online P45s (part 1) that show a leaving date of on or before 5 April 2009 but received by HMRC on or after 6 April 2009 must be on the new-style stationery.

There are a number of operational points to consider. The Employment Rights Act 1996 states that an employee is entitled to a P45 on the day that he or she leaves their job; if this is not possible, it must be sent without ‘unreasonable delay’. Many payroll software programs force the user to completely finish off the old tax year before progressing to the new one. You need to consider whether your software will allow you to create a P45 (part 1) for HMRC if an employee leaves early in the new tax year. In April 2008, it will still be possible to submit a paper P45 (part 1), but you will need to ensure that your or your bureau’s software is compliant by 6 April 2009 if you or your client employer has 50 or more employees.

Employers who process their payroll manually, but use an agent to submit year-end tax returns
online, may want to consider using the agent to submit in-year forms when mandatory electronic submission is introduced. If the agent is to receive the employer’s P6s and P9s online, the employer will have to submit a form FB12 authorising the agent to use PAYE online services.

Some larger companies that have branches or depots at various UK locations may allow local managers
to submit P45s and P46s directly to HMRC. They will have to change their policies and probably centralise
the function. Similarly, employers who operate separate payrolls for directors using an agent or company secretary will also need to ensure that all the forms mentioned above can be submitted electronically.

Employing students
The P38(S), which is completed by students who work for an employer during the holidays only and will not earn more than the annual personal allowance, is no longer submitted to HMRC but is retained in the employer’s records. This situation will not change, but if the student’s employment continues into term time, a P46 will have to be submitted without delay. The P46 should show the date the employment started (not when the academic term started). In cases where statements ‘A’ or ‘B’ are ticked, the employer should start deducting tax, using code 0T, non-cumulatively. Where statement ‘C’ is ticked, the code BR should be applied non-cumulatively.

If an employer engages a student during the holidays with the intention of retaining the student’s services into term time, the P38(S) is not appropriate and the above P46 procedure should be used from the outset. If a student leaves employment at the end of the holidays but returns during term time, a P46 must be completed with a tick against statement ‘B’ to reflect that they have worked previously during the tax year. The employer must apply the emergency code noncumulatively.

If a student is employed during the holidays only and P38(S) is appropriate, there will still be no need to complete a P45 as the NT tax code will have been used and no tax will have been paid. If any of the above P46 procedures apply, a P45 (part 1) must be submitted and the remaining P45 parts showing all the earnings of this employment, including those covered by the P38(S), given to the leaving employee.

NB: The code 0T means that the individual gets no personal allowance and the code is a temporary one, alerting HMRC to the fact that the individual's tax allowance situation is likely to change before the beginning of the following tax year.

The code BR (Basic Rate) means that all of the individual’s pay has to be taxed at the basic rate of tax, which is currently 22 per cent (20 per cent from 6 April 2008).

Valerie Woodland is a self-employed Payroll Consultant