RSS feedsI own a small logistics and transportation business employing 18 full-time staff. I’ve heard that HM Revenue & Customs has changed its online filing rules and only some employers will now be entitled to a tax-free payment. Is this correct?
As long as you are required to prepare a P11 deductions working sheet for your 18 employees, you will qualify for the incentive payment if you file your Pay As You Earn (PAYE) end-of-year return electronically.
HMRC wants the majority of its transactions with customers to be conducted electronically, including everything related to the PAYE system.
Filing PAYE returns online became compulsory for employers with 250 or more employees, effective from the 2004/05 end-of-year return. Filing electronically will become compulsory for smaller employers with fewer than 50 employees in 2010, but in 2004/05, HMRC introduced an incentive scheme so that employers could get up to £825 tax free over five years if they registered to file online voluntarily. The incentive payments are:
• 2004/05 £250
• 2005/06 £250
• 2006/07 £150
• 2007/08 £100
• 2008/07 £75
This offer of a cash incentive resulted in some creative thinking and a number of businesses with no ‘proper’ employees started to pay wages below the National Insurance threshold to connected parties (for example, a small amount of wages paid to the proprietor’s wife). They then submitted end-of-year PAYE forms reflecting the small amount of wages paid, but which gave rise to no PAYE liability.
HMRC has caught on to this scam fairly early on and announced that small employers will only get the tax-free payment for filing online voluntarily if they were required to complete a form P11 deductions working sheet, as well as an end-of-year return. A deductions working sheet has to be prepared where for any week or month an employee is paid equal to or greater than the national insu rance contributions lower earnings limit or HMRC has notified a code number or the emergency code applies.
HMRC has recently announced that it has changed its IT processing systems so that if an employer sends in an annual return that is not due, HMRC will accept the return and acknowledge receipt in the normal way, but will not issue the incentive payment. Where employers do not receive an incentive payment, but believe they are entitled to it, they should write to the HMRC accounts office to explain why.
For details of HMRC’s accounts offices, visit www.hmrc.gov.uk/local/a.htm .
Richard Mannion, national tax director at accountants and financial advisory group Smith & Williamson
