Employers Bulletin Issue 22 - February 2006

Contents

Hello again

You'll have noticed that we have a brand new look to your Employer Bulletin. We have redesigned your magazine based on what you told us in a recent employer survey and we hope you like the changes. We've also incorporated fully environmentally friendly materials throughout the Employer Pack, including the Bulletin - and we hope saved a few trees in the process!

As part of your new look magazine we plan to introduce a letters page for the post-Budget issue and hope you'll take the opportunity to write to us about topics of general interest to employers in the UK. We won't be able to enter into correspondence about individual tax and NICs related queries, or deal with urgent issues because of the publication timetable. But we hope to use the letters page as another means to answer general issues or questions you have about HMRC's services. So, please get writing and send in your letters to our Bulletin editor, Alison Bainbridge, HM Revenue & Customs, Employer Programme Team, Room BP7152, Langley House, Benton Park View, Newcastle Upon Tyne, NE98 1ZZ.

You'll see the Employer CD-ROM is better than ever and now has a P11 calculator to help you with your in-year record keeping. We have also added a P45 checker and Statutory Paternity and Adoption Pay calculators. Our article on page 8 will tell you everything you need to know.

At this time of year, many of you will be working feverishly to file your End of Year Returns. You'll find a useful pull-out-and-keep feature on the centre pages, which will take you through the things to avoid when filing your End of Year Returns.

On page 6 you will see some important news about changes to Statutory Payments concerning the removal of age restrictions. We trust the article helps you to get to grips with this new change in the law.

Finally, I'd like your help, please! In the spirit of working more closely with you, we'd like to set up consultation panels with very small and/or inexperienced employers to help us deliver the best possible service to you. If you'd like to be part of this, please write to Alison at the address shown earlier. Your voice can really make a difference!

 

Don Macarthur
Employer Programme Director

Employed or Self-employed – that is the question

We are pleased to announce the launch of the Employment Status Indicator (ESI) tool.

This will help determine the employment status of workers - to find out if someone is employed or self-employed - and is available via our website at Employment Status.

Whether you are an employer, individual worker wishing to check your own employment status or someone acting in an advice-giving role, the tool will help you establish quickly and clearly if a particular contract is one of employment or self-employment. The tool will also enable HMRC staff who advise on employment status matters to give consistent advice, in the majority of cases, when faced with a given set of circumstances.

The tool is based on HMRC's interpretation of established case law and works by asking a series of questions, the nature of which are determined by the answers given, and is designed to ask the minimum number of questions necessary in order to give a consistent answer. The tool will not however be able to determine employment status where conflicting answers have been entered.

Nor will it be able to determine more complex cases, in these instances advice should be sought, as currently, from one of our Status Inspectors. Please ring the Employer Helpline who will refer your enquiry to the Area Status Team appropriate to your location.

P46 - A change for the better

We have introduced a new version of form P46 for use online or on paper, from 6 April 2006. The new version should be easier to complete and the new statements A, B, and C will help you decide which tax code to use. The new statements should also let more new employees indicate that the emergency code should be applied on a cumulative basis, from the start of their new employment.

We have also included a new box - statement D - to allow former students to advise you that Student Loan deductions should be made. This will improve the Student Loan recovery process for all involved.

Your employee should only tick one statement. If:

  • box A is ticked, the emergency code should be operated on a cumulative basis
  • box B is ticked, the emergency code should be operated on a non-cumulative week 1/month 1 basis.
  • box C is ticked, code BR should be operated.

If no box is ticked or the form has not been signed, code BR should be operated.

Reminder:

The emergency code is the personal allowance for the tax year. This can be applied in two ways - either on a cumulative basis where statement A has been ticked, or a non-cumulative week 1/month1 basis where statement B has been ticked.

Week 1/month 1 means each payday is treated as if it falls in the first week/month of the tax year. This ensures the employee gets the benefit of their personal allowance for that week/month but previous weeks or months are not taken into account until any pay and tax details from other jobs in that tax year have been confirmed by us.

The emergency tax code for 2006-2007 is 503L

You can order copies of the new form from the Employer Orderline now, but as the new versions are not for use until 6 April 2006, they will not be sent to you until shortly before that date.

Working Tax Credit

The Final Chapter

The phasing out of Working Tax Credit payment via employers (PVE) is nearly complete. After 31 March 2006 we will be paying all claimants direct.

If you have been paying Working Tax Credit through the payroll you should have received a final stop notice for each PVE employee. If you have not received a stop notice for all of your PVE employees by 20 February 2006, you should contact the Employers help line without delay , to give us your details and those of your employee(s). The Employer Helpline will pass this information to the Tax Credit Office, who will contact you to agree a stop date. This will be confirmed by an emergency stop notice.

If your payroll arrangements mean that you would not normally pay Working Tax Credit for March, until some time in April, please contact us now, so we can arrange an earlier stop date with you. On no account should you make tax credit payments to any of your employees for any period after 31 March 2006, even if you have not received a stop or emergency stop notice from us. From 1 April 2006 we will have ended PVE liabilities for employers and will be paying all Working Tax Credit claimants direct, on the assumption that all employers will have stopped making tax credit payments on or before 31 March. But if you stop paying tax credits on 31 March without having received a stop or emergency stop notice, please contact the Employers help line to confirm the date you stopped paying tax credits.

We are doing all we can to ensure that no employer continues to make tax credit payments after 31 March 2006. If you do make a payment after this date, you will have to contact the Employers help line, so that we can arrange to reimburse you. The 2006-07 versions of forms P11, P14, P60 and P35 will not contain boxes for tax credits paid.

You must not deduct any tax credits paid after 31 March 2006, from the PAYE tax, National Insurance Contributions and student loan repayments you are due to pay to us each month or quarter.

For further information you can:

Or if your employees have any questions about tax credits, ask them to call the Tax Credits Helpline

New Rates and Limits

In the Chancellor's Pre Budget Report he announced changes to the National Insurance Contributions (NICs)earnings limits and thresholds (the amounts where employees and employers start to pay NICs) and to the levels of income tax Personal Allowances.

All the NICs changes will be reflected in the National Insurance Tables for 2006-07, and the calculators on the enclosed CD-ROM.

For details of the rates, limits and thresholds have a look at:

  • Employer Helpbook E12 - PAYE and NICs rates and limits for 2006-2007, which is on the enclosed CD-ROM, or
  • visit the HMRC website and select Rates and Allowances from the Quick Links Menu.

To account for changes to Personal Allowances you should follow the instructions on the P9X form.

Important changes on the horizon for Statutory Payments

Subject to Parliamentary approval two future pieces of legislation could have a significant impact on the operation of Statutory Payments.

The first is about changes to age restrictions.

If Parliament approves, the legislation will include provisions removing the current age limits of 16 and 65. The legislation is due to come into effect on 1 October 2006.

More definite information on the operation of these regulations will be made available nearer the time - in future issues of Employer Bulletin and on the Internet. The draft regulations are available on the Department of Trade and Industry website.

In the meantime, the intention (subject to parliamentary approval) is as follows:

  • SSP - the upper and lower age limits will be removed;
  • SMP, SAP and SPP - the lower age limit will be removed (there is no upper age limit).

The change does not affect National Insurance contribution liability, which is outside the scope of the legislation. National Insurance contributions continue to be payable between the ages of 16 and 60/65.

The second piece of Legislation - the 'Work and Families Bill' - covers a range of measures which could impact on you as employers - for some this could be during 2006-07.

Subject to Parliamentary approval the major features of this Bill will include extending the period of Statutory Maternity Pay and Statutory Adoption Pay from 26 to 39 weeks.

To make things easier for you and in response to consultation, the intention in the Bill is also to:

  • increase the amount of notice mothers returning from maternity leave must give you when their plans change
  • enable a woman to attend work for a limited number of days during her SMP or SAP Pay period without loss of SMP/SAP for the week in which she works. This will help the employer and employee keep in touch, allow for training and ease the employee's return to work.
  • allow Maternity pay to start on any day of the week - this will enable pay and leave to start at the same time (the normal start date for pay now is Sunday)
  • allow SMP, SAP and SPP to be paid on a daily basis, if wanted - meaning payment dates could be aligned with your normal payday.

These changes are expected to come into effect for women whose expected week of confinement is 1 April 2007 or later - some of whom will have commenced their Statutory Maternity Pay Period during 2006-07.

For individuals claiming SAP, entitlement under the new provisions will commence where the date the child is placed is 1 April 2007 or later.

We also have some practical help to make things easier for you - you do not need to calculate SMP etc manually. We have improved the existing SMP calculators on the Internet and CD-ROM and added new calculators for SAP and SPP from April 2006. If you are not comfortable with using our calculators, have not got access to the Internet orcannot use the CD-ROM the Employer's Helpline will make the calculations for you. It will then confirm the calculation by letter.

There are two further changes to mention which are also contained in the Work and Families Bill and which, subject to Parliamentary approval, may impact on you. These are:

  • giving fathers a right to additional paternity leave that can be paid if certain criteria are met (there will be further consultation on the details before this right is introduced - the implementation date is still not known). This will allow fathers, or the second adopter in an adopting couple, to take time off work to care for their child and to receive Additional Statutory Paternity Pay (ASPP), if their partner has returned to work and has not used all their SMP or SAP entitlement.
  • Carers of adults will have the right to request flexible working from April 2007.

More information about the Work and Families Bill is available from the Department of Trade and Industry website.

Important

At the time of writing all the above legislation was subject to Parliamentary approval and therefore to the possibility of being amended. Our intention is to regularly update the position on all these changes on the Employers pages of the HMRC web site and by means of further articles in future editions of this publication.

Changes to the way we issue Contracted-out National Insurance Tables

Every year NI Services to Pensions Industry (NISPI) issues a pack to employers.

From 2006, employers will still receive a pack via the usual distribution channels, but it will not contain paper copies of the NI tables. They will only receive the following:

  • an Employer CD-ROM
  • form E3, a stationery order form
  • the latest copy of the Employer Bulletin

This does not mean that the tables will be any less accessible. They will be available on the CD-ROM and can be ordered, viewed or downloaded by logging on to our website at Employer's Orderline - Download Area and Online Order Form and going to 'Starting/continuing the tax year' and selecting either CA39 or CA43 as appropriate.

For those who still require paper copies of the tables they can be obtained from the Employer Orderline on 0845 7 646 646.

Your New CD-ROM is here

You should have received your new CD-ROM with this edition of the Employer Bulletin.

The Employer CD-ROM contains most of the forms and guidance you will need to run your payroll throughout the year. There are also calculators and forms you can fill in on screen and save to an employee database.

You can start using this CD-ROM now. In April or May we will send you another CD-ROM which will include any additional changes and new tax rates advised by the Chancellor in his Budget Announcement. When you receive the updated CD-ROM you should stop using the one you have received with this Bulletin.

Last summer we commissioned research into several of our products that help you with payroll tasks. The research told us that an increasing number of you prefer to use the CD-ROM and online versions of our forms and literature. And in fact, more of you than ever before now use the Employer CD-ROM, even if you don't manage your own payroll, as a source of information and guidance, and for copies of our forms and Helpbooks.

'It's great now. I have to say in the three years, every year it has improved. I think it is because it is so easy to use.'

More than 90% of customers who have used the CD-ROM say it is useful.

The new CD-ROM has even more features this year. In a survey, more than 70% of employers who were asked said they would find a P11 Calculator useful. By installing the CD-ROM you can use the new P11 Calculator to work out tax and NICs each time you pay your employees. You can save the details on your computer and update them each payday. At the end of the year you can print out a summary to help you complete your Employer's Annual Return (P14s & P35).

You also told us you wanted a PAYE Tax Calculator for employees paid fortnightly or four-weekly. We have now improved the Calculator to do this.

There is an extensive Expenses and Benefits section, and interactive Training Packages to help you understand Statutory Maternity Pay, Adoption Pay and Paternity Pay. Improved video help sections and a P45 checker, for confirming the accuracy of figures for new employees, mean that this CD-ROM is the most comprehensive yet.

But let us know what you think. Your opinions and suggestions help us to continue improving the CD-ROM. You can use the feedback button on the CD-ROM itself, or complete the questionnaire on the HMRC website at Employer's CD-ROM - Comment Form.

Agents

We know that many of you still receive more Employer Packs, CD-ROMs and Bulletins than you need. If this applies to you, contact the HMRC office of each client for whom you have received a surplus pack and ask them to update our computer records.

'I'd recommend anybody that's working in payroll to load it because it contains a lot of information you might need… It's your own little HMRC on your PC.'

Last post for Secure Mailbox

If you are already using our PAYE Online service to send and receive forms and returns over the Internet, you will know that when you register for and activate the service, we set up a secure online mailbox for you. This mailbox service is a delivery point for the online messages we send you.

As part of our commitment to customers to improve our online services, the Secure Mailbox will be replaced with a new system enabling you to view and download online messages.

The new system will be introduced gradually from February 2006 and will be more user friendly to PAYE customers because:

  • It will be integrated into the current HMRC PAYE Online - Internet service and you will access it on your home page, once you have logged in to the online service.
  • Rather than have a mailbox where we deliver online messages to you, you will now have direct viewing access to this information using the Internet. This will allow better and more convenient access to information with the additional benefit of having a search facility.
  • It will provide an improved way of presenting data to you. The new system will present data in a table format which will be more helpful than the Secure Mailbox messages that are presented as 'forms' that look like their paper equivalents.

Timetable for release

From February 2006, if you have registered for PAYE Online - Internet, you will be presented with a series of new screens with online navigation to assist processing PAYE messages and notifications.

The bulk P9s issued in February 2006 will be available using this new service but for all other messages, until 5 April 2006, you need to continue to use and access the Secure Mailbox. After the 5 April 2006 all new messages will be available through the new service and no more messages will be sent to the Secure Mailbox.

The current Secure Mailbox is due to come to an end. The exact date will be announced on our website. From that date you will no longer be able to access your Secure Mailbox, so you will need to print off any information you may need for future reference, prior to that date. This means that:

Bulk P9s will be issued in February 2006 using the new system.

  • Until April 2006, all other messages and notifications we send, for example SL1, SL2, P6 will continue to be sent to the existing Secure Mailbox.
  • From April 2006 all messages we send will be issued to the new system and the Secure Mailbox will no longer be used.

Registration and logon to the PAYE Online service have not changed, so all existing passwords and User ID's will still be valid.The new system will continue to provide the following facilities:

  • Data download
  • Print functionality

We are still developing the new system so keep checking our website for more information.

Bulletin Bites

National Minimum Wage rates - a reminder

From 1 October 2005 the National Minimum wage increased to £5.05 per hour for workers age 22 and above, and £4.25 per hour for workers aged 18 to 21 (youth rate) and for workers currently on a Government approved accredited training scheme.

The rate that was introduced in October 2004 for workers under the age of 18 but over compulsory school age remains the same at £3.00 per hour.

Agents wanted - apply online

An online service is now available which allows agents to set up authorisations for the majority of their clients without the need for submitting paper 64-8s or FBI 2s.

If your agent is already authorised to act on your behalf, because a form 64-8 or FBI 2 has been submitted, they should not use this service.

The Online Agent Authorisation service allows agents to use the Internet to set up authorisations for:

  • PAYE employers
  • Individuals, trusts and partnerships under Self Assessment, and
  • Organisations under Corporation Tax.

To use the service, agents must be registered for the relevant online service. For example, if they want to set up authorisation for a PAYE client, they must be registered for the PAYE Online for Agents service.

If your agent makes a request for online authorisation, we will send you a letter informing you of their request. The letter will contain a unique Authorisation Code. If you agree your agent can have online authorisation, you must pass this code to them. They will then need to enter this code online. As a security measure, the codes will expire after 28 days.

The benefits of using this service over the current paper system include:

  • Faster and more accurate processing of authorisations with automatic updates of Self Assessment, Corporation Tax and PAYE systems
  • Improved audit trail and visibility of the authorisation process to your agent, and
  • The ability to set up authorisations for individual services.

Further information can be found at the Online Authorisation Process page of the website.

Online Filing

Make no mistake!

This four page pull-out tells you what you can do to help you get your Return right. Keep it and refer to it when you complete your Return.

Get anything wrong in your 2005-06 Employer's Annual Return (P35 and P14s) and you will have to take time out from running your business to put it right. And if you do not get a correct Return to us on time, you risk getting a penalty.

We ask you for lots of information at the end of the tax year - there are over 40 boxes to fill in or tick on the P35 alone - and some employers do get things wrong.

The biggest mistakes are using incorrect characters, leaving spaces where there should not be any spaces, and using invalid National Insurance number prefixes (for example, NI, PZ and TN). The tips on these four pages will help you avoid many of the most common pitfalls.

You must send us a Return if you have any employees during the tax year who:

  • get pay equal to or greater than the National Insurance contribution Lower Earnings Limit of £82 per week or £356 per month (make sure you apply the Lower Earnings Limit, not the Earnings Threshold), or
  • are paid tax credits by you, or
  • get pay and we have told you to operate a tax code number, or you are required to operate one (see the P45/P46 procedures in Part 4 of Employer Helpbook E13 - Day-to-day payroll).

From April this year, we will be applying the full range of our quality checks to your Return, no matter how you file (online, on paper, or by magnetic media). The checks - which include making sure that all the right boxes are filled in, and that all the figures add up - will be done automatically when you file online, and your Return will be rejected if it does not meet them.

If your online Return is rejected, you will have to put it right and send it in again. (Whoever sends your Return will get an on-screen message saying exactly what is wrong.)

A full list of the quality checks applied to paper Returns is in Employer Helpbook E10 - Finishing the tax year up to 5 April 2006. Paper Returns containing any of these mistakes will be sent back for you to put right.

Do not leave correcting your Return to the last minute: you risk missing the 19 May Return filing deadline and getting a penalty.

To see if your Return will stand up to our quality checks, you could use our online test service (available from 6 April). This lets you test your P14s and P35 so you can iron out any problems and be confident that you will be able to file online without hiccups.

If you use third-party software, you can send your Return to us any time from 6 April and resubmit it if there are any errors (making sure you get your correct Return in by the filing deadline). And it is important that you follow the guidance given by your software provider very carefully, including running any reports that have been made available in advance of submitting your Return.

If you use an agent or bureau to run your payroll or submit your Return, then talk to them to make sure that they are taking the necessary steps to ensure that your Return is submitted successfully and on time.

Once we have quality-checked and accepted your online Return, we will hold it in our electronic store until we start to process the information on the Return and send it to our other computer systems later in April. Whilst Returns are held in the electronic store, our staff will not have any access to the Return details, so please avoid contacting us during April with queries about your Return if you can.

We are very sorry for the delays in processing Returns last year. This year, we will be processing much more quickly, and calculating underpayments and overpayments more quickly, too.

It is easy to file online

  • if you are sending fewer than 50 P14s, our free Online Return and Forms - PAYE product could fit the bill.
  • You can send your Return over the Internet using commercial payroll software. Details of HMRC-accredited software that can help you with your day-to-day payroll are at PAYE Online services: Internet software and online forms page.

Helpful tips

These tips will help you steer clear of mistakes when you are completing your 2005-06 Employer's Annual Return

We have put them together from the most common errors that people made when they filed their 2004-05 Returns online. Double-check these tips before you file online! And they are just as useful if you are sending your Return in on paper.

Cracking the code

  • Do use the latest code number that we have sent you for 2005-06
  • Do always enter each code number from the left in the code number box
  • Do use the number '0', not the letter 'O' for codes 0T and D0
  • Do not use all five spaces of the code number box (unless the code takes them up)
  • Do not use leading zeros (K123 not K0123)
  • Do not use suffix 'H'. Use 'T' instead, and ask your HM Revenue & Customs office to correct any 'H' codes

Pay and display

  • Do not put anything lower than '0.00' in the pay box (you can only use negative figures when sending an amendment)

National Insurance assurance

  • Do follow our guidance on page 10 of Employer Helpbook E10 - Finishing the tax year up to 5 April 2006, which tells you what to put in each box. Make sure that you put the right amounts in the National Insurance boxes 1a to 1e
  • Do not put anything lower than '0.00' in the National Insurance earnings boxes 1a - 1c (you can only use negative figures when sending an amendment)

An eye for NI

  • Do use an approved NINO prefix (you can find a list in an annex of the 2006 Quality Standard)
  • Do not use temporary NINOs
  • Do not know the NINO? Leave the NINO box empty and fill in the date of birth and gender spaces instead. If you do not know the date of birth, use 01011901

What's in a name

  • Do make sure that the first character in the 'Name' box is a letter (not a comma, apostrophe, full stop or blank)

Addressing the error

  • Do make sure that the first character in the 'Address' box is a letter (not a comma, apostrophe, full stop or blank)
  • Do make sure that postcodes are in the right format (for example: BS23 2AJ)

£250 In the box

  • Do record your 2004-05 online filing tax-free payment of £250 in the new box on the P35
  • Do not include your £250 in the 'NICs and Tax Paid' box if you took your £250 by deducting it from a payment you made to us. Only show the NICs and tax that you actually paid to us during the year

Reference point

  • Do use a valid PAYE reference which is:
    • your HM Revenue & Customs office number (this is three digits, for example: 123)
    • followed by a forward slash
    • followed by your employer reference (this may be a mixture of letters and numbers, for example AB1234) so it all looks like this: 123/AB1234
  • Do include your latest three-digit HM Revenue & Customs office number if your office has changed during 2005-06
  • Do not show only your HMRC office number (for example: 123) or your employer PAYE reference (for example: AB12345). Both must be shown

Online vs paper

  • Do not send us the same information on paper as well as filing online. If we get a paper Return from you, you will miss out on £250 if you have fewer than 50 employees, or you will get a penalty for not filing online if you have 50 or more employees

One to watch

  • Do make one full and complete Return. From 2005-06 you risk a penalty for failure to make a complete Return if you send us separate Returns for different parts of your payroll (for example, one Return for weekly paid staff, and another one for monthly paid staff)

Parts of the problem

  • Do follow the guidance at Sending your return to us in parts if you are sending your P14s and P35 online separately in parts
  • Do make sure that you give each part a Unique Identifier. That will help us bring the whole Return together. If you send two parts with the same Unique Identifier, our computer will think that the second one it gets is a replacement for the first and over-write it

Fewer than 50 employees?

You will get £250 tax free if you send us your 2005-06 Return (P35 and P14s) online! Go to Up to £825 tax - free for small employers for details.

If you use an agent or bureau, check that they are filing your P14s as well as your P35 for you. You will not qualify for your £250 tax-free payment unless both have been filed online.

If you have fewer than 50 employees and file online, we will tell you (by e-mail or paper letter) that £250 has been credited to your PAYE payment record as soon as we have processed your Return. The quickest and easiest way to get your £250 will be to simply deduct it from any PAYE or NICs you pay over to us in 2006-07.

More than 49 employees?

You must file your 2005-06 Return online or you will be charged a penalty.

Go to PAYE Online services (Internet) for more.

And if you have 250 or more employees, you must also pay electronically any tax, National Insurance contributions, and other payments or face a surcharge.

Go to PAYE Online services (Internet) for more.

Register early!

It is not too late to register to file online.

You must register and activate our PAYE Online for Employers - Internet service before you can file online using the Internet. And you need to do it in plenty of time to get your Return in by the filing deadline. You cannot file online using the Internet until you have activated the service. To get the ball rolling, go to HMRC website and click on 'PAYE for employers' under 'Do it online'.

If you use an agent, you can consider asking them if they can file online for you.

Do it online during the Tax Year!

As well as filing online at the end of the tax year, you can send us information online - like P45(3)s - during the tax year, and get forms (including P6s) from us. It is secure, convenient and quick, and can save you time. It also saves on administration, paper, storage and postage. Your employees benefit too. For example, you will able to operate new tax code numbers quicker.

Go to Doing it online all year round for more. You can also pay your monthly PAYE and National Insurance contributions electronically. Paying electronically is more efficient and secure than payment by post.

Go to Payment of PAYE for details.

Help is at hand

Business Support Teams (BSTs) are part of HMRC's enabling agenda. They are located throughout the country and their aim is to educate and encourage employers to understand and meet their tax and NIC obligations by offering free help and support.

BST Business Advisors are available to talk through many subjects including how to keep good records, when to send in information to HMRC, what needs to be done in running a payroll, and will give advice and answer questions about tax, national insurance, and statutory payments.

BSTs also offer a series of local half-day workshops designed specifically with new and/or small businesses and employers in mind. These workshops are free and cover many topics including:

  • Paying employees for the first time
  • Statutory payments
  • Expenses and benefits
  • The New Construction Industry Scheme
  • Filing online

Business Advisors will work through practical examples at these workshops, helping employers to understand all they need to know.To find out more about the free service BSTs offer you can:

Reviewing payroll data

Since August 2005 all notifications for 'Review of Employers' and Contractors' Records' have included a request to provide electronic payroll data if you have 20 or more employees.If you supply us with your payroll information, we will apply a 'Payroll Automation toolset' to the data prior to the interview, which will:

  • Confirm whether or not the PAYE and NIC calculations are correct, and
  • Assist in checking that statutory obligations have been met.

This will help to reduce the amount of time we spend checking paper records, therefore reducing the amount of time we have to spend on your premises. It will also ensure that checks are carried out to a consistent standard.

The Payroll Data can also be used, with your permission, to update employee records on our systems. We can match the details to our computer records, identify any discrepancies and contact individual employees to obtain the correct details.

This will mean that your payroll details are corrected prior to submitting your End of Year Returns, which should mean fewer computer generated exceptions and enquires from HMRC and the Dgfepartment for Work and Pensions.

Your employees will also benefit, as up to date, accurate, information will be recorded on our systems, meaning prompt payment of any future benefit payments.

Where the requested payroll data is not available before the arranged interview, we will continue with the review but without the benefits you would have gained by providing the payroll data in advance.

A-Day - a reminder

In the last edition of Employer's Bulletin, we told you about a radical new tax regime for pensions being introduced by HMRC from 6 April 2006 - known as A-Day. We highlighted the key features and benefits that Pensions Simplification has to offer.

Remember that after A-Day, the tax rule changes mean that you have far more freedom in scheme design. Employers and trustees will be able to design pension schemes that suit their and their employees' needs. An employer can think of the benefits that they want to give to their employees and design a scheme around this idea. Don't forget, pension schemes must act in accordance with their scheme rules at all times, so you may need to consider changing your existing scheme rules if you want to take advantage of elements of the new rules.

It is also worth noting the rules on employer contributions. Tax relief on employer contributions to registered pension schemes will continue to be given by allowing contributions to be deducted as an expense in computing profits, which will reduce the amount of taxable profit.

In the case of a trade or profession, employer contributions will be deducted as an expense if they are incurred wholly and exclusively for the purposes of the employer's trade or profession. In a company with investment business, the contributions are deductible as management expenses.

Finally, scheme administrators and employers will need to think about who is going to submit the new required reports and returns for their scheme and who they want HMRC to correspond with. Unauthorised practitioners will be able to submit reports, although they will have limited visibility on scheme data, but HMRC will only communicate with Scheme Administrators and authorised practitioners.

The Registered Pension Schemes Manual will be able to advise employers about this. The manual is effectively 4 manuals in one, with sections devoted to Scheme Administrators, Individuals, the Pension Industry and Employers.

For further information about pension simplification, please visit the Pension Schemes pages

The Registered Pension Schemes Manual is available online.

You can also contact the Pensions Helpline on 0115 974 1600.

Trivial commutation payments - important information for providers

Small pension or annuity rights in taxed-relieved pension schemes can be exchanged for a one-off lump sum to save the administrative expense of paying the small pension or annuity. This is known as Trivial Commutation Payments.

Currently, taxed relieved pension schemes are known as tax approved pension schemes. From 6th April 2006, as part of the new tax rules for pension schemes that start from that date, these schemes will be called registered pension schemes.

As part of the new tax rules for pension schemes, the rules for trivial commutation payments also change. The following trivial commutation payments can be paid in relation to a registered pension scheme:

  • Trivial commutation lump sums
  • Winding up lump sums
  • Trivial commutation lump sum death benefits, and
  • Winding-up lump sum death benefits.

This includes commutation payments in respect of annuities, including those paid under Retirement Annuity Contracts (RACS).

From 6 April if you pay trivial commutation payments relating to registered pensions schemes, you need to know that the way the payments are taxed will change. You will now be required to deduct tax from these payments under the PAYE procedures.

The PAYE procedures that must be followed will depend on whether the trivial commutation payment relates to a pension or annuity already being paid or whether the payment relates to pension or annuity rights that have yet to be paid.

Although you do not have to operate PAYE on annuities paid directly out of RACs until 6 April 2007, any RAC annuity subject to trivial commutation before that date should be taxed under PAYE and returned under your existing PAYE scheme for Personal Pensions.

Details about which PAYE procedure to use are in booklet CWG2 (2006) Employer's Further Guide to PAYE and NICs for the tax year starting on 6 April 2006.

Retirement Annuity Contracts - important information for providers

From 6 April 2007, all annuities paid under Retirement Annuity Contracts (RACs) will be taxed under PAYE, as if they were personal pensions. This transfer will involve a substantial amount of work for RACs Providers because a separate PAYE scheme will need to be opened and the individual annuitant records set up. All of this needs to be done well in advance and HMRC is already issuing advice and guidance on what needs to be done now.

If you are a RACs Provider, and you are not already receiving information about the changes, it is important that you register your interest straight away. Please email your contact details to

You can find more details at: Retirement Annuity Contracts (RACS) pages of the website.

Changes to car benefit rules for 2006-2007

The car benefit charge for a full year is obtained by multiplying the price of the car for tax purposes (in most cases, its list price plus accessories less capital contributions) by the 'appropriate percentage'. A more detailed guide is available in booklet 480 (PDF 348K).

Changes to the rules for calculating the appropriate percentage from 2006-07

The appropriate percentage is based on the car's approved CO2 emissions figure. There are some supplements and reductions to take account of different fuels. The rules governing the supplements and reductions change with effect from April 2006.

Supplements and reductions only apply to cars first registered on or after 1 January 1998. They apply to all such cars, whether or not they have an approved CO2 emissions figure.

Summary of the changes to the 2005-06 rules

The changes are:

  • types B and H: standard reduction increased by 1% each (to 2% and 3% respectively) but the extra adjustment for very low CO2 emission cars no longer applies
  • type C: reduction no longer applies
  • type L: supplement for type D cars also applies to type L cars first registered on or after 1 January 2006.

The changes will be included on the HMRC website car and car fuel benefit calculator when it is extended to cover 2006-07. The previous rules continue to apply to all years from 2002-03 to 2005-06, so those years will be unaffected. The changes to the calculator will be made after the 2006 Budget.

This table summarises the new rules from 2006-07:

Type of fuel

Code

Standard adjustment

Other adjustments

Petrol

P

none

none

Diesel (not Euro IV)

D

supplement: 3% (see note 1)

none

Diesel (Euro IV) first registered on or before 31 December 2005

L

cancel type D supplement, above

none

Diesel (Euro IV) first registered on or after 1 January 2006

L

supplement: 3% (as type D; see note 1)

none

Electric only

E

reduction: 6%

none

Hybrid electric

H

reduction: 3%

none

Gas only

B

reduction: 2%

none

Bi-fuel with CO2 emissions figure for gas (note 2)

B

reduction: 2%

use lowest CO2 figure

Bi-fuel conversion, or other bi-fuel not within type B

C

none

none

Notes

  1. Subject to the overall maximum appropriate percentage of 35%.
  2. Cars which were type approved as bi-fuel cars and were first registered on or after 1 January 2000. These cars have two approved CO2 emissions figures, one each for petrol and gas (though only one may appear on the Vehicle Registration Certificate, V5C).

New reporting rules for employment - related securities and options

Form 42 is used by employers to report any shares or securities received by employees, in connection with an employment. These are commonly referred to as employment-related securities.

Following a review and a consultation process into Form 42 procedures, we have been able to make improvements to the process of reporting employment-related securities information.

The acquisition of initial subscriber shares or 'founder shares' in newly UK incorporated companies, which account for about 90% of the total number of forms currently received, will not need to be reported provided the following conditions are met:

  • all the initial subscriber shares are acquired at nominal value (and no form of security other than shares), and
  • the shares are not acquired by reason of or in connection with another employment (whether this is the only employment or one of a number of employments), and
  • the shares are acquired by a person who is a director or prospective director of the company, or someone who has a personal family relationship with the director and the right or opportunity is made available in the normal course of the domestic, family or personal relationship of that person.

The revised rules will apply to events that occur from 6 April 2005 onwards, which are normally reported before the 7 July following the end of the tax year in which they occur.

We have also relaxed the reporting requirements for certain share acquisitions by directors for the remaining 10% of forms that still need to be completed. You can find more information at: Employment-related securities – reportable events (PDF 184K)

For those of you who still need to complete Form 42 we are developing a new interactive guidance and form package which we hope to make available on the Employer CD-ROM in April or May 2006. The interactive guidance will lead you through the form, and you will only see the parts of the form and guidance that are relevant to you. We will let you know on our website when the form becomes available for use.

The revised rules will apply to events that occur from 6 April 2005 onwards.

New Construction Industry Scheme deferred to April 2007

On 19 October 2005, the Financial Secretary announced that the Government would allow the construction industry a further 12 months, until April 2007, to prepare for the introduction of new CIS. The announcement forms part of a wider agreement with the industry to strengthen co-operation in order to maintain momentum to ensure a successful implementation.

More detailed information can be found on the CIS pages of the website.

Notification to complete a P35

If you previously filed online over the Internet, and are currently registered to do so, we will not send you a paper P35 to complete for the 2005-06 tax year.

Instead we will send a 'P35N - Employer Notification to complete a P35' to your Secure Mailbox during the period 2 February 2006 to 24 March 2006.

Are your employees coming to or leaving the UK?

Tax equalised employees coming from abroad

Tax equalisation is an arrangement that is common in multinational groups with highly mobile employees who work around the world. It effectively means that an employee's earnings have broadly the same purchasing power wherever they are employed.

If you employ expatriate employees coming from abroad, who are fully tax equalised, you can, in certain circumstances, apply to operate a form of Modified PAYE. To make the rules clearer and easier to use we have revised the procedures for operating these schemes.

If you already operate Modified PAYE for expatriate employees, you will need to reapply under the revised rules before 6 April 2007. All new applications to operate Modified PAYE for expatriate employees must also be made in accordance with the revised procedures.

You can find the revised procedures at: EPAPP/6 - modified PAYE in tax equalization cases

We have also introduced a new procedure that is intended to help you where you have tax equalised expatriate employees who may receive earnings or benefits paid outside of the UK. If you are already authorised to apply Modified PAYE, and you have employees involved who earn above the Upper Earnings Limit (UEL), you can now apply to calculate and pay National Insurance Contributions (NICs) for 2006-2007 onwards, on a modified basis also.

If you employ expatriate employees coming from abroad, who are fully tax equalised, you can, in certain circumstances, apply to operate a form of modified PAYE.

Employees working abroad

In consultation with Business representatives and employer advisors, we have also simplified procedures in certain circumstances where you have employees working abroad.

If you have employees who are:

  • seconded abroad
  • not liable to pay tax in the UK
  • earn above the UEL
  • paid part of their earnings from abroad

we have simplified the special arrangements for deferring and accounting for NICs. You still have to apply to use the special arrangement, but from April 2006, you can apply anytime prior to the first tax month that you want to have included in the arrangement.

Further details can be found at paragraph 119 of the CWG2 (2006) - Employer Further Guide to PAYE and NICs.

Employer diary

February 2006

  • February 2
    • Deadline for forms P46(CAR)(NEW) for quarter ended 5 January to reach us
  • February 19
    • Cheque payments for month ended 5 February should reach our Accounts Office
  • February 22
    • Electronic payments for month ended 5 February should reach our bank account

Expect your:

  • Employer's Annual Return, form P35, for 2005-2006, if you filed your 2004-2005 Return on paper and CD-ROM/Employer Pack including Orderline information so you can order forms and guidance to finish this year and start the next.

March 2006

  • March 19
    • Cheque payments for month ended 5 March should reach our Accounts Office
  • March 22
    • Electronic payments for month ended 5 March should reach our bank account
  • March 31
    • Last date for paying working Tax Credit (WTC) to your employees. If you have not received a stop notice you should contact the Employer Helpline urgently.

Expect:

  • Any last minute PAYE tax code changes on forms P9 and look at P9X on your CD-ROM to check how to update your employees' tax codes for 2006-2007.
  • Your Payslip booklet for 2006-2007, if you pay manually

We advise you to:

  • Start preparing your Employer's Annual Returns (P35 and P14s)
  • Prepare P11 Deductions Working sheets for each employee for 2006-2007
  • Register to use PAYE Online for Employers if you have access to the Internet and want to file your 2005-2006 Employer's Annual Returns online

April 2006

  • April 6
    • Check you have made all necessary changes to your employees' tax codes for 2006-2007 as explained on P9X
    • Computerised payroll users - make sure you have updated your payroll parameters and have the correct version of the software for 2006-2007
  • mid to end April
    • If you recently registered to use PAYE Online for Employers, look out for your User ID and Activation PIN. You will need to activate the service within 28 days.
  • April 19
    • Cheque payments for month/quarter ended 5 April should reach our Accounts Office
    • Last date for any outstanding cheque payments of PAYE and Class 1 NICs for 2005-2006 to reach our Accounts Office. We will charge interest on any payments received after this date.
  • April 21
    • Electronic payments for month/quarter ended 5 April should reach our bank account
    • Last date for any outstanding electronic payments of PAYE and Class 1 NICs for 2005-2006 to reach our bank account. We will charge interest on any payments received after this date.

May 2006

  • May 3
    • Deadline for forms P46 (CAR) (NEW) for quarter ended 5 April to reach us.
  • May 9
    • Last date to register to use PAYE Online for Employers if you are required or intend to file your 2005-2006 Employer's Annual Return online.
  • May 17
    • Look at form P7X on your budget edition of the CD-ROM to make sure you are aware of any changes to your employees' tax codes and ensure that you use the correct taxable pay tables for all pay days after this date.
  • May 19
    • Cheque payments for month ended 5 May should reach our Accounts Office
    • Last date for Employer's Annual Returns (P35 and P14s) to reach our office. We will charge penalties on Returns received after this date.
  • May 22
    • Electronic payments for month ended 5 May should reach our bank account
  • May 31
    • Last day for giving form P60 to each employee working for you at 5 April 2006

 

EmployerTalk 2006

Face to face with our experts

'It is the sort of event that payroll professionals need to attend each year'

EmployerTalk events are held at venues around the country. You get the chance to speak to HMRC experts face to face and listen to key speakers give out the latest news on payroll. You can do this in just one morning or afternoon.

These events are free of charge, but by invitation only as capacity at each venue is limited.

Confirmed dates and venues:

Date

Venue

2 March

London
The Barbican

14 March (pm)

Leeds
Queen's Hotel

15 March (am)

Leeds
Queen's Hotel

16 March

Newcastle
Marriott
Gosforth Park Hotel

29 March

Liverpool
Devonshire
House Hotel

30 March (pm)

Blackburn
Ewood Park

31 March (am)

Blackburn
Ewood Park

12 April

Birmingham
National
Motorcycle Museum

3 May

Cardiff
City Hall

17 May (am)

Edinburgh
Heriot Watt
University

7 June

Belfast
Ramada Hotel

27 June

Crawley
Hawth Theatre

29 June

Newbury
Newbury Racecourse

5 Sept

Exeter
Exeter University

20 Sept

Glasgow
Royal Concert Hall

4 October

Nottingham
East Midlands
Conference Centre

You can find out contact details or book a place at EmployerTalk or ring Sam French on 0845 366 7878.

Helpline and orderline numbers

Helpline (telephone advice) Orderline (order your forms and guidance)

Calls may be monitored for quality control and training purposes

General payroll matters:

If you have been an employer more than 3 years, telephone the Employers Helpline.

If you have been an employer less than 3 years, telephone New Employers Helpline.

If you are deaf or hard of hearing, contact us by textphone on 0845 602 1380. (Only people with specialised equipment such as Minicom are able to use this number)

Other helplines:

HMRC Online Services Helpdesk (including technical support for Employer's CD-ROM )

e-mail helpdesk@ir-efile.gov.u

If we are sending you too many packs, CD-ROMs or Bulletins, or you have changed address, please contact the HMRC office that you normally deal with and let them know. Thank you.

Accounts offices

  • Accounts Office Shipley 01274 530750
  • Accounts Office Cumbernauld 01236 736121

To find the number of your local HMRC office, look in the phone book under 'Inland Revenue'.

Employer Services

Visit the Employer's pages, here you will be able to access a wide variety of information for employers, and have access to the Internet version of the Employer's Orderline.

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