Payroll Advice

Electronic In-Year Filing, don't delay, act now

In the March 2007 budget, HM Revenue and Customs (HMRC) announced a 12-month delay to their proposals for compulsory In-Year filing.

Originally PAYE schemes with 50 or more individuals present were faced with electronic filing of P45 & P46 from April 2008. Due to the complexities of process change having to be faced by employers and the timings required to implement the relevant changes in both process and systems, HMRC have conceded a 12-month delay to April 2009, and for all other PAYE schemes by April 2011. This delay is to enable employers to investigate, change and implement both process and systems to implement the new obligations.

Of course, in-year filing capabilities have been around for some time now. The Ceridian Electronic Exchange service along with others have been in operation for over 7 years in providing streamlined automated interchanges between employer and HMRC for thousands of early adopters.

Electronic Exchange not only benefits the HMRC with electronic, automated and accurate starter and leaver forms, but also offers the option for improved efficiency with the automated receipt of tax code updates as well as Collections of Student Loan (CSL) messages. Why waste time managing, enveloping and keying paper documents?

IReeN (the user group for employers who interchange electronic with government) and the other industry bodies such as the British Computer Society (Payroll Specialist Group) which represent payroll software developers, along with the Institute of Payroll Professions, are campaigning for better and more appropriate electronic updates between employers and HMRC.

Some of the stumbling blocks along the journey are the antiquated paper-driven process of handling joiners and leavers both by employers and HMRC and long-established local arrangements or practices, some of which probably date back to the days of Noah and have somewhat been lost in translation.

Invalid National Insurance numbers, change of Tax Reference, no provision of P46, identity theft, short-term immigrant workers etc., all add to the confusion of records held by HMRC and employers.

A high proportion of employers still do not operate the correct starting process with regards to the starter P45 or P46. Many employers do not provide their new employee with a P46 on starting, place them on all sorts of tax codes (not purely BR cumulative) and never inform HMRC (apart from returning a P14 at year end in some instances).

A proportion of tax payer records do not properly identify the individual, the National Insurance number is missing, incorrect, fake or false - and a proportion of employees appear to have been born on the 1st January 1901 using the “not known” birth date of ‘01011901’.

This is all to change: employers must urgently consider their current process. Compulsory P45 and P46 details will require a birth date and ‘01011901’ will no longer be allowed (unless really genuine). Also, the gender of the employee must be stipulated. Employers will be obliged to declare the P46 status to HMRC as a result of the first payment to the employee or submit the P45 electronically. A new single part P45 leaver document is being proposed for taking from one employer to the next, employers may potentially operate approved substitute versions. The P46 completion by employees may be incorporated into the employer’s standard joining documents.

So how will HMRC know when an employer has not submitted the correct P45 / P46 details? Simply, they will check the P14 details against the relevant in-year messages received and look for mismatches. For those from the 3rd Quarter of the 2009/2010 tax year, fines and penalties will be imposed. The first three quarters fall purely into a warning period.

Is it easy to identify software that is ready for In-Year filing capabilities? Currently, the answer to that question is no, as this can be confusing. It is best to check with your supplier. There are two methods of electronic submission available: Electronic Data Interchange (EDI) and the Internet.

For EDI it is easy to identify software by looking at the HMRC EDI Recognition Scheme details. The message types handled are appropriately listed against the suppliers who can be contacted for verification of Carter 2 compliance.

http://www.hmrc.gov.uk/ebu/edi/edi-software.htm

Although the payroll standard (also listed on the HMRC website) will be changed to incorporate in-year filing requirements from April 2009, there is presently only a requirement for tax-year end P14 and P35 filing capabilities (and then no requirement for part submission). So presently the standard is limited in applicability for April 2009 and therefore the supplier should be contacted to verify their intentions remembering that the P45 / P46 are the only compulsory requirements, yet the employer benefits mostly from the application of P9, P6, P6B and CSL interchanges.

In-Year readiness may not be on many peoples’ horizon of vision yet. Will HMRC delay further? I would suggest not and it is time for employers to wake-up, identify and prepare to deal with In-Year readiness now.

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