Erase and rewind

HMRC to terminate Employer Local Arrangements

We find ourselves in the traditionally manic busy payroll month of May, with the requirement to file P14s and P35s by the 19 May deadline. Hopefully all is balanced, P14s & associated P35s running lateprepared - and P60s (which must be paper forms to employees not electronic) ready for distribution.

Carter 2 obligations

This is a major issue for all employers, charities, domestic arrangements that involve staff, or other non-business organisations that have employees including pension payers - and let’s be clear here, these are all employers - with 50 or more employees (or pensioners), who will be required to exchange starter and leaver documents P45 & P46 electronically from 6th April 2009 (a 1-year reprieve). How are your preparations going? Are you ready?

Eliminating local arrangements

Local office arrangements have proved to be one of HMRC's biggest headaches. Inspectors of Taxes had autonomy to a certain level, so practice from office to office could vary significantly.

Equally as employers moved from one tax office to another, or a Payroll Manager moved to another employer, some of the disparate activities of various official or unofficial local practices have spread.

Some practices offer significant operational advantages to employers and local tax offices even though many could be considered contrary to governmental requirements i.e. the law.

With the revolution of tax office operations, employers are continuing to be supported by a network of local offices. The current transformation of tax payer records however, means that employees won’t receive similar treatment. The workforce is potentially supported across all tax offices.

The HMRC has now announced that over the years certain employers have achieved local agreements “…and these have not complied with our national PAYE operating guidelines”.

Therefore, in the electronic exchange world: “To avoid rejections, we are reviewing all local arrangements, with a view to terminating them”. The HMRC has also advised that employers review their arrangements to ensure that when compulsory in-year filing applies, data will not be rejected.

Both paper and online

HMRC has confirmed that the new validations being introduced for electronic filing submission also apply to paper form submissions and that “these automated processes are dependent upon employers operating PAYE “in line with the national PAYE operating guidelines…”

The types of arrangement that are coming to an end include:

  • Submission of employer version paper substitute P46 forms to the HMRC
  • Not following the P46 procedures where the P45 is not received
  • Not using BR cumulative tax code as the P46 default
  • Not providing start information to the HMRC when the earnings thresholds are reached (this is now the Lower Earnings Limit)
  • Sending data on CD-Roms

Through IReeN (the Electronic Exchange with Government independent user group) the pensions industry met with HMRC to thrash out some anomalies coming to light by the implementation of compulsory in-year filing.

The HMRC have clarified correct processes where some incorrect (and varied) practices (between each pension payer). It was evident from the consultation that practices were not common and that the removal of local arrangements could be far-reaching and of high impact.

A sample of the Pension Payer challenges related to:

  • Using a Spouse National Insurance Number (NINO) when a widow or widower became the ongoing recipient of a pension (a practice introduced in the early 1970s. The HMRC now states that NINO of the actual person receiving the payment must now be used.
  • Equally, it became common practice to use the NINO of a parent when a child (who had not yet been issued with a NINO) was in receipt of pension.

Do you have local arrangements, and can you identify them?

The reality is that payroll congratulates itself on timeliness and accuracy, yet some common practices are myth and tradition while others are just plain wrong.

So many payroll managers may consider “local practice” as normal.

Even local tax offices have fallen into the trap of thinking that many of their local arrangements are national processes and rules for operation when they are not. This is hinted to have been shown by some internal HMRC investigations where local offices declared no local practice to HQ HMRC, yet when investigated, many were found to be in operation without realising they were local.

So the major challenge for employers is to identify the real local practice, assess the validation requirements that HMRC is now applying and judge the variance and difficulties that will potentially be experienced. Then measures can be put in place to actually process the payroll accurately in accordance with the real rules of play.

If you'd like to know more about HMRC changes, please contact your Ceridian representative.

Not a customer? Call us on 0800 0482 737, or contact us online.

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