The passing of another fiscal year beckons the filing of the end-of-year Employer Annual Return and although it may, at first glance, appear a simple, routine task for one person service companies, it should not be taken lightly. Care must be exercised as end-of-year tasks involve more than just filing returns and penalties can ensue for getting it wrong.
Where an employer has had to prepare and maintain a P11 deductions working sheet or equivalent for at least one employee during the tax year, then they must file a P35. This applies even if the employer didn't have to make deductions of PAYE or NIC's from the employee during the year. Where there has been no requirement to maintain at least one form P11 during the tax year then it will not be necessary to file a P35. It is important however that HMRC are notified of this to ensure records are kept up to date and to prevent unnecessary reminders and penalty notices being issued. HMRC strongly recommends that employers notify them online as not only is it quicker, cheaper and easier than writing or calling but the Revenue will also provide e-mail confirmation.
The Employer Annual Return not only comprises of form P35 but also form P14 (end of year summary) for each employee for whom a P11 or equivalent record has had to be maintained.
Although P14's can be filed separately to the P35 it makes the checking process easier if both are filed together.
The Employer Supplementary Return (P38A) must be filed if both of the following has applied to any employees during the year:
There has been no need to maintain a form P11 for them during the year and therefore haven't completed a P14 for them as part of the Employer Annual Return.
Form P38(S) has not been completed for the employee during the year to indicate that they're a student who only worked for an employer during their holidays.
Whilst there is no statutory requirement to file the P38A online, HMRC recommends electronic filing nonetheless.
When the Employers Annual Return is filed online it is checked against HMRC's Quality Standard to make sure the information provided is in its correct format. If the return is rejected it must be corrected and filed successfully before the 19th May to avoid a penalty.
HMRC provides a list of common errors to avoid which can be found on the Avoiding and correcting errors in your Employer Annual Return page.
Where an amendment does need to be made after the Employer Annual Return has been filed then HMRC Customer Operations Employer Office must be notified in writing. New versions of the form will need to be lodged but these need only record the difference between the original figure and the revised figure. For example, if £100 too little tax was recorded on an employee's form P14, the amended form should show '+£100'.
If an amendment is made to any P14's then a new P35 must be sent with them, even if there are no changes to the figures reported on the original P35.
Virtually all employers are required to file their Employer Annual Returns online, although there are a small number of exceptional employers who can still file on paper.
If a paper return is submitted when required to file online HMRC will charge a penalty.
As well as the Employer Annual Return there are a number of other PAYE forms that must be filed online, if relevant, the main ones being:
P45 part 1 – employee leaving.
P45 part 3 – new employee starting.
P46 – new employee starting but has no P45 from previous employer.
Penalties for using incorrect filing method or failure to comply with the mandatory use of electronic communication range from £100 – £3,000 depending on the number of forms that should have been filed.
Failure to file an Employers Annual Return by 19th May will incur a penalty of £100 per 50 employees for each month or part month that the return is outstanding.
Where an employee is provided with a benefit-in-kind and/or expenses, an employer must make a return of these on form P9D or P11D by 6th July. Failure to do so will result in an initial penalty of up to £300 per form.
Form P11D(b), the employer declaration and Class 1A NIC's return, must also be filed by 6th July to avoid the same level of penalty for late filing of a P35, although the form itself states that penalties will only be charged if it is not submitted by 19th July. This practice is to be withdrawn however from 31st March 2013.
Whilst it is not necessary to keep a copy of forms P35 and P14, employers do need to keep a copy of the records they used to prepare and file the Employers Annual Return in case HMRC ask for it.