P35 Filing Less Than 2 Weeks Away

Employer Annual Return due by 19th May

For all those employers that did not take part in the Real Time Information (RTI) pilot they will need to file a 2012/13 Employer Annual Return, online, by 19th May. Failure to do so may result in a penalty being imposed.

The Employer Annual Return is not just the form P35 but also includes form P14. Form P14 is the End of Year Summary form that details employees' pay, tax and NIC details, basically mirroring the form P60 which is given to employees.

Who must complete an Annual Return?

All employers who had to maintain a P11 (deductions working sheet) or equivalent for at least one employee, even if there were no PAYE and NIC deductions, must complete and file an Employer Annual Return.

Those contractors that did not file their return by the end of April will probably have received a reminder from HMRC.

If the return is not filed by 19th May HMRC will write to the employer advising that a penalty may have been incurred and that the return must be filed by 19th June to avoid further penalties.

Penalties

Late filing penalties are levied at £100 per 50 employees for each month or part month that the return remains outstanding.

The service company question

For the purposes of question 6 ‘service company’ includes a limited company, a limited liability partnership, or a partnership which provides a contractor’s personal services to third parties.

Question 6 is deliberately in two parts because the first question identifies those employers who need to consider whether the second question applies. The first part asks

Part 1 – Are you a service company?

Employer Handbook E10 state that this part of the question should be answered ‘Yes’ if:

  • an individual performed services (intellectual, manual or a mixture of the two) for a client(s), and
  • the services were provided under contract between the client and the service company of which at any time during the tax year, the individual performing the services was a shareholder or partner, and
  • the service company’s income was, at any time during the year, derived wholly or mainly (that is, more than half of it) from the services performed by the shareholders or partners personally.

If the above definition applies in the year to 5 April 2013, then the first 'Yes' box under this question should be ticked.

If however the answer to the first question is 'No' then the second part does not need to be considered because the answer to it will also be 'No'.

Part 2 – have you operated IR35 or the MSC legislation?

If the first part has been answered in the affirmative then you must indicate whether or not the IR35 or MSC legislation applies.  The second part of this question should only be answered 'Yes' if:

  • income has been treated as deemed employment income and PAYE/NICs deducted in accordance with the MSC or IR35 legislation, or
  • an engagement is within the IR35 rules but the deemed payment is nil because sufficient amounts of employment income have been paid.

Where it is not possible to calculate the actual amount of the deemed payment and the PAYE and NICs due for 2012–13 by 19 April 2013, a payment on account of the estimated tax and NICs due should be made by 19 April 2013 supported by a P35 showing provisional figures.

HMRC will then write to all employers later in the year reminding them that as their P35 figures were provisional they must submit an amended P35 and make a balancing payment by 31 January 2014.

Where HMRC does not receive an amended P35 and balancing payment by 31 January 2014, the original P35 submitted will be considered to reflect figures which the employer declares to be final and correct.

Where an employer cannot finalise the amounts by 19 May 2013, they will not have to pay a penalty so long as they send in their Employer Annual Return by that date, and pay all of the PAYE and NICs due for the deemed payment by 31 January 2014. Interest will, however, still accrue from 19 April 2013 until the PAYE and NICs are paid.

This will be the last Employer Annual Return that freelancers will file as they move into RTI, so farewell to our old friend the P35!

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