HRD & Payroll Solutions Newsletter

Employers do not have to wait until 6 April 2008 to start filing their year-end Returns for 2007/08. Returns filed online before 6 April will be validated and the appropriate email message will be sent back immediately. However, they will not be processed until after 6 April. (If they file early, small employers entitled to the £100 online filing incentive for 2007/08 should not reduce their final 2007/08 payment by the £100 – their PAYE account will not be credited until after 6 April 2008.)

The Internet service will be unavailable for a short period at the start of the new tax year for HMRC’s annual upgrade and details of this downtime will be published nearer the time. Submissions by EDI are not affected in this way.

Employers may, if they wish, use the “Test in Live” facility to confirm that all or part of their P14 and P35 submissions fully meet the validation rules. Unfortunately, despite the problems encountered by some employers last year, HMRC has been unable to arrange for the Government Gateway to send different email messages in response to live and test Returns. The email message that will be sent for both live and test Returns if they are successful is as follows:

“The submission for reference XXX/XXXXX was successfully received on XX-XXXXXX. If this was a test transmission, remember you still need to send your actual Employer Annual Return using the live transmission in order for it to be processed.”

However, the success messages sent online by HMRC to the software making the submission do differentiate between live and test Returns:

“9004: The EOY Return has been processed and passed full validation”
“9001: This submission would have been successfully processed if sent under non test
conditions.”

If the validation rules are not satisfied in any respect, HMRC will send a failure message explaining why the submission has failed.

At the end of the 2006/07 tax year, some employers failed to send their live Return after sending a test Return. HMRC has asked payroll system developers to consider what they can do to help employers avoid making this mistake, by providing better guidance or by making the software success messages more visible to users when they are received.

If a submission is unsuccessful, the email message from the Gateway will say:

“The submission for reference XXX/XXXXX was received on XX-XXXXXX. Unfortunately it could not be accepted as it failed data checks. To correct this please use the help provided within the software you used to complete your form and send it again.”

HMRC will also send an online rejection message back to the software making the submission, highlighting the error(s).

Unless P14s and P35s are sent in parts at separate times, each complete submission will be validated on receipt and an acceptance or rejection message sent back to the submitting software, in most cases within a minute. Employers should expect that, having sent their Returns online, HMRC’s acceptance or rejection message will be received almost immediately. In the case of large submissions, the message may not arrive until the following day. In all cases, however, the employer should check the return message in case the Return has been rejected.

If P14s and their covering P35 are sent in parts over the Internet, HMRC will only send an acceptance or rejection message once all of the P14s have been consolidated and checked against the P35.

Further information:
Notes for Payroll Software Developers – Supplementary Edition http://www.hmrc.gov.uk/comp/notes-11-3.pdf

A4 Version of Form P45

First procedures and specifications provided by HMRC

A new A4-sized version of form P45 will come into use from October 2008. It will be used concurrently with the existing form until the end of the 2008/09 tax year. HMRC will accept old style P45 Part 3 forms for starting dates up to 18 May 2009 if they have a leaving date in the previous employment of before 6 April 2009. All P45s issued to employees from 6 April 2009 must be on the new version form. In addition, if a P45 Part 1 is filed online on or after 6 April 2009 for an employee who left before that date, the P45 issued to the employee must be on the new form.

The new form will still have the same Parts 1, 1A, 2 and 3, but will exist in four different formats:

The substitute P45(Online) must be printed on plain white (not coloured) paper of at least 80 gsm. The printing must be entirely in pure black, without any shading, and must include the HMRC logo. The form may not be printed first and the data printed afterwards in the boxes – both form and data must be printed at the same time. The design specification for the substitute P45(Online) gives precise details of the typeface, type size and type style that must be used and the sizes of the boxes and their positioning.

The three-part form P45(Online) may only be issued after Part 1 has been successfully filed online and validation has been confirmed by HMRC (although a different rule may apply when Part 1 is filed by EDI). It may not be amended after Part 1 has been submitted.

The information recorded on each Part of the P45(Online) is very similar to that shown on the existing P45, but with the addition of the employee’s gender and some changes in the order of the boxes. We have, however, queried with HMRC the requirement on the new form to enter the leaver’s “taxable pay” at items 7 and 8, i.e. the pay after deducting free pay or adding additional pay, as this conflicts with the Regulations. The existing form asks for “total pay”, not “total taxable pay”.

Further information:
Design specification for form P45 (Online) (Starter and Leaver details) http://www.hmrc.gov.uk/ebu/spec-p45.pdf

National Insurance Numbers

Correcting employer records

Before moving taxpayer data to the National Insurance Recording System (NIRS) during summer 2008, HMRC is reconciling the NI numbers held on that system with those recorded on the current taxpayer database. It is anticipated that this process will highlight a large number of missing and incorrect NI numbers.

The correct numbers will be issued to employers from April, using paper form P46-5(T). There is no facility for them to be issued electronically. HMRC acknowledges that April is not a good time of the year for this exercise but is asking employers to update their records as quickly as possible.

Further information:
Notes for Payroll Software Developers – Supplementary Edition http://www.hmrc.gov.uk/comp/notes-11-3.pdf

Tax Tables for 2008/09

Removal of the Starting Rate from 6 April 2008

New tax tables (Tables B to D) for use from the start of the 2008/09 tax year have been published and are available in the usual two formats, the manual method and the calculator method.

The Starting Rate of tax no longer applies for PAYE purposes from 6 April 2008 and this change has prompted some rearrangement of the guidance provided in the Tables. However, the 2007/08 higher rate tax threshold (£34,600) has not yet changed. An increase in this threshold to £36,000 is expected in the 2008 Budget and a further issue of Tax Tables will be necessary when it comes into effect, likely from paydays falling on or after 18 April 2008.

Further information:
Taxable Pay Tables – Manual Method http://www.hmrc.gov.uk/taxtables/2008/srbd.pdf
Taxable Pay Tables – Calculator Method http://www.hmrc.gov.uk/taxtables/2008/calc_tables.pdf

Payments to the Accounts Office

Changes to the P30B payslip

Between February and April 2008, employers will be issued, depending on their normal payment method, with either a

The 2008/09 Payslip Booklet has been changed so that employers no longer need to show separate amounts of tax and NICs. The P30B payslip now has only one Amount due box, which should be used to show the combined total amount of tax and NICs.

Although there is no requirement to do so, employers may, if they wish, notify HMRC of the exact amounts of tax and NICs by making two separate BACS Direct Credits, one for PAYE and one for NICs. When making separate payments, a 'P' (for PAYE) or a 'N' (for NICs) must be added to the front of the Accounts Office reference shown on the front of the Payslip Booklet. For example, PAYE = P123PA12345678, NICs = N123PA12345678.

Further information:
Notes for Payroll Software Developers – Supplementary Edition http://www.hmrc.gov.uk/comp/notes-11-3.pdf

Paid Holiday Leave During Sickness Absence

Holiday accrues during long term sick leave, according to Advocate General

In the case Commissioners of Inland Revenue v Ainsworth and Others, the Court of Appeal, in April 2005, ruled that there is no obligation for an employer to treat a worker as entitled to paid holiday leave under the WTR rules who

The decision was appealed to the House of Lords where, in October 2006, it was referred to the European Court of Justice (ECJ) for a decision. By that time, the case had been renamed Stringer and Others v HM Revenue and Customs.

On 24 January 2008, Advocate General Trstenjak gave his preliminary Opinion on the two questions referred by the House of Lords, namely:

Agricultural Wages in Northern Ireland

Increases to rates proposed for April 2008

The Agricultural Wages Board for Northern Ireland has proposed changes to the minimum rates of wages for agricultural workers. Following a meeting on 14 January, the Board proposed to increase existing minimum rates for agricultural workers at Grade 2 and above by 3.8%. The lowest wages pay band, known as the “Minimum Rate”, was increased in October 2007 to match the National Minimum Wage rates and is not being further increased.

The proposed new rates are:

	Below compulsory school leaving age	Age 16-17	Age 18-21	Age 22 and over
Grade 1 – Minimum Rate for the first 40 weeks cumulative employment	£2.76	£3.40	£4.60	£5.52
Grade 2 – Standard worker		£3.84	£5.03	£5.92
Grade 3 – Lead worker		£4.49	£5.89	£6.50
Grade 4 – Craft Grade		£4.54	£5.94	£6.98
Grade 5 – Supervisory Grade		£4.80	£6.29	£7.39
Grade 6 – Farm Management Grade		£5.18	£6.80	£7.99

Protecting Personal Data

Marks & Spencer issued with enforcement notice

The Information Commissioner's Office (ICO) has found Marks & Spencer (M&S) in breach of the Data Protection Act. This follows the theft of an unencrypted laptop which contained the personal information of 26,000 M&S employees.

An ICO investigation revealed that the laptop, which contained details of the pension arrangements of M&S employees, was stolen from the home of an M&S contractor.

The Data Protection Act 1998 includes eight Data Protection Principles, the seventh of which states:

“Appropriate technical and organisational measures shall be taken against unauthorised or unlawful processing of personal data and against accidental loss or destruction of or damage to, personal data.”

In explaining the application of this Principle, the Act provides that:

“Having regard to the state of technological development and the cost of implementing any measures, the measures must ensure a level of security appropriate to

And, because the laptop was in the possession of a third-party contractor, compliance with the seventh principle also requires that

“Where processing of personal data is carried out by a data processor on behalf of the data controller, the data controller must…

Given the nature of the information contained on the laptop, the Information Commissioner has taken the view that, in this case, the personal data held on the laptop computer should have been encrypted so that, in the event of its theft, it would not have been possible to view the personal data in a readable format. The Commissioner has come to the view that the data controller’s processing contravenes the Seventh Data Protection Principle in that it failed to take appropriate measures to ensure the security of its data.

The ICO has now issued M&S with an Enforcement Notice which orders the company to ensure that all laptop hard drives are fully encrypted by April 2008. Failure to comply with the Enforcement Notice is a criminal offence and may result in the ICO taking further action against the company.
Last year Gordon Brown announced that the ICO would be given increased powers to conduct spot checks of government departments. The Information Commissioner has called for these powers to be extended to cover all public bodies and private sector organisations.

A copy of the Enforcement Notice can be downloaded from the Information Commissioner’s website.

Further information:
ICO takes enforcement action against Marks & Spencer http://www.ico.gov.uk/upload/documents/pressreleases/2008/mands_en_final.pdf
Enforcement Notice http://www.ico.gov.uk/upload/documents/library/data_protectio
n/notices/m_and_s_sanitiseden.pdf

February 2 – This is the date by which any changes to the provision of company cars in the three months to January 5 must be reported using form P46(Car).

February 5 – This is the final day of tax month 10. Tax and NICs etc. for payments made in the tax month to February 5 are due for payment to the Accounts Office by February 19, or by February 22 if paid electronically.

February 19 – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.

February 22 – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account. Payments through BACS must be initiated by February 20 at the latest.

Payroll FAQ's

Completing Form P45 for a Leaver

How is form P45 completed for a leaver?

Every employee who leaves, including those who say they are not going to work again, must be issued with a P45, except

The second of these options will be mandatory for PAYE schemes with 50 or more employees from April 2009, and for all other PAYE schemes from April 2011.

The following Table shows the items of information that, by law, must be provided on the paper 45 or the online equivalent when an employee leaves. A new version of form P45 is to be introduced from October 2008 to allow additional information to be recorded that will be mandatory from April 2009. The number shown below against the paper P45 entries is the item number on the form.

Information	Online P45	Paper P45 (to 9/08)	Paper P45 (from 10/08)
Employer PAYE reference Office number Reference number	* *	1 √ √	1 √ √
Employee’s NI number	*	2 √	2 √
Employee Title (Mr, Mrs etc) Surname or family name First or given name(s)	* * *	3 √ √ √	3 √ √ √
Leaving date (date employment ended, not necessarily the last working day)	√	4 √	4 √
Student Loan deductions to continue (even if none were actually made due to the employee’s earnings levels)	*	5 √	5 √
Tax Code Tax code used for the final payment Week 1 or Month 1	√ √	6 √ √	6 √ √
Final pay and tax (only if cumulative) Week number or month number Total pay to date, including earnings in the previous employment Total tax to date, including tax deducted in the previous employment	√ √ √	7 √ √ √	7 √ √ √
Pay and tax in this employment (if W1 or M1) Total pay in this employment only Total tax in this employment only	√ √	8 √ √	8 √ √
Employer reference information Works or payroll number Department or branch, if any	* *	9 √ 10 √	9 √ √
Gender – Male or Female	*	-	10 √
Date of birth	*	-	11 √
Employee’s private address Address Postcode	* *	11 √ √	12 √ √
Employer certification Name and address Postcode Date form completed	* * *	12 √ √ √	13 √ √ √
Employee has died	√	√	√

* items that are already held in the payroll system or online database and that do not have to be input again when filing online

The paper forms must be completed in capital letters and without errors. When the paper forms are completed, the details at items 1 to 7 should appear on all parts of the P45. Items 8 to 13 appear only on Parts 1 and 1A.

Part 1 is sent immediately to the tax office or filed online. The remaining three parts are given to the employee, with instructions to retain Part 1A before handing Parts 2 and 3 to the next employer.

Once issued, a P45 may not be amended. All four parts of the P45 must have identical entries. If an employee asks for a copy, a duplicate must never be issued but the same information can be provided in a letter.

If an error is made when completing the form and it has not yet been issued to the employee or sent to the tax office or filed online, it may be destroyed and a new form completed. Changes should never be made by crossing out figures or using correction fluid.

If Part 1 has already been sent to the tax office or filed online when an error is discovered, the employer should write a letter to HMRC, giving details of the error. The corrected information can also be given to the employee in a letter, but never on a new P45.

If the employee has died, a “D” is entered in the box provided and all four parts of the P45 are sent to the tax office (or the other three parts if Part 1 is filed online). If any earnings are paid subsequently to the personal representative of the deceased, tax code BR must be used. No NICs are deducted from any payments made after the employee’s death.

If an employee is leaving but will continue to be paid by the employer as a pensioner, form P160 is completed instead of form P45. From 6 April 2009, form P46(Pen) will be used instead. The form must be sent to the tax office within 14 days of retirement, and a copy given to the employee. The employee’s tax code, on a W1/M1 basis, is used until otherwise notified by the tax office. If a new tax year starts before a new code is notified, the same tax code is used on a cumulative basis.

Online Filing for 2007/08 Year End

Live returns, test returns and messages