Filing of PAYE In-year Returns - HMRC clarifies further issues

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29 November 2007

The latest issue of HMRC's Notes for Software Developers includes guidance on a number of issues related to mandatory filing of in-year returns from April 2009. In some situations, adjustments to procedures will occur during 2008/09.

P38(S) Student Employees

When a student works for an employer only during holiday periods, the employer need only retain the signed form P38(S) Student Employees. No P14 End of Year Summary need be submitted at the year end (although there is no HMRC objection if one is filed) and no P45 Details of Employee Leaving Work is issued when the student leaves.

To ensure consistent handling of forms P46 Employee Without a Form P45 when they are completed automatically by payroll systems and filed online, some adjustments are being made to the procedures that employers should follow when students continue to work beyond holiday times and when their earnings exceed the tax threshold. A new Employer FAQ is included with this newsletter to explain these changes in context.

P46 Employee Without a Form P45

From April 2008, form P46 must be sent to HMRC if Statement A or B applies and when the first payment to the new employee equals or exceeds the NICS lower earnings limit (instead of when it exceeds the PAYE threshold). If a P46 has been sent to HMRC (resulting in a tax code being applied for the employee), a form P45 must always be completed when the employee leaves, whether or not any tax has been deducted.

However, it is still acceptable for a form P46 to be submitted for all employees, including those whose earnings are below the lower earnings limit.

P45 Details of Employee Leaving Work

Employers should complete a P45 for a leaver on the day that the employee leaves. If that is not possible, it must be sent without "unreasonable delay". For example, if an employee leaves mid-month and the P45 cannot be produced until the pay run, that is considered to be without "unreasonable delay".

Where a payroll system requires all of the year-end procedures to be completed before any processing can be done for the new tax year, there may be a delay before a P45 for a leaver in the new tax year can be filed electronically. At the start of the 2008 tax year it will still be acceptable for an employer to send a paper P45 in this situation. However, from April 2009, payroll system developers are expected to have upgraded their systems so that P45s can be filed electronically without any delay.

The new design P45 will be introduced in October 2008 and both the old and the new versions of the form may be used concurrently until the end of the 2008/09 tax year. HMRC will accept old style P45(3) forms for starting dates up to 18 May 2009 if it has 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(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 reason for these requirements is that all P45 online submissions must meet the validations appropriate for 2009/10 and only the new style paper P45 will contain the corresponding information.

The validation rules for online filing during 2008/09 do not allow a P45(1) to be submitted with a leaving date in the next tax year. For example, a P45(1) for an employee leaving in April 2009 could not be filed online in March 2009. A paper P45 should be filed in this situation. A change in the validation rules is likely to be made for the following year.

P46(Pen) Pension Notification

HMRC has advised that the online version of the new P46(Pen) form, currently known as PENNOT, will continue to have that name after the new paper version comes into use.

Duplicate filing of paper and online forms

HMRC has asked payroll software developers to build into their systems suitable methods of deterring or preventing employers from sending in paper versions of forms that have already been filed online, or vice versa.

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