Author: Yvette Lamidey
Published in: Conspectus
Date: September 2006
Taxation: Oline Filing
HMRC Online filing and Services for Employers
Further considerations for online filing now that the second mandatory End of Year has been completed. Even if you outsource payroll read on as you need to be sure who is responsible for all aspects of the processes.
Many of you run sophisticated systems with complicated and/or multiple payrolls and virtually all of you will be old hands at end of year returns, having said all of that HMRC have found deficiencies in the systems that we used and that even the large and/or experienced employers made some of these mistakes. This is possibly because you have operated these processes for many years and they haven't been challenged although strictly speaking they are not correct i.e. do not meet all of the legislative requirements
Where a bureau or payroll agent is used or the payroll has been fully outsourced you may feel that some of the points raised in this article are not relevant to you. Don't completely switch off at this point but make a note to check with the third party to ensure each of you are clear on who is doing what and when. If you have changed payroll provider or moved to a new bureau/outsourcer during this tax year it is even more important that you check who is doing what for this year end.
Data Provisioning Service
The Data Provisioning Service, DPS, has replaced the Secure Mailbox Service, SMS. It is not a message based service; users are in effect downloading data to their systems or into excel spreadsheets using the .csv facility.
Some payroll systems that support Internet filing include the DPS functionality. The data within DPS will be held for at least four years and it will enable you to view historical data at employee level – this is possibly best done by accessing the DPS via the HMRC portal on the website and using the tools available.
If you are accessing the DPS via the portal on the HMRC website you will notice a marked difference. To receive alerts that messages are available for collection you will need to register an e-mail address.
Unfortunately the service is still experiencing some teething problems. These must be remedied and the DPS service proved to be stable and future proofed for much greater data loads as soon as possible. In part because the issues are already causing problems employers and agents and as usage is increasing is becoming a more and more critical tool set.
For further information go to http://www.hmrc.gov.uk/dps/index.htm
Using Part Returns
If you are intending to submit more than one part of P14s you must contact your software provider and check that the system will support part returns and submit a composite P35.
It is very important that you record the number of P14 parts on the P35 even if there is only one part being submitted i.e. your return consists of one set of P14s and one P35. This number of parts is purely the total number of P14 parts submitted and most certainly is not the number of P14s submitted! In not having the correct number of parts it isn't possible for HRMC to consolidate the returns properly, complete all of the validation and post the data to the back end systems.
Each P14 part should have a unique identifier., using the same identifier for another part will overwrite the original part and so on. The overwritten data cannot be recovered and you will be required to resubmit the missing parts. Where this occurs the employer could be liable for a penalty since they have not filed a full and complete return.
Each P14 part submitted will generate a validation message; this is not a message that advises you that all part have been successfully processed and the P14s and P35 consolidated into one return.
When submitting the P35 double check to ensure all of the summary details have been completed including the ECON/SCON number if these are appropriate.
And finally please remember your are required to submit a full and complete return that passes that validation processes on or before 19th May. You should, therefore, build into your schedule contingency time in case there are problems in submitting the files themselves plus time to correct any errors that cause the return to be rejected and then resubmit the file. Yes, there is the extra statutory concession but you really should not rely on this additional time window but aim to submit your returns as soon as you can after 6th April to allow for any necessary corrections to be made.
All employers are encouraged to regularly check the HMRC website for the latest information on filing and will keep you up to date with service availability and useful information on filing your Return. We would also encourage all employers to sign up for ‘notes for payroll software developers'. This may have a scary title but it is an excellent document and gives far more information to the employer than can be found in other publications and contrary to the title is not just information on the IT side of things.
To register to receive notes go to www.hmrc.gov.uk/comp
Online filing – avoiding common errors
HRMC will write to each of the software houses and advise them of where employers sent poor quality returns using their software and the common errors that their clients had made. We would hope that the software providers will use this information to improve their products and review the communication with and support given to their clients as there are clearly learnings for all of us. Lists of the common errors for 2005/6 are published on the website http://www.hmrc.gov.uk/2006online/common-error.htm
These common errors have proved that some of the products/software that employers are using don't have the full validation to match the Quality Standard and some don't have logical validation either such as allowing non-existent dates e.g. 31st September to be entered!
Looking at the types of errors reported by HMRC it would appear that although validation incorporated for data entry to prevent incorrect characters etc. being entered for new starters and changes to addresses, NINO updates etc the data that has been held on payroll systems for many years and not changed hasn't been through this type of validation. So it may be that new employees have quite clean data but long serving employees who haven't changed address in recent years for instance won't have clean data.
One way that you can tackle this problem is by writing some quick reports to capture any employee records that have this spurious data or it may be that your software provider has a suite of reports you can use, although this may be at an additional cost. There is anecdotal evidence of software providers and bureaux having these reports available as part of their year end routines but employers either do not realise that these are available and what they are for or simply not using them. Check with your provider to see what is available as this may save you a lot of time and frustration at year end.
Remember the reason why you need to ensure that your employee's data is clean and conforms to the standards is that if a P14 contains data that does not pass the validation process on submission then the whole of your return will be rejected and you will have to amend and resubmit.
In-Year Online Services – Carter 2
In a nutshell Lord Carter, in his second report on Online Services, recommended that large and medium sized employers will be required to file in year forms (P45, P46) online from April 2008 and for small employers from April 2010. This was accepted as part of this year's Budget. Forms P45(1), P45(3), P46 and PENNOT (pension notification) will be included and those using the simplified PAYE arrangements are not currently being considered for mandatory in year filing. P46 car, P11ds, P9ds and P11D(b) are not included.
The use of online in year forms will benefit the employee first and foremost as their tax affairs are sorted out more quickly in so much as the turnaround time for the forms will be much quicker and adjustments to tax codes issued and applied more quickly. The employer will potentially benefit as the employees are being correctly paid and less queries are generated and it is hoped that less HMRC enquiry forms will be received as well.
Recently published figures show that approximately 24% of large and medium sized employers already submit their P45 and P46 forms online.
The introduction of Payroll Standards for in year forms will have had an impact on employers, their agents, and software providers. Some software developers have already embedded some validation as part of the capture of clean data for the end of year returns but not all have done so and there will be some additional validation required.
In addition to payroll software consideration should also be given as to whether the ‘data capture' systems used by employers also need to be upgraded to include the appropriate validation. This potentially wider reaching than for the end of year filing since various front end systems are used by employers to capture data; and validation would be more beneficial at the point of data entry than within the payroll system at the point of interface. And potentially these suppliers/developers will not be used to mandatory validation of data and so may have a steeper and longer learning curve than payroll software developers.
Where you have front end systems that are used for data capture you may wish to contact the supplier and find out if they are aware of the implications of mandated in year online filing. In fact if you are currently not using in year forms it would be sensible for you to talk to your provider in any event.
If you do not currently file your in year forms online please contact your software provider to understand what is currently available to you as part of the standard package and also what enhancements to the system be under consideration. It would generally be easier to have the validation within the payroll system, and for the payroll system to generate the online message in the correct format enabling the employer to submit the data directly. There is the alternative solution of using the HMRC online forms tools but this would mean entering the data onto the HRMC site, additional work and additional potential for error. The HMRC tools will be upgraded to include the necessary validation.
In his report Lord Carter recommended that there should be the provision of a full test service for developers and rigorous testing by HMRC of any new programmes and this time scale is becoming very tight even more so with the other work that people are doing. The recommendations were that major changes should be delivered so that software developers have a six month testing window using the Revenue testing service which in itself should be robust and this will be integral to the successful delivery of the in year online filing for 2008.
Employers and Agents will have to review their internal procedures as well as software developers reviewing theirs. All P46 and P45 forms must be submitted online and HMRC are expecting that the P46 forms to be completed by the employee whereas currently many larger employers have procedures in place whereby if neither a P46 nor P45 have been submitted for the first pay day then a P46 is generated by the payroll system using the information available. And if a P46 is then received which one will HMRC operate? Where employers have a disbursed workforce it is possible that the P45/P46 form is submitted in paper to HMRC from the remote location, in the move to online filing there may be a need to centralise the processing of the forms.
In thinking about these various matters Carter 2 may well have a wider impact on some employers than we had initially anticipated, the coming months will be very interesting as more detail is understood.
Yvette Lamidey
Yvette Lamidey is director of Paris and Parks Consulting
www.parisandparks.com