This month's cover story

Ready to go

After the electronic revolution for year-end forms, the in-year changes are nearly upon us. Dan Raywood asks if payroll managers and the revenue are prepared.

As with the staged transfer to electronic filing for year-end forms, larger employers will be the first to tackle the system of online filing of in-year forms. The Revenue is asking employers with 50 or more employees to start filing online from 6 April 2009 – postponed from an original planned start date of this year – with employers with fewer than 50 employees having to file them online from the 6 April 2011.

So, what is actually required to complete the forms now? How far ahead should companies prepare for this change to their in-year filing? What are the penalties for doing this incorrectly?

Forms P45 and P46 will be the first to be filed online. In particular, part one of the P45 and part three will need to be completed. The P46 (Pen), that will replace forms P160 and PENNOT from April 2009, is also affected.

The move towards online filing has been in development for some time, bolstered by the Revenue’s financial incentive for small employers to file their PAYE year-end returns online early.

The Revenue recently issued a statement reminding firms that employ fewer than 50 people that they could claim a bonus payment of £150 by filing online before the 19 May deadline. It is also offering tax free payments of £100 and £75 for the succeeding years. This follows incentives of £250 in earlier years.

The combination of incentives and deadlines has meant that 87% of employers now file year-end forms online, according to a recent announcement by the Revenue. This is a 10% increase on last year.

Mike Shipp, HMRC director PAYE, SA and NICs, said:‘We were determined to make the experience as customer friendly as possible and these figures suggest we’ve gone a long way to achieving this. I’m immensely grateful to those employers and their representatives who have given us their views of the service.This feedback has been invaluable in enabling us to provide the quality of online service to which our employer customers are entitled.

There was also a 23% increase in the number of P14 returns successfully filed compared to the same time last year,with almost 60 million P14s received, 70% of which had been posted successfully to NIRS (National Insurance Recording System) by early June.

Plain-paper P45s
So what are the implications of these changes? In the light of controversy over the ability to use plain-paper P45s (see Payroll World, June page 7) the Revenue has emphasised that there is no change to the rules. The transition is simply one from filing manually to online. A spokesperson said: ‘We are not changing the PAYE rules. At the moment, employers have to send employee starter and leaver forms – P45(1) and (3) and P46 – on paper and need to keep a copy for their records. Online filing is quick, secure and convenient and many employers are already taking advantage of those benefits.

‘All employers with 50 or more employees must start sending in-year forms online from 6 April 2009, and we recommend they start preparing now, if they have not done so already. All the information employers need, as well as details about how to get help and support, are at www.hmrc.gov.uk/inyear.’

So with the move made to this form of delivery, how is the Revenue planning to monitor the process, and how will it enforce its being done correctly? A spokesperson said: ‘With regard to in-year filing, we will identify employers that send employee starter and leaver information on paper when they should have sent it online. In response to feedback we got during consultation, we will have a transitional period of nine months during which they will not incur penalties and we will write to employers who fail to meet their obligations, explaining the changes and offering guidance and support. If they continue to fail to meet their obligations, we will charge a penalty.’

With fair treatment granted by the HMRC, it states that it will write if paper forms have been sent rather than filed online at the end of the first, second and third quarters of the 2009/10 tax year, with reminders given of the new requirements and guidance and support offered. It further states that a penalty will be charged if paper forms are filed.

Mike Wilson, chief technology officer of Evolved Software, claimed that the change to online filing will provide business to the software sector, though possibly not with financial benefits for the suppliers. He said: ‘The Revenue is looking to the private sector – software vendors – to release free software in order to prevent the taxpaying “customers” from having to purchase third party software to file online. We are currently working with the Revenue in order to explore areas of our software products which can be made available for free to UK taxpayers and companies in order to provide a simple and easy to use online filing service.

‘We are currently exploring the logistics of this, and I assume that other vendors are doing something similar.
However it is clear that the approach, while having some intangible benefit to the private sector, is clearly a cost-cutting exercise by the Revenue and doesn’t appear to provide any new innovation or benefit for taxpayers, especially those not yet ready to file online.’

However Mr Wilson was sceptical of the abilities of companies to actually do the filing and the Revenue’s capability in enforcing and monitoring the filing. He said: ‘Although in my direct experience, those not ready yet to file online themselves will simply appoint an agent to do it for them (thus incurring more costs to the collection of taxes). I also don’t suppose that HMRC will make good on its word. For example, they were supposed to stop allowing manual construction industry monthly returns back last June/July. I know contractors are still making manual returns – and being fined due to hold-ups in the manual process. So it might be a case of all bark and no bite?’

Elsewhere, the changes demand that all employers will have to include the employees’ gender and date of birth on the P45 and P46 forms. There is an online guide on the Revenue website for filling out the form; an online service is offered to enter the employee’s basic personal details – such as their name and National Insurance number – which is retained and then automatically transferred to any form created for the employee.

So once the filing is ready to begin, and the connection is secure, the next dilemma is: can employers be sure that employees are happy for their details to be provided? What is the answer if in the rare event that the employee does not wish to provide their personal contact details?

Martin Brewer, partner and employment law specialist at Mills & Reeve, claimed that there is no legal requirement for an employee to give you his or her contact details. He says: ‘I think you would have a reasonable shot at arguing that the failure to provide up-to-date contact details amounts to a breach of trust and confidence. If he refuses to give them, set up a disciplinary meeting based on a breach of trust and confidence and take it forward from there.’

Rosemary Jay, head of the information law team at Pinsent Masons, claimed that the introduction of electronic filing will create problems due to employers’ hard copy files.Ms Jay says: ‘Disclosure to HMRC is statutory, so there is no data protection issue about revealing the data. Are there cases where an employee refuses to give any contact details? I have never come across this. An employer could make it a term of a contract that the person gives a contact address, at least for new employees.’

Security
So one obvious question that is raised about this form of filing is regarding security – in particular, is this method secure when it comes to personal details being transferred and delivered online?

A spokesperson for the Revenue said: ‘HMRC’s Online Service uses the highest strength encryption generally available and similar to that used by online banks and other services where message privacy is vital. It ensures complete confidentiality and integrity of the message between the user’s computer and our website.’

Mr Wilson is satisfied that online services are secure. He says: ‘The technology that we software vendors use to communicate with the Government Gateway is encrypted at the client and decrypted upon arrival at the Government Gateway. The technology is based on the same techniques used by banking institutions and the military. It isn’t quite as secure – for example, it is possible to forge returns and make false returns on behalf of another company – but the online mechanism is fit for purpose.’

With these changes in place, and employers being gently encouraged at the start at least to be prepared, there seems to be cautious optimism for the move to in-year electronic filing. What impact it has upon business will be determined over time, and how efficient it eventually proves to be will be widely scrutinised.


Payroll World - July 2008