In its February Supplement to the Notes for Software Developers HM Revenue & Customs (HMRC) announced changes to the P45 and P46 processes that will be introduced as part of the requirement to file in-year forms online from April 2008.
In his second report published last year Lord Carter proposed that all large and medium sized employers – those with 50 or more employees in their PAYE scheme – should be required to file starter and leaver forms online to a demanding timetable beginning in 2008. The requirement would apply to the smallest firms (those with less than 50 employees) from April 2010.
There will continue to be an exemption for those with a religious objection to the use of computers and the internet but no more incentive payments – they cost far too much!
HMRC have been in consultation with employer representative groups since accepting the proposals and this is the first set of procedural changes that have been made public.
Starter details
In-year online filing will apply to P45s both for starters and leavers and P46s (although not the quarterly P46(Car)), and for both employer and pension payrolls. There will be no requirement to receive P6 and student loan forms online either through the Data Provisioning Service (DPS) or third party software, although many employers may want to make the wholesale move to online transactions with HMRC, particularly as earlier this month improvements to the DPS were announced (see www.hmrc.gov.uk/dps).
As starter details will be sent online HMRC have recognised that there is little sense in insisting that the employee completes the paper form before the details are submitted online. It will therefore be acceptable to collect the information required for submission via the employee's offer letter or other internal document by incorporating statements A-D, gender, National Insurance number and date of birth.
Should a P45 part 3 not be provided from a previous employer the payroll department then has all that is needed to submit a P46 in its place. Equally companies that wish to gather this information via an email from the employee, or the employee's line manager, will be permitted to do so as long as an audit trail can be demonstrated that proves that the employee was the originator of the information.
Where neither a P45(3) or 'present circumstances' have been provided at the time that the P46 must be sent, then the employer will default the employee to tax code BR.
Date of birth
It is worth noting that the provision of date of birth will be a mandatory field on P45s and P46s from April 2008, so even if you have not managed to capture the employee's 'present circumstances' to match to statements A-C you must have the employee's name, NINO, date of birth and gender. It will not be possible to use the default date of birth of 01011901 that is acceptable, and will continue to be so, on year end returns.
Employers who have recently decided to remove date of birth from application forms to avoid any claims of age bias in light of the age equality regulations will need to ensure that it is captured at offer stage, as it should be of course to ensure that National Insurance is deducted at the correct rate and that the National Minimum Wage is correctly applied.
Where the employer uses an agent for payroll processing HMRC have advised that they should make employees aware that date of birth information is being supplied to the agent if this has not been routinely provided before. HMRC will be advertising that date of birth is being requested for the first time to counter any resistance from employees to providing the data. Where employers begin to submit in-year forms online prior to mandation in April 2008 they will not be requried to submit date of birth and gender at this time. If a P45 arrives after the P46 has been provided and a P6 has been issued in the interim employers are instructed to destroy the P45. From April 2008 the P45(3) must be sent as well as the P46 and regardless of whether a P6 has been issued.
At present the PAYE regulations require that for employees signing statements A or B on the P46 the form is not submitted until the employee's pay reaches the Earnings Threshold. In future this will change, such that definition of the first 'relevant' payment is when the employee's earnings reach the Lower Earnings Limit. In practice many employers send a P46 for all starters regardless of earnings and whilst this will continue to be acceptable it is not as specified in the regulations. However, employees who have signed statement C require a P46 to be submitted immediately.
Pension payrolls
For pension payrolls HMRC have decided to introduce a new form for pensioners who do not provide a P45 when starting to receive a pension. The new form P46(Pen) will come into use in April 2008 and will replace the online forms PENNOT and the paper form P160. A paper version of the P46(Pen) will be made available for pension schemes with less than 50 payees.
Finally the announcement outlines a number of other changes to online forms from April 2008:
- The addition of the student loan box to P45 part 1s.
- A new field – 'enter code in use if different…' on the P45(3).
- A new field in section 3 of the P46 – 'tax code used'.
It is timely to consider the impact of all these process changes now, as the incorrect submission of data in any fields from April 2008 will lead to a whole batch of P45/P46s being rejected and the possibility of a penalty being levied.
