Online Filing

1.11 Tax-free payments where IR35 applies

A Return is due by 19 May, but by an arrangement announced by HMRC, Returns can contain provisional figures in respect of the ‘deemed payment’ for IR35.

Amendments to the Return to correct provisional figures must be made by the following 31 January to avoid a penalty for an incorrect Return.

Returns sent where IR35 applies qualify for the tax-free payment as long as the original Return was sent online (even with provisional figures) and you had fewer than 50 employees.

Amendments to the Return do not change whether the tax-free payment is due, as it is based on the original Return. So amendments can be made online or by paper. Amendments sent by 31 January showing the actual figures must be sent using a P14 and P35, but can be sent online or on paper.

1.12 Accounting for the tax-free payments

Show the tax-free payments in your accounts as 'other operating income'.

The payments are not taxable, so your tax computations should show profit reduced by the payments included in your accounts.

1.13 Tax-free payments and VAT

You do not have to pay VAT on your tax-free payments for early online filing, nor do you have to show them on your Return of business profits/losses.

1.14 PAYE schemes

Most employers have just one PAYE scheme. Each scheme has a separate employer's number (for example, 123/A246).

If you have more than one PAYE scheme, the online filing rules apply to each of them, and you must make a separate Return for each PAYE reference number. It may mean that you have to file online for one before the other, depending on how many employees you have in each PAYE scheme. This will determine your online filing deadline.

When you have to start online filing depends on how many employees you have in each scheme, not how many you have in all your schemes added together.

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1.15 Setting up new PAYE schemes

You cannot split up your PAYE scheme to set up smaller ones to put off online filing or electronic payment until later, or just to claim the online filing tax-free payments.

But you can split your payroll into different schemes under the same PAYE reference if it helps you run your payroll more smoothly. You must fill in an Election End of Year Return form (P350) if you want to do this, to tell us which employees should go with each scheme. You must fill this form in before the start of the tax year to which you want it to apply. Then send it to your HM Revenue & Customs office.

You must make sure that you set up each employee in the right scheme. If you move an employee between schemes, you must treat that person as stopping employment with one scheme and starting with the other and send in a form P45.

1.16 How we count your employees

The law says that we must count your employees every year and tell you whether, according to our records, you are a large, medium-sized or small employer.

We must make our count before the end of November, and write to you by the 30 December of the calendar year before your Return is due.

For example:

  • our letter in November 2003 told you whether you were a large, medium-sized or small employer for 2004-05
  • our letter in November 2004 told you whether you are a large, medium-sized or small employer for 2005-06
  • our letter in November 2005 told you whether you are a large, medium-sized or small employer for tax-free payments, for 2006-07
  • our letter in November 2006 will tell you whether you are a large, medium-sized or small employer for 2007-08.

Our letter will tell you:

  • whether we think you are a large, medium-sized or small employer
  • whether you must file online for the next tax year
  • whether you qualify for tax-free payments if you start online filing early
  • how you can appeal if, for example, we say you are a medium-sized employer but you are actually a small employer
  • where you can get help, and
  • whether, because you are a large employer, you have to pay your monthly payments of tax, National Insurance contributions, Construction Industry Scheme deductions and Student Loan deductions electronically for the next tax year.

Even if the number of your employees changes after we have done our count, the date from which you must start to file online (or pay electronically) is fixed by the number you had when we did it. Any change in the number of your employees will be reflected in our next count.

If you have no employees when we do our count, we will still write to you because you may be able to get tax-free payments if, later, you have to take on employees for whom you need to make a report and you file online.

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1.17 Who we count

We count all those employees, including directors, that you have told us have started work with you and you have not told us that they have left. (For example, people for whom you have sent us a P45 (3) or a P46.)

Part 4 of our Employer Helpbook (PDF 287K) Day-to-day payroll (E13) explains when you need to keep PAYE records for employees and when to tell us that they have started working for you.

If you are an employment agency, there is more about keeping records in Chapter 4 of our Employer's Further Guide to PAYE (PDF 2.5MB) (CWG2).

1.18 Counting employees: new employers

We will treat new employers starting up in business after the date of the count as small employers. We will tell you whether we think you are a small, medium-sized, or large employer when we next do our count.

1.19 How to appeal

You can appeal if you think we have got our count of your employees wrong. For example, if we are treating you as a medium-sized employer and you actually have fewer than 50 employees. You must appeal to your HM Revenue & Customs office within 30 days.

If you do appeal, you must tell us in writing how many employees you had on the day that we did our count. (Our letter will tell you the date on which our count was done.)

We may ask you to give us evidence of the number of employees you had.

You must include all employees for whom you have a P11 Deductions Working Sheet (or equivalent). These include:

  • employees for whom you have sent us starting details, but you have not told us that they have left
  • employees for whom you have sent us starting dates, but are on unpaid parental, occupational or sick leave
  • employees who are on unpaid additional maternity leave
  • workers who are on your books and not treated by you as having left
  • agency workers who are paid directly by you.