PAYE21090 - employer records: maintain employer record: employer segmentation

This subject is presented as follows

General

Employer segmentation is the annual process of categorising each employer record into one of four segmentation bands or they are categorised as exempt. This categorisation is used to determine if and when (between April 2005 and April 2010) an employer is required by law to use online filing to file their annual end of year returns.

The size of the employer will be based on the number of employees an employer has on a specific day - the annual review date. Reviews have taken place on 26 October 2003, 24 October 2004, 30 October 2005 and 29 October 2006.

Note: The requirement to use online filing and make electronic payments will not be affected by any subsequent changes in the number of employees that takes place during the year.

The mandatory online filing date is the date by which each category of employer must begin to file their returns online as detailed below.

Certain employers are excluded and others are exempt from mandatory online filing. This exemption can only be set after an appeal has been received and accepted. For more information see subject ‘Employer Segmentation - Appeals’ PAYE21095.

From 6 April 2004 large employers will be required to use an approved method of electronic payment to make in-year PAYE / NIC payments. Employers who fail to make in- year payments by the due date will incur a surcharge. BROCS will recognise the large employer from the segmentation band allocated and apply the surcharge automatically.

Employers will be notified in advance of their responsibility to meet the online filing and electronic payment requirements to allow for any amendments to the operation of their payroll.

An employer can appeal against their allocation to a particular segmentation band. Further information about the appeals process can be found in subject ‘Employer Segmentation - Appeals’ PAYE21095.

All new employer records created after the annual review date will be treated as small employers. This includes new employer records created where a succession occurs. That is they will be allocated the segmentation band 0-49. The next annual review will determine into which band the employer falls, this will be confirmed by letter at that time.

Tax free payments

Tax free payments will be paid to encourage small employers to file online. A credit will be given through BROCS during the year in which the return was successfully filed online, not the year to which the return relates. We advise employers about utilising the tax free payment by deducting it from future monthly payments.

When an employer asks for a cheque repayment of the tax free payment to be made we will first set the incentive payment against any outstanding arrears of tax, National Insurance, student loan deductions and related penalties and interest. We will then send a cheque for the balance.

Cheque repayments of the tax free payment can only be considered after the employer has received written confirmation that the incentive has been credited to their payment record for the year.

Employers can appeal against the non award / withdrawal of incentive payments. Further information about the incentive appeals process can be found at PAYE44025.

Movement of an employer record

If it is necessary to transfer an employer record from one office to another after the annual review date the segmentation band already allocated to that employer will be retained.

If it is necessary to merge employer records after the annual review date the segmentation band allocated to the continuing employer record will be retained. The next annual review will determine into which segmentation band the employer falls and the subsequent mailing will advise the employer when they are required to file online and, if appropriate, to send monthly payments electronically.

Change of scheme type

It is essential that the employer record holds details of the correct scheme type for each year, in order that employers receive the correct notification for both their requirement to file online and the entitlement to an incentive.

Where it is necessary to change the employer’s scheme type this may affect the segmentation band.

You will be presented with an advisory message if the scheme type is changed from

• One that is excluded from filing online to one that is not excluded

Or

• One that is not excluded from filing online to one that is excluded

As a consequence of the scheme type change, it is important that you update the segmentation band, for the year that you have changed the scheme type, from

• 0-49, 50-249 or 250+ to excluded

Or

• Excluded to 0-49

This will ensure that the tax free payment is or is not automatically credited to the BROCS account if the return is submitted online.

For example if you have change the scheme type for 2007 from XP to PSC, you must change the segmentation band for 2007 from excluded to 0-49.

Procedures to change scheme type can be found in the Action Guide for the appropriate ‘Change of Scheme Type’ at PAYE27000 onwards.

Election for separate schemes

Some employers make an election to operate separate schemes. For more information see PAYE20025. An election may have no effect on the segmentation band allocated to the ‘old’ and ‘new’ schemes. Alternatively it may

• Take a scheme out of the large employer segmentation for both online filing and electronic payment

Or

• Take a scheme out of the medium employer segmentation for online filing

Or

• Create a new scheme that is small either because of its size or because it was set up after the annual review date

None of these is a reason to treat the employer’s request with suspicion.

The only situation where the election should be challenged as suspicious is where you believe it was made wholly or mainly to avoid or delay filing or paying online, or to gain the benefit of incentives. This situation will arise but it is expected to be exceptional. The decision to refuse the request must be taken by an Inspector. The notice of refusal to the employer must be made within 60 days of the date of the election. The employer has a right of appeal within 30 days of the notice of refusal.

Handling employer queries

In addition to receiving appeals against the allocation of a segmentation band the issue of segmentation letters will generate queries from employers. All employers will be directed to look at the information published on the HMRC Internet site.

All employers with a query about electronic payment should be referred to the Customer Contact Centre on 0845 366 7816.

All employers who currently submit Magnetic Media will be told to ring NICO (08459 157156).

Where an employer has a query about online filing

• Large employers will be given the telephone number of the relevant Regional Employer Recruitment Team
• Small and medium employers will be given the telephone number of the Employers Helpline - 08457 143 143

If an employer requests more information about using EDI you should advise them to contact the Online Services Helpdesk