In this section:

  • Tax-free payment for online filing

Tax-free payment for online filing

HM Revenue & Customs (HMRC) awarded tax free payments to employers with fewer than 50 employees following the online filing of the their Employer Annual Return (P35 and P14s) for the following tax years:

  • 2004-05 due 19 May 2005
  • 2005-06 due 19 May 2006
  • 2006-07 due 19 May 2007
  • 2007-08 due 19 May 2008
  • 2008-09 due 19 May 2009

If you have not yet filed your return in respect of any of the above tax years, then you can still claim the tax-free payment but you may also have to pay a late-filing penalty.

This guide explains entitlement to the payment, the conditions that apply and how to claim. It also explains how to record and account for the tax-free payment and gives further information for agents.

On this page:

Entitlement to the payment

Employers with fewer than 50 employees were able to claim up to £825 over the five tax years listed above for filing their Employer Annual Returns (P35 and P14s) online.

The £75 payment for filing the 2008-09 return online was the last of the series of payments made by HMRC.

Conditions

There are a number of conditions that need to be met before a claim for a tax-free payment can be made:

  • you must have had fewer than 50 employees during the relevant tax year
  • your Employer Annual Return must be necessary, and must contain at least one P14
  • your return must meet HMRC’s quality standards - although you could still get the tax-free payment if your return was rejected but you corrected it and filed it online again
  • if HMRC believes a PAYE scheme has been set up for the sole purpose of claiming the tax-free payment, then the payment is refused (or recovered if it has already been paid)

Employer deadlines for filing PAYE online

Filing your Employer Annual Return online: P35 and P14s

Notification that the payment is awarded

Once your return is fully processed HMRC will confirm the payment has been awarded either by letter or with an online notification. Online notifications can be viewed by logging in to the PAYE Online service and selecting the option ''Employer notices'.

The tax-free payment notification is sent to you online if you were registered for HMRC’s PAYE Online Service at the time it’s sent, even if you had opted out of receiving tax codes and other notices online.

Top

Claiming the payment

The tax-free payment can be claimed in two ways. The quickest and easiest way is to reduce the next PAYE payment to HMRC once the tax-free payment is awarded - known as 'self-serving'. The other is to apply for a cheque.

Self-serving

To self-serve the tax-free payment, you should reduce your next PAYE payment to HMRC by that amount. If self-serving reduces your next PAYE payment to zero, you should also tell HMRC by sending an online 'nil payment' notification. This prevents late-payment reminders being sent. To advise HMRC of a 'nil payment', follow the link below.

Tell HMRC online that no PAYE payment is due

Applying for payment by cheque

You can only apply for your cheque if HMRC has notified you that your tax-free payment is available to claim as a refund.

You'll need to write to your Debt Management & Banking (DMB) Accounts Office - shown on your payment booklet - in either Cumbernauld or Shipley, with the following information:

  • your Accounts Office reference - this is the reference you use when making payments to HMRC (you’ll find this on the cover of your P30BC payment booklet or P30B letter)
  • the PAYE reference - you’ll find this on the tax-free notification from HMRC
  • a contact name and telephone number

If you:

  • do not have any outstanding Employer Annual Returns, a cheque will be sent as soon as possible
  • have any outstanding Employer Annual Returns, your tax-free payment won’t be issued until you’ve submitted them.
  • are not up to date with your PAYE payments, HMRC will use your tax-free payment to reduce the amount you owe and send you a cheque for any balance, along with a letter.

Apply for an online filing tax-free payment awarded for the years 2004-05 to 2008-09

Top

Recording and accounting for your tax-free payment

You must record details of your tax-free payment on form P35 for the current year when filing your Employer Annual Return:

  • Enter any amount self-served in the box headed 'Tax-free incentive payment received during the year'.
  • You don’t need to record amounts received by cheque in this P35 box 26. So if you receive a cheque enter '0'.

You don't have to pay VAT on the tax-free payment or show it on your VAT return.

In your business accounts, show the tax-free payment as 'other operating income'. The payment isn't taxable, so your tax calculations should show your profit reduced by the amount of the payment.

Top

Information for agents

If you’re claiming the tax-free payment on behalf of clients:

  • Make sure that each client has received confirmation from HMRC that they've been awarded the payment.
  • Make sure that the clients have no outstanding Employer Annual Returns - if they have, you can still claim, but payments won’t be issued until the outstanding returns are submitted.
  • You should write to your client’s Debt Management & Banking Office (DMB) Accounts Office in either Cumbernauld or Shipley quoting the client's name, the Accounts Office reference (used when making payments to HMRC) and the PAYE reference - you’ll find this on the tax-free notification from HMRC.
  • Unless HMRC holds a valid form 64-8 authorising you to act for your client, they will communicate with your client rather than with you.
  • HMRC will issue the payment as a cheque made payable to your client and will send it to their usual address.
  • If HMRC uses the tax-free payment towards a client’s outstanding PAYE payments, the cheque amount will be reduced accordingly. If the outstanding amount is more than £75, a cheque will not be sent. In these cases, HMRC will send a letter to explain.

Top