[Note:- this article was originally scheduled for appearance in April but unfortunately time constraints delayed it until after the 2008 end-of-year filing deadline. I've published it now in the hope that it will show potential company-founders how easy it is to stay on top of such things].
At the end of the tax year, (ie. 5th April), you must file a return that tells HMRC the breakdown of the income tax and NIC payments you have made throughout the previous year. HMRC need this information because tax and NI deductions are paid to them monthly throughout the year without any additional details about the breakdown. (See part 1 of this article for more information).
Fire up the CD-ROM *and* your web browser
The tools provided by HMRC are perfectly adequate and manageable for tracking tax, national insurance, and filing returns if you only have a few employees, (or if, as the company founder, you’re the sole employee). However, one thing to be aware of is that filing your return is much easier online, but keeping a record of deductions throughout the year (with a P11 calculator/database) is not currently possible with the free online PAYE services that HMRC provide.
With the newly provided CD-ROM (for the 2008-2009 tax year), it appears that you can now file returns directly from the CD-ROM. The reason I find this strange is that CD-ROMs are very nineteen-nineties, yet the automatic filing is a brand new feature on the CD-ROM. It’s unclear to me why they continue to support the CD-ROM given how much development investment they appear to be putting into the online services.
14 is a magic number
A quick bit of background, so you’re clearer on what the HMRC forms are actually asking you. You need to file a P14 per employee, and then file a single P35 for the whole company. The P14 declares how much tax and national insurance has been paid for that person, and the P35 forces you to declare that you have taken care of eveything else, such as filing any forms about benefits. You’ll only need to tell them about benefits if you’ve already set up a benefits package for your employees or if you’ve been claiming expenses that are counted as a “benefit in kind”. Be sure to check elsewhere (such as with your accountant) to check if any payments you’ve made need to be declared on form P11D, which records benefits paid to employees.
Now, on to the act of preparing the return. Sign in to online.hmrc.gov.uk and access the PAYE service. If you haven’t already registered, see my PAYE guide, part 1 It’s important to ensure you’re registered well before the annual deadline, which is usually May 19th.
Enter the data
Unfortunately there is no way to automatically upload your company and employee personal data from the CD-ROM database to the online services, so you’ll have to re-enter employee details, (see the image on the left).
Once all your employee data has been entered in the system, file a P14 for each employee. This requires you to enter numbers from the P11 calculator on your CD-ROM. Fire up your CD-ROM, or use a hardcopy if you have one to hand – the P14 form on the HMRC website asks you to enter the numbers from particular columns on the P11, so it’s quite easy. The Employer CD-ROM should be able to prepare this for you.
Turn to P35
If you are an IT contractor, beware of the question “Are you a service company?” As a startup offering several and I am able to safely answer “no”. However, if you solely provide your own time as an IT service, you may fall under the “service company” definition and be subject to several (non-beneficial) tax laws. Consult your accountant for a more definitive guide.
If you have never paid yourself any expenses then you can safely declare that you do not need to complete and return a P11D form.
All in all, the PAYE return process is reasonably straight-forward. It’s full of a lot of tax jargon that can be quite intimidating, and the process is no where near as simple as being VAT registered. However, if you only employ yourself or a few employees, it’s perfectly manageable to run the process using the techniques described above (and in of this article) without spending hours per month filing forms.
Disclaimer:- This article is provided as a guide only. No liability will be accepted for any action taken as a result of reading this information. If you are in any doubt about correctly filing a return, please contact your accountant.
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