PAYE - 30.03.2006

Year-end returns - learning from others’ mistakes

The task at hand

Fear of rejection. The hassle of completing year-end returns is something most employers can do without. Doing them once is bad enough, but get anything wrong and the Taxman will make you do them all over again. As well as losing time that could be better spent running the business, if the correct returns do not reach the Taxman on time, you may also be charged a penalty.

Quality checks. From April this year the Taxman will be applying a full range of quality checks to year-end returns, regardless of how they are filed. The checks include making sure that all the right boxes are completed and that all the figures add up. If the return fails the quality checks it will be rejected. The corrected returns must be re-submitted by the May 19 deadline. So how do you know what the Taxman is looking for?

Reliable sources. The February issue of the Taxman’s Employer’s Bulletin (http://www.hmrc.gov.uk/employers/empbull22.pdf) contains a four-page pull-out supplement devoted to the common errors he found when reviewing the 2004/5 returns. From this we’ve been able to develop a checklist for a similar review of your own for 2005/6.

For the latest checklist of do’s and don’ts when completing employer year-end returns for 2005/6, visit http://tax.indicator.co.uk (TX 06.12.02).

Talk back. Further guidance on the lessons that can be learnt from other people’s misfortunes with their 2004/5 returns has been gleaned from the various presentations at the Taxman’s Employer Talk road shows (the first of which took place in London on March 2, 2006). Further events are happening around the country in the forthcoming months (see http://www.hmrc.gov.uk/employers/talk.htm).

Avoiding common errors. The list of common mistakes is largely unchanged from year to year. None are earth shattering, but if made will mean the difference between the returns being accepted or rejected. By adhering to the following, some of the most common errors can be avoided.

Here are our top five:

1. Avoid inaccurate forenames, e.g. do not use Peggy instead of Margaret, as the validation routine will not recognise the employee.

2. Tax codes - replace letter H with T.

3. Don’t use leading zeros. For example, the code should be 286L not 0286L.

4. Avoid using “O” for “0” and vice versa.

5. Use the correct and most recent PAYE reference, which should be in format 913/WZ51258.

Focus still on NI

High risk. The NI entries offer the most potential for silly errors. Problems frequently arise in relation to temporary NI numbers (in the form TN123456F) being used where the actual number is not known. The Taxman no longer accepts temporary numbers and any return featuring one is automatically returned to sender!

Number not known. So what should you do if for some reason you don’t have an NI number? The safest approach where an employee’s NI number is not known is as follows:

• leave the NI number box blank

• instead make entries in the gender and date of birth boxes

• if the date of birth is not known, enter the default date of birth “01011901”.