Electronic submissions to HMRC

25 December 2018

This article was featured in the February 2019 issue of the magazine.

Samantha Mann MCIPPdip MAAT, CIPP senior policy and research officer, discusses developments

Some would argue that the roll out of real time information (RTI) – and, prior to that, ‘filing by internet’ – provided the run up to making tax digital. Indeed, I boldly suggest that where payroll goes, others will inevitably follow.

  

Farewell to the EYU

The end of the tax year process as we previously knew it was eliminated by RTI, but payroll software was prevented from submitting a full payment submission (FPS) with year-to-date (YTD) totals for a closed tax year once 19 April had passed. 

This elimination didn’t, however, remove the need for employers to make corrections to previously submitted figures. Instead of a correction to the YTD totals, the solution continued to be the reporting of delta values (i.e. the amount needed to correct a previously reported amount) via a newly created earlier year update (EYU) return, thereby mimicking the function the P14 return had also served.

The EYU was never a popular solution and one flaw became immediately apparent for unfortunate employers (and their software suppliers and service providers) that experience duplicate payments. In attempting to correct this anomaly they would be asked to submit an EYU for each affected employee records, but what values are to be reported? When HM Revenue & Customs (HMRC) holds one set of numbers – that the employer can’t interrogate – and the employer holds another set which clearly don’t match those held by HMRC, what delta values need to be applied? 

Surely a re-submission of YTD totals via a FPS return would be a better solution? All agreed that this would indeed be a more sensible solution, but only now can we look forward to this method being delivered.

As of April 2019, HMRC will be extending the use of the FPS to enable payroll software to allow users to report revised YTD payment data beyond 19 April, following the end of the 2018–19 tax year. 

Accordingly, from 20 April 2019, HMRC will begin to accept FPS returns with YTD information to make amendments to the tax year ending 5 April 2019. To aid the transition to the new process, however, HMRC will still accept an EYU return to make amendments to the 2018–19 tax year as well.

Subject to functionality offered by payroll software, during 2019 (for the 2018–19 tax year) the employer will need to choose which method they will use to report amendments and continue with this method for any further amendments to the year (if required). 

From April 2020, the EYU return will no longer be a valid submission to make an amendment for the tax year ending 5 April 2020. Any amendments will need to be made using a FPS return. 

In essence, 2019 is providing a ‘pilot’ year, in the hope of providing a smoother transition to April 2020 (and beyond) when the the EYU will no longer be accepted for the purpose of reporting adjustments for the tax year 2019–20 and onwards.

From 20 April 2020 onwards, HMRC’s Basic PAYE Tools software will be updated to allow customers to submit a FPS return for the year ending 5 April 2020 and onwards, to report any amendments.

Unfortunately, amendments prior to tax years ending 5 April 2018 and earlier, will still need the submission of an EYU return, which means payroll software must retain this functionality, with HMRC guidance making this need clear.

Though this will not bring an end to the occurrence of duplicated payments, it is hoped that resolving them, if they occur, will become a little easier as a result of HMRC’s welcome course of action.

 

...re-submission of YTD totals via a FPS return would be a better solution? 

 

Starter checklist

In recognition of the postgraduate loans (PGL) coming in to repayment from 6 April 2019 the starter checklist (which is built in to payroll software) has been updated to allow the employee to confirm if they have both plan 1 and plan 2 student loans and if they have a PGL.

HMRC will issue a notice SL1 or PGL1 to confirm or instruct an employer to begin making deductions as required. Notice PGL2, which instructs cessation of PGL deductions, is also a new addition to the growing ‘library’ of electronic forms.

The P45 form has not been updated to take account of the PGL, but the P60 certificate will be, as the PGL will run concurrently to plans 1 and/or 2.

 

Tax code changes in real time

Data submitted through the RTI process is used extensively to the benefit of government. However, the basis of pay as you earn (PAYE) did not change but remained as a system that saw tax deducted at source and a payment made resulting in most employees paying the correct amount by the end of the tax year.

For approximately 8,000,000 individuals, the close of the tax year would result in P800 notifications being issued that reveal amounts of income tax owing or due for refund. Depending upon the amount owed by the taxpayer, the tax code was the vessel used to collect the tax due, through the PAYE system, in the following year.

Government digital strategy put pressure on HMRC, and ‘real time’ tax code changes were introduced initially from April 2017. HMRC provide periodic updates to help employees and employers to understand the impact of this change.

In a recent update, HMRC confirmed that in a bid to minimise any possible hardship to affected taxpayers, where HMRC become aware of the additional taxable income between 6 January 2019 and 5 April 2019 and the amount of tax due in the current year is affected, HMRC will adjust the tax code, but only start to collect the tax from 6 April 2019, to make any tax changes more manageable for the taxpayer. 

 

...‘real time’ tax code changes were introduced initially from April 2017

 

Though we know that the first ‘port of call’ is quite often the payroll team when an employee is concerned about their tax code, in line with its digital strategy – which has stuttered a little, due in no small measure to the Brexit impact – HMRC recommends that employees look to their personal tax account in the first instance. 

However, we value hearing from members about their day to day experiences, so please email us on policy@cipp.org.uk.