End-of-year tasks for employers
Sarah Bradford provides a comprehensive guide for employers on what to do before the end of the tax year. She covers, among other things, expenses and benefit reporting, payrolling, PAYE Settlement Agreements, reporting to employees and paying tax and national insurance.
For employers, the period around the end of the tax year is a busy one. In addition to the usual monthly tasks, there is additional work to do in putting the old tax year to bed and setting the new tax year up. It is important to plan ahead as there are several deadlines to contend with – penalties are charged for both late and incorrect returns and interest is levied on tax and national insurance contributions (NIC) paid late.
This article explores some of the jobs that need to be done to deal with the end of the 2018/19 tax year successfully and to get the 2019/20 tax year up and running.
Finishing the 2018/19 payroll
The 2018/19 payroll comes to an end on 5 April 2019. From a payroll perspective, there are various jobs that need to be done to bring the 2018/19 tax year to a close. It is important to finish off the 2018/19 tax year – and to take back-up copies – before starting the 2019/20 payroll.
Directors have an annual earnings period for national insurance purposes, and their NIC liability for the tax year is calculated on their total earnings for the year by reference to the annual thresholds. However, for simplicity’s sake and to spread the NIC burden more evenly throughout the tax year, directors’ NIC can be calculated as for other employees throughout the year each time that they are paid, with a recalculation taking place at the end of the tax year to adjust the liability to an annual liability. Where this approach is adopted during the year, it is necessary to indicate that the last payment in the 2018/19 tax year is the final payment for that year so that the payroll software will calculate the director’s NIC correctly.
Under real time information (RTI), employers must file a full payment submission (FPS) on or before the time at which the employee is paid. This applies equally at the year-end in respect of the month 12 payment; however, when making the final submission for the 2018/19 tax year, it is necessary to indicate this by ticking ‘yes’ in the ‘final submission for the tax year’ field in your payroll software. If more than one payroll is run under the same PAYE reference, for example, one for weekly paid employees and one for monthly paid employees, as logic suggests, the ‘final submission for the tax year’ field should be ticked when sending the last report for the year (rather than for each payroll).
In some cases, it will be necessary to send an employer payment summary (EPS) as well as or instead of a FPS. An EPS will be needed if no payments were made to employees in the final pay period, or if the employer wishes to reclaim statutory maternity, paternity, adoption or shared parental pay, claim the employment allowance if a claim has not already been made, pay the apprenticeship levy (only relevant to employers with an annual pay bill of at least £3m) or reclaim CIS deductions as a limited company. In the event that the employer forgot to indicate on the FPS that it was the final submission for the year, this can be rectified by submitting an EPS.
It is important that the FPS is submitted on time as sending it late may trigger a penalty if a FPS has already been submitted late for the 2018/19 tax year. While HMRC does operate a three-day period of grace, this is a concession and not a right, and should not be relied upon. If the FPS is not sent on or before making the final payment, it is still possible to send in an FPS if this is done before 19 April 2019. If the last FPS has not been submitted by 19 April 2019, it will be too late to send an FPS to HMRC; instead the employer will need to submit an earlier year update (EYU).
An EYU is also used to correct mistakes that come to light after 19 April 2019; before that date, mistakes can be corrected by sending in a revised FPS. Where the employer’s payroll software package does not allow for EYUs, an EYU can be submitted using HMRC’s free Basic PAYE Tools package, which is available to download from the gov.uk website.
The 2018/19 tax year ends on a Friday and this may mean that employers have an additional payday in 2018/19 where the employees are paid weekly (or in multiples of a week) on a Friday and a payday falls on 5 April 2019. The extra payday is known as ‘week 53’ for weekly paid staff, ‘week 54’ for fortnightly paid staff and ‘week 55’ for four-weekly paid staff. Where such a payment is made, the employer must send an FPS to HMRC using the correct week number.
Expenses and benefit reporting
The provision of taxable expenses and benefits to employees triggers a number of compliance obligations. Where those benefits have not been payrolled, they must be reported to HMRC on form P11D by 6 July 2019.
The amount that is reported is the cash equivalent value or, where provision is made under an optional remuneration arrangement (OpRA), such as a salary sacrifice scheme or flexible benefits arrangement, the value determined in accordance with the alternative valuation rules (ie, the salary foregone or the cash alternative offered where this is higher than the cash equivalent value calculated under the normal rules).
The alternative valuation rules do not apply to:
- pension payments and employer-provided pension advice;
- childcare vouchers, employer-supported childcare and workplace nurseries;
- bicycles and cyclists’ safety equipment; and
- low emission cars with CO2 emissions of less than 75g/km.
Nor do they apply to the provision of living accommodation, school fees or cars with CO2 emissions of 75g/km or above where the arrangement was in place on 5 April 2017 and was not varied or renewed before 6 April 2019.
Exempt benefits and expenses do not need to be reported on the P11D. The employer can also ignore payrolled benefits and those included within a PAYE settlement agreement (PSA) when completing the P11D.
As well as any P11Ds that need to be submitted, the employer must also submit a P11D(b). This is the employer’s declaration that all required P11Ds have been filed and also the class 1A NIC return. It is important to note that a P11D(b) is still needed even if all benefits provided in 2018/19 have been payrolled and there are no P11Ds to file. Payrolled benefits must be taken into account in working out the employer’s class 1A liability, although benefits included within a PSA can be ignored as they are liable to class 1B contributions instead. The P11D(b) must also reach HMRC by 6 July 2019.
Form P11D and P11D(b) can be filed in paper format or electronically using either HMRC’s expenses and benefits online service or third party software. Electronic filing is not compulsory, but is likely to be the preferred option.
Care should be taken to ensure that benefit and expenses returns are complete and correct and that they are filed on time; penalties may be charged for late and incorrect returns, and these can soon mount up.
Employers can opt to payroll most benefits-in-kind, with the exception of living accommodation and beneficial loans. However, an employer can only payroll benefits if registered to do so before the start of the tax year. Where an employer has already registered to payroll particular benefits, the registration will carry forward for 2019/20 unless the employer de-registers before 6 April 2019. Employers who wish to payroll benefits for the first time in 2019/20 must register those benefits for payrolling no later than 5 April 2019 – HMRC does not accept requests for payrolling in-year, although it may allow employers to payroll informally (but a P11D will still be required). Under payrolling, the taxable value of the benefit is treated like additional salary paid to the employee in instalments on his or her normal payday. The tax is worked out on the total pay for the period including the payrolled benefit and deducted from the employee’s cash pay. However, as most benefits-in-kind are liable to class 1A NIC rather than class 1, the payrolled value of the benefit is not included in gross pay for NIC purposes.
Employers are advised to review payrolled benefits and make any changes (by registering or deregistering) by 5 April 2019 at the latest.
PAYE Settlement Agreement
A PSA can be used by the employer to meet the tax and NIC on the employee’s behalf – as long as the benefit is of a type suitable for inclusion in a PSA. PSAs are now enduring arrangements and once set up remain in place until cancelled by HMRC or the employer. If a PSA is not already in place but is required for 2018/19, it should be agreed with HMRC no later than 6 July 2019. Existing PSAs should be reviewed to check they are still relevant.
Where Scottish taxpayers are included within a PSA, the tax due in respect of benefits and expenses provided to Scottish taxpayers should be worked out using the Scottish rates of income tax applying for 2018/19.
Reporting to employees
As well as providing information to HMRC, employers must also provide employees with details of their pay and benefits. Employees still employed on 5 April 2019 must be given a certificate of pay and tax deducted for 2018/19 no later than 31 May 2019. Where the employee received benefits that were payrolled, they must be provided with details of the payrolled benefits by the same date. For non-payrolled benefits, the employee must be given a copy of his or her P11D or details of the information on the P11D by 6 July 2019.
Paying tax and national insurance
PAYE and NIC for month 12 (and any other amounts outstanding for 2018/19) must reach HMRC by 22 April 2019 where payment is made electronically and by 19 April 2019 for cheque payments. Class 1A NIC is payable by 22 July 2019 where payment is made electronically and by 19 July 2019 otherwise. Where a PSA is in place, the tax and class 1B NIC are due by 22 October 2019 where paid electronically and by 19 October 2019 for non-electronic payments.
It is important that payments are made on time to avoid interest and penalties.
Getting ready for 2019/20
To ensure that everything is in place for the 2019/20 tax year, the employer should update their payroll software for the new tax year to take account of new tax and NIC bands and thresholds (but remember to run the 2018/19 year end first). Employers will also need to update employees’ tax codes, either in accordance with a new code sent by HMRC or following the instructions on the P9X for 2019. Some codes – BR, NT, D0, D1 – can be carried forward unchanged. Employers should also check that the employee’s NIC category letter is correct, particularly where the employee may have recently turned 21 or reached state pension age.
The key to a successful year-end is to plan ahead. Understand what needs to be done by when and what information is required and allocate staff with sufficient expertise to the tasks. It is important that deadlines are met and that tax and national insurance is paid on time to avoid unnecessary penalties and interest.
About the author
Sarah Bradford is a director at Writetax Ltd (writetax.co.uk) and editor of Small Business Tax & Finance