Debt and return pursuit: PAYE: introduction to PAYE: segmentation bands and requirements to pay and file electronically
Segmentation is the annual process of categorising each employer record into one of four segmentation bands or they are categorised as exempt. It was used to determine if, and when, an employer was required to file online. From April 2010, all employers, except those that are excluded or exempt, were required to file online.
An employer’s segmentation band is based on the number employees they had when the count of employees was taken in October of the preceding tax year. For example, the number of employees in October 2008 determined the employer’s segmentation band for 2009-10. Subcontractors are not taken into account.
The segmentation bands are:
- large (250 or more employees)
- medium (50-249 employees)
- small (up to 49 employees)
- excluded (for example subcontractor only schemes)
- exempt (from 6 April 2013, split into two categories: ‘Religious Exemption’ and ‘Care and Support’).
Up to and including November 2010 employers were notified of their segmentation band for the following tax year by letter in the preceding November (for example November 2010 for the year 2011-12). This tells them of any requirement to file online and for large employers only, the requirement to pay electronically too.
From the year 2012-13 employers will not be notified of their segmentation band, but large employers will still be expected to pay electronically.
You can view the segmentation band on BROCS function VIEW TAXPAYER, format 9 DESIGNATORY DATA (VTP-DG-ASN=year specified).
The segmentation band can be viewed on ETMP using the Taxpayer Overview function and selecting the RTI Registration Tab.
Appeals against segmentation band
An employer can challenge the segmentation band they have been placed into by appealing to their Customer Operations office within 30 days of the issue of segmentation band letter.
Employers required to pay electronically
Segmentation band 1 employers (large employers) are legally required (mandated) to pay electronically as well as in full and on time but any employer, irrespective of segmentation band can voluntarily choose to pay electronically too.
Employers have until 22nd of the month, or quarter if paying quarterly for their cleared electronic payment to reach HMRC’s bank account.
Surcharges for not paying electronically, in full or on time
2009-10 and prior
Segmentation band 1 employers (large employers) can be charged a surcharge for not paying their PAYE in full, on time and electronically. Each time they pay late they are issued with a default notice from BROCS. When their P35 is processed
- the number of defaults is totalled up
- the surcharge is calculated and charged by BROCS
A surcharge notice is then issued from BROCS to the employer.
The surcharge is based on a percentage of the total amount payable for the year shown on the employer’s annual return, form P35 (which shows employee deductions along with the total of any sub-contractor deductions).
Each default within a surcharge period attracts a percentage rate which increases along with the number of defaults. The percentage rate used for the annual surcharge calculation is the sum of the total of the percentages that apply to each of the defaults within the year. For more information on surcharges, see DMBM521500.
A new penalty regime was introduced through Schedule 56 Finance Act 2009, and from 2010-11 late-payment penalties apply to all employers, and the surcharge regime has been withdrawn.
BROCS was updated to stop surcharges being raised at the end of 2010-11.
Employers required to file their return electronically
Employers are legally required (mandated) to file their return electronically from a specific deduction year according to their segmentation band:
- Segmentation band 1 (Large employers) from 2004-05
- Segmentation band 2 (Medium employers) from 2005-06
- Segmentation band 3 (Small employers) from 2009-10.
These employers face a penalty if they do not file their return online.
Small employers were encouraged to file online by the award of a tax-free payment for filing their return online for any year between 2004-05 and 2008-09.
Certain employer types are excluded or exempt from online filing.
The following scheme types are excluded from filing online:
These employers will be classed as segmentation band 4 on the BROCS record.
The following employers are exempt from online filing:
- employers who cease during 2009-10 and had fewer than 50 employees, providing HMRC receive their return on or before 5 April 2010
- employers who are authorised by HMRC to deduct tax in accordance with Regulation 34 of the Income Tax PAYE Regulations and have not received a tax free payment (i.e. a Simplified PAYE Deduction Scheme)
- employers who are a member of a religious society or order whose beliefs are incompatible with the use of electronic communications
care and support employers who are defined as an employer who employs a person to provide domestic or personal services at the employer’s home where the:
- services are provided to the employer or member of the employer’s family, and
- recipient of the services has a physical or mental disability, or is elderly or infirm.
The employer must:
- not have received a tax free payment for filing online within the last three years
- submit their own Employer Annual Return (it must not be submitted by another person on the employer’s behalf).
These employers will be classed as segmentation band 5 with the exception of the Simplified PAYE Deduction Scheme. These will be classed as segmentation band 3, but will not be mandated to file online as it is a ‘DOME’ scheme type.
Penalties for not filing electronically
Employers who are required to file their return electronically but fail to do so face a penalty under Regulation 210, Income Tax (Pay As You Earn) Regulations 2003. The penalties are raised even if the employer submits the annual return by other means. Both forms P35 and P14s have to be filed online to avoid a penalty charge. The penalties are raised on ECS and passed to SAFE and then IDMS if appropriate. The amount charged can be up to a maximum of £3,000 and is based on the number of P14s included on the return, except for 2004-05 where this was based on the number of employees from the segmentation count in October 2003.
See PAYE44040 for further information.
|No. of P14s||Penalty charged||Penalty charged|
|2004-05||2005-06 and later|
|1000 or more||3000||3000|
Incentives for filing returns online
Tax free incentive payments were made to small employers (segmentation band 3) for each year they file their P35/P14 return online from 2004-05 to 2008-09. These are not awarded for ‘nil’ returns, that is as a minimum the return must have some figures on the P14 even if the P35 shows ‘nil’. The tax-free payments are:
When an online P35 is processed onto BROCS, the tax-free payment is credited by BROCS to the employer’s current PAYE year (or the last open year in a cessation case). This is awarded even if the employer files their return late.
See PAYE44020 for further information.