Debt and return pursuit: PAYE: introduction to PAYE: tax-free payment
Award of tax-free payment
Small employers (with fewer than 50 employees) are awarded a tax-free payment for filing their complete return (that is P35 and all P14s) online and in an acceptable format (it passes HMRC’s quality checks and is not a ‘test’ return) for the years 2004-05 to 2008-09.
The awards are as shown.
|2004 - 05||£250|
|2005 - 06||£250|
|2006 - 07||£150|
|2007 - 08||£100|
|2008 - 09||£75|
The tax-free payment will be awarded even if the employer files their return late.
Tax-free payment award letter
When an acceptable return is processed online, EBS sends BROCS an ‘E-FILED’ signal. For small employers, this credits their BROCS record with the tax-free payment and BROCS then sends a tax-free payment award letter to the employer.
The letter will be sent by online (if they are currently registered and have activated PAYE Online for Employers- Internet) or by paper. There are different versions of the letter depending if the employer has ceased or not.
BROCS will not show that a letter has been issued, but you will be able to confirm the award of the tax-free payment by an ‘INC’ posting on BROCS
Allocation of tax-free payment
The tax-free payment is allocated against the employer’s current year PAYE record, unless the employer has ceased in which case it will be allocated against the last open year.
BROCS will record the tax free payment:
- as a payment posting of ‘INC’ splitting the amount between Tax and NIC and
- against month ‘00’.
To see the posting on BROCS, use either:
- function VIEW TAXPAYER, format 3 POSTING SUMMARY (VTP-PS-ASN=year specified)
- function VIEW TAXPAYER, format 5 ACTION HISTORY showing ‘INC POSTED TO 0601 00 001’ (for 2004-05 non-cessation employers).
Impact on IDMS work items
The award of the tax-free payment will affect any open IDMS PAYE in-year work items differently depending on the Estimated Monthly Yield (EMY) on the employer’s record.
EMY over amount of tax-free payment
As with a payment re-allocation against month ‘00’, BROCS will not update IDMS. You must refer to BROCS to confirm outstanding amounts before taking any follow up action.
EMY under amount of tax-free payment
The tax-free payment will clear any outstanding months or quarters on BROCS and cancel any relevant IDMS work item(s), covered by the amount of the tax-free payment, unless either an ENF signal is set or the work item has been established via Record Quantified Amount.
If the IDMS work item should not have been cancelled, BROCS will automatically restore LA, and a new IDMS work item will be created, with the same next action and next action date as the previous work item but this will not be updated with the tax-free payment.
Example: amount due was £300, EMY £50 and the tax-free payment £100. The amount due would reduce to £200 but as the tax-free payment is not allocated on BROCS to a specific month, LA would be restored for the amount of £300.
In the above circumstances, you must:
- refer to BROCS and
- reallocate the tax-free payment (‘INC’ posting) to the earliest month(s) (or quarters) you are taking action for.
BROCS will then update IDMS with the amount of the re-allocation, and show the correct amount outstanding on the work item.
Cases using County Court Bulk Centre (CCBC)
You will be advised by IDMS of any tax-free payment award where the Next Action is:
- Issue CCP Summons
- Issue Judgment in Default or
- Issue CCBC EW role
and the work item is awaiting the issue of:
- an N1 claim
- judgment application or
- a warrant of execution.
IDMS will move the work item to ‘C/W CCP’ role setting the B/F Date to ‘today’ and Next Action to either ‘Resubmit to CPC’ (if role is presently ‘Issue CPC Claim’ ) or ‘Review Pack’ (for all other roles). You should:
- review the case
- check BROCS to confirm outstanding amounts before taking any follow up actions.
Cases at C/W CCP, or Distraint Roles
Cases will remain at this role with no changes. You will have to check BROCS to see if a tax-free payment has been awarded.
Payment of tax-free payment to employer
The quickest way for an employer to receive credit for their tax free payment is by reducing their next payment(s) for the current PAYE year (self-serve). For any month(s) or quarter(s) covered by the tax-free payment the employer should declare nil due for that period either:
- online (GOV.UK)
- by sending a nil payslip
- by phoning 0300 200 3401.
If they can not, or chooses not to, self-serve they can claim a cheque payment. A cheque will only be issued if:
- the tax-free payment has been awarded
- there are no outstanding PAYE arrears - if so we will deduct the amount owed before issuing a cheque for any balance
- there are no outstanding returns for earlier years - without all returns we are unable to say that there are no outstanding PAYE arrears.
Withdrawal of tax-free payment
Customer Operations will advise DMB Banking if the tax-free payment either:
- needs to be cancelled for example because an employer is in the wrong segmentation band
- is to be withdrawn because of tax-free payment regulations anti avoidance provisions and the employer is not entitled to it.
Banking can cancel (or award) the tax-free payment clerically using BROCS function ARI.
If the tax-free payment is withdrawn, BROCS will show a second ‘INC’ posting as minus.