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HMRC internal manual

PAYE Manual

Employer records: set up employer record: election for separate schemes

The statutory requirement for employer annual returns is that

  • An employer is to make one return (from April 05 these can be submitted in parts (Word 25KB) using online filing
    And that
  • Return is to include all employees for that year

An employer can elect to have groups of employees dealt with under separate schemes for example, an employer may elect to have

  • Director records in one scheme and staff in another
  • Monthly paid staff in one scheme and weekly paid staff in another

Formal election

Employers must make a formal election if they want to submit more than one return. This election is made on form P350. The election can be made at any time before the beginning of the tax year for which it is to take effect and there must be a valid business reason for making the election.

Note: Where an employer requests a new PAYE scheme for their employees who live in Scotland, the employer needs to be aware that following this process and having separate PAYE schemes for their employee who live in the UK (England, Wales & Northern Ireland) and Scotland may lead to additional work for them, increasing employer burden because the employer will be responsible for transferring employees between the separate PAYE schemes where an employee moves to or from Scotland.

HMRC is responsible for identifying who is liable for the Scotland rate of income tax based on the individual’s sole or main place of residence. HMRC will automatically notify the employer (P6/P9, Notice to Employer) and employee/individual (P2, Notice of Coding) through the tax code which will have an ‘S’ prefix indicating that the Scottish rate of income tax should apply.

Where an election is accepted the scheme(s) created for each group of employees will be treated as a separate employer, except for statutory payments.

The employer will provide a list of all employees to be moved from one group to another as a result of the election. A non RTI employer will provide forms P45 Part 1 and P45 Part 3 for any subsequent movement of any employees from one group to another.

These arrangements were brought in for 1990-91. You may find cases where an informal arrangement existed prior to 1990-91. If you identify an arrangement like this it may continue until cancelled by the employer.

Refusal of an election

HMRC can refuse any election that appears to be made wholly or mainly for an improper purpose, for example to

  • Avoid the requirement to file an employer annual return electronically
  • Avoid the requirement to make payments electronically

Cancellation of an election

Any election will continue until a cancellation takes effect. An election can be cancelled, using form P350, at any time before the beginning of the tax year for which it is to take effect.