Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
, see all updates

Employer records: set up employer record: election for separate schemes (Action Guide)

Separate schemes

Prior to 5 April 2004 when an employer acquired the whole or part of any business of another employer they could make an election

  • To be treated as a different employer in relation to the acquired employees

Since 6 April 2004 when an employer acquires the whole or part of any business of another employer they may make an election for any of the following

  • To be treated as a different employer in relation to the acquired employees
  • To be treated as two or more different employers in relation to groups of acquired employees
  • To add some or all of the acquired employees to existing groups of employees

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.

An employer may elect to have groups of employees dealt with under separate schemes for different parts of the payroll. This process is also known as scheme splitting. To deal with an election for scheme splitting, follow steps 1 - 21 below. The guide is presented as follows

Enquiries from employers Step 1
   
Election made where employer acquires a business Steps 2 - 6
Election made by employer not acquiring a business Steps 7 - 13
Election made for an improper purpose Steps 14 - 15
Cancellation of an election Steps 16 - 18
Separate scheme election has not come into effect Steps 19 - 20
Contractors Step 21

 

For details of how to access any of the Employer Business Service functions, use PAYE057.

 

Top of page

Enquiries from employers

1. Send a form P350 to the employer if you receive an enquiry concerning separate schemes
   

Top of page

Election made where employer acquires a business

Where an employer acquires a business they may elect for one or more separate schemes. If this election is received within 90 days of the acquisition it will come into effect for the year in which the acquisition was made. On receipt of an election in these circumstances you should

2. Consider whether the election is valid, in particular whether it was made on time
   
  * If you are unsure of the validity of the election you will need to refer this for guidance
3. Otherwise, use Function EMPLOYER SET UP to open a new employer record(s). See PAYE20136 for further guidance
4. Write to the employer to acknowledge receipt of the election and advise the employer
  * That a new employer record(s) has been opened
  * The employer references allocated to the new record(s)
  And
  * Ask for a list of all employees to be moved to the new scheme(s). The list must show
  * Each employee’s full name
  * Each employee’s National Insurance Number
  And
  * Indicate which of these employees are paid tax credits but PAYE deductions are not made
5. BF to await a reply. On receipt of the required details, for each separate scheme follow the guidance at PAYE30055
6. Use Function AMEND EMPLOYER NOTES to ascertain whether any dispensation details are held on the existing employer record. If so
  * Use Function AMEND EMPLOYER NOTES to note these details on the new employer record

Top of page

Election made by employer not acquiring a business

The election must be made before the beginning of the tax year for which it is to have effect

7. Consider whether the election is valid, in particular whether
   
  * It was made on time
  * The election can be made any time before the beginning of the tax year that the separate scheme will take effect
  If you are unsure of the validity of the election you will need to refer this to an Inspector for guidance
8. Write to the employer to acknowledge receipt of the election and
  * Advise them that a new employer record will be opened on 6April
  * Advise them you will notify them of the employer reference allocated to the new employer record at that time
  * Ask them to provide a list of all employees who are to be moved to the new employer record. The list must show
  * Each employee’s full name
  * Each employee’s National Insurance Number
  And
  * Indicate which of these employees are paid tax credits but PAYE deductions are not made
9. BF to appropriate 6 April
  * If the list is received prior to the BF date keep it in the employer record pad until the appropriate 6 April
10. At BF date
  * Use Function EMPLOYER SET UP to set up a new employer record
  * Use Function AMEND EMPLOYER SCHEME HISTORY to enter CY date in the Active From Year field
  * If a list of employees to be moved to the new employer record is already held, go to step 13. Otherwise go to step 11
11. Write to employer
  * Refer to previous correspondence
  * Ask them to supply a list of all employees who are to be moved to the new employer record and remind them of the relevant details needed
12. BF your papers to await the required information
13. On receipt of the required list follow the guidance at PAYE30055

Top of page

Election made for an improper purpose

An employer’s election may be disregarded if, within 60 days, a decision is made that the election has been made wholly or mainly for an improper purpose. An improper purpose is essentially for the purpose of reducing scheme size in order to achieve one or more of the following

  • Avoid the requirement imposed on large and medium employers to file an annual return online
  • Avoid the requirement imposed on large employers to make payments electronically
  • Receive an incentive payment as a small employer for voluntarily filing an annual return online

On receipt of an election in these circumstances you should

14. Consider if the election is for an improper purpose
   
  * If you are unsure you will need to refer this to a higher officer for guidance
15. Write to the employer
  * Stating that it appears that the election is made wholly or mainly for an improper purpose
  If the employer does not accept your decision, they have 30 days from the date you issue the decision letter within which to send you an appeal. Once they have appealed you may offer a review or the employer may request a review by HMRC. Alternatively they may appeal to the First-tier Tribunal. - see the Appeals Review and Tribunals Guidance (ARTG) for more information about what to do if you receive an appeal

Top of page

Cancellation of an election

You will normally receive a notice of cancellation on form P350. The notice of cancellation must be made either

  • Before the beginning of the tax year for which it is to have effect
    Or
  • Where a separate scheme election has not yet come into effect the election may be cancelled at any time before the beginning of the tax year it is to have effect
16. On receipt of a cancellation notice, if the separate scheme election has not come into effect, go to step 20. Otherwise write to the employer and
   
  * Acknowledge receipt of the cancellation notice
  * Confirm the year the cancellation will take effect from
  * Confirm that the employer record will be closed from the following 5 April
17. BF to the following 5 April
18. At BF date follow action guide emp40020

Top of page

Separate scheme election has not come into effect

19. Follow follow action guide emp40020
   
20. Write to employer
  * Acknowledge receipt of the cancellation notice
  * Confirm the cancellation will have immediate effect
  Note: If the employer makes any further election for separate scheme(s) go back to step 1.

Top of page

Contractors

21. When you receive an election from a contractor adapt these instructions to suit the circumstances