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HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
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Employer records: maintain employer record: employer segmentation

This subject is presented as follows

Segmentation

Employer segmentation is the annual process of categorising each employer record into one of four segmentation bands or they are categorised as exempt. This categorisation is used to determine if and when an employer is required by law to use online filing to file their annual end of year returns. From April 2010 all employers, except excluded or exempt, are required to file their return online. Large employers are also required to make electronic payment.

The size of the employer is based on the number of employees an employer has on a specific day - the annual review takes place in October each year, usually the second or third Sunday of the month – and avoiding the weekend of the Enterprise Release.

The requirement to use online filing and make electronic payments will not be affected by any subsequent changes in the number of employees that takes place during the year.

Until November 2010, employers were notified annually of their responsibilities to meet the online filing and electronic payment requirements. From that date an annual process to categorise each employer record still takes place but we no longer issue notification letters as all employers are now aware of their responsibilities.

Mandatory online filing dates

The mandatory online filing date is the date by which each category of employer had to begin to file their returns online as detailed below.

  Size category Mandatory online filing date
     
Large 250 or more employees 2004-05 return by 19 May 2005
Medium 50 - 249 employees 2005-06 return by 19 May 2006
Small 0 - 49 employees 2009-10 return by 19 May 2010

Note: Mandated small employers were issued with a warning letter for sending in their 2009-10 employer annual return on paper. Penalties were issued to small employers for sending in their 2010-11 employer annual return on paper. For more information see ‘Small employer penalties at PAYE51045.

Certain employers are excluded and others are exempt from mandatory online filing.

An excluded employer is not required to file their annual end of year returns online. The following scheme types are excluded from segmentation and the need to use online filing to submit their returns

  • DCNI
  • DPGEN
  • DPNI
  • ELECT
  • EXAM
  • NORPRO
  • PSS
  • TAS
  • XP

Exemptions can only be on the grounds of either religious exemption or being a care and support employer. These exemptions can only be set after an appeal or claim has been received and accepted. For more information see subject ‘Employer segmentation - appeals and claims’ PAYE21095.

From 6 April 2004 large employers must use an approved method of electronic payment to make in-year PAYE / NIC payments. Employers who fail to make in-year payments by the due date incur a surcharge. BROCS recognises the large employer from the segmentation band allocated and applies the surcharge automatically.

An employer can appeal or make a claim against their allocation to a particular segmentation band. Further information about the appeals and claims process can be found in subject ‘Employer segmentation - appeals and claims’ PAYE21095.

All new employer records created after the annual review date are treated as small employers. This includes new employer records created where a succession occurs. That is they will be allocated the segmentation band 0-49. The next annual review will determine into which band the employer falls.

Tax free payments

Tax free payments were paid to encourage small employers to file their 2004-05 to 2008-09 returns online. A credit was given through BROCS during the year in which the return was successfully filed online, not the year to which the return related. We advised employers about utilising the tax free payment by deducting it from future monthly payments.

When an employer asked for a cheque repayment of the tax free payment to be made we first set the incentive payment against any outstanding arrears of tax, National Insurance, student loan deductions and related penalties and interest. We then sent a cheque for the balance.

Cheque repayments of the tax free payment were only considered after the employer had received written confirmation that the incentive had been credited to their payment record for the year.

Employers were able to appeal against the non award / withdrawal of incentive payments. Further information about the incentive appeals process can be found at PAYE44025.

Movement of an employer record

If it is necessary to merge employer records after the annual review date the segmentation band allocated to the continuing employer record will be retained. The next annual review will determine into which segmentation band the employer falls.

Change of scheme type

It is essential that the employer record holds details of the correct scheme type for each year.

Where it is necessary to change the employer’s scheme type this may affect the segmentation band.

You will be presented with an advisory message if the scheme type is changed from

  • One that is excluded from filing online to one that is not excluded

Or

  • One that is not excluded from filing online to one that is excluded

As a consequence of the scheme type change, it is important that you update the segmentation band, for the year that you have changed the scheme type, from

  • 0-49, 50-249 or 250+ to excluded

Or

  • Excluded to 0-49

For example if you have changed the scheme type for 2007 from XP to PSC, you must change the segmentation band for 2007 from excluded to 0-49.

Procedures to change scheme type can be found in the Action Guide for the appropriate change of scheme type under ‘Maintain schemes’ at PAYE27000 onwards.

Election for separate schemes

Some employers make an election to operate separate schemes. For more information see PAYE20025. An election may have no effect on the segmentation band allocated to the ‘old’ and ‘new’ schemes. Alternatively it may

  • Take a scheme out of the large employer segmentation for both online filing and electronic payment

Or

  • Take a scheme out of the medium employer segmentation for online filing

Or

  • Create a new scheme that is small either because of its size or because it was set up after the annual review date

None of these is a reason to treat the employer’s request with suspicion.

The only situation where the election should be challenged as suspicious is where you believe it was made wholly or mainly to avoid or delay filing or paying online, or, prior to 2010, to gain the benefit of incentives. The decision to refuse the request must be taken by an Inspector. The notice of refusal to the employer must be made within 60 days of the date of the election. The employer has a right of appeal within 30 days of the notice of refusal.

Handling employer queries

If an employer has a query regarding segmentation they should be directed to look at the information published on the HMRC Internet site.

If you receive an appeal against the allocation of a segmentation band see PAYE21095 and PAYE21096.

All employers with a query about electronic payment should be referred to the Customer Contact Centre on 0300 200 3401.

If an employer requests more information about using EDI you should advise them to contact the Online Services Helpdesk.