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HMRC internal manual

PAYE Manual

Employer returns: electronic employer returns: incentive payments

This subject is presented as follows



Tax-free incentive payments will be made to small employers (0-49 employees) over a period of five years if they use online filing to file their annual return.

The incentive payments to be awarded over the five year period are as follows

2004-05 £250
2005-06 £250
2006-07 £150
2007-08 £100
2008-09 £75

An employer will not qualify for the incentive payment if any part of the annual return is sent on paper or by using magnetic media.

Qualifying employers

To qualify for the incentive payment employers must

  • Have fewer than 50 employees (0 - 49 segmentation band)
  • Submit their employer annual return online


  • Ensure the return meets the quality standard

Small employers who qualify for an incentive payment are those who

  • Are required to send an employer annual return (forms P14 and P35)


  • Use the simplified PAYE arrangements (forms P37 and P12)


  • Submit their information online

The incentive payment does not depend on whether any remittances of PAYE tax / NICs / student loan deductions were made during the year.

Note: Payment will not be made where the employer is not required to complete at least one form P11 Deductions Working Sheet for their employees.

Payment of the Incentive

The incentive will be given as a credit by BROCS against the PAYE account during the year in which the return was successfully filed online, not the year to which the return relates.

A letter will be issued advising the employer that they can offset the amount against future payments made or alternatively the employer can make a request for the incentive to be paid directly to them.

The incentive payment will be paid to employers in all cases regardless of whether the employer uses a payroll bureau / agent or accountant to operate their payroll.

Clerical award of the in-year incentive payment

From April 2005 an employer who has ceased will be able to file online at any time during the year. Any claims received for the incentive payment to be paid before the year end will be made clerically by staff in the Banking Operations office.

New functionality was allocated to enable Banking Operations staff to deal with the clerical award of incentive payments. Any claims received direct should be faxed to the nominated office in Banking Operations after clarifying that the incentive payment is due.

Incentive payment and late filing penalty

Small employers will receive an incentive payment for successfully filing online, whenever that happens.

However if an employer does not send their return on time when filing online, the employer may be charged a late filing penalty. To avoid a late filing penalty, employers must send a complete annual return (form P35 and relevant forms P14) by 19 May each year.

Non-payment or withdrawal of an incentive payment

The incentive payment may not be due for the following reasons

  • A return submitted when there is no requirement to file an employer annual return for that year
  • An incorrect recording of whether the return was filed online
  • An incorrect segmentation band


  • Any of the above

Where an incentive has been awarded to a small employer but it appears this should not have been awarded for one of the following reasons

  • The employer submitted a return when there is no requirement to file an employer annual return for that year
  • No return was due
  • Nil return


  • No employer remittance submitted to the Banking Operations office


An employer can appeal against the failure to be awarded an incentive payment and against our decision to withdraw the incentive payment.

If an employer has successfully filed online and has not been awarded an incentive payment they can appeal that an incorrect segmentation band has been allocated to them. This should be treated as an appeal against the failure to award an incentive payment and not a segmentation appeal. For more information see subject ‘Maintain incentive appeal’ at PAYE44025 and ‘Employer segmentation - appeals and claims (Action Guide)’ at PAYE21096. Information on the appeals process is in the Appeals, Reviews and Tribunals Guidance (ARTG).