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HMRC internal manual

PAYE Manual

Employer returns: electronic employer returns: automatic online penalties

PAYE44040 to PAYE44090 contains guidance to assist staff using the Employer Compliance System (ECS) to deal with automatic online penalties for non online filing of forms P35 (Regulation 210, Income Tax (Pay as You Earn) Regulation 2003).

The various processes and procedures used to do this are described in detail but to summarise, ECS will automatically

  • Exclude from the penalty process all cases which are exempt to penalties or which have a permanent inhibition signal set
  • Identify and include on an on-screen exceptions list, certain cases requiring further action
  • Allocate all penalty reference numbers (PAYE51015)
  • Issue centrally (from the processing centre) penalty notice forms and penalty notice amendment forms
  • Process and issue penalty charges (for example when working the exceptions list) (PAYE44060)
  • Process and issue charge amendments (for example following the settlement of appeals) (PAYE7515)
  • Create and update a penalty / appeals history record for each employer (PAYE44045)

Note: For 2004-2005 only, the online filing penalty is based upon the size of the employer as determined at the October 2003 snapshot.

Employers failing to file online when required to do so, even if they submit their annual return by other means, will be subject to a penalty as specified in the PAYE Regulations.

Both form P35 and forms P14 must be filed online to avoid a penalty charge.

The exception to this rule is where the employer has already made an appeal against a penalty for failing to electronically file a VAT return. These cases should be referred to the Technical Team in Employer Office who will arrange for a temporary inhibition to be put on the employer’s record to allow the paper submissions to be filed until the outcome of the VAT appeal is known without incurring a penalty. The online filing penalty applies to the main return submitted for the year only, and the amount of the penalty is dependant upon the number of forms P14 submitted with the return. The range of the penalty is £0 - £3,000.

In addition the existing late filing penalty will continue to apply. For example

  • An employer who is required to file online but files by another means, after the due date (normally 19 May each year) will be subject to both an online filing penalty and a late filing penalty
  • A small employer, who files online before 2010 but after the period of grace for the relevant year, will be credited with the appropriate incentive, but subject to a late filing penalty

Penalties will be issued automatically from ECS.