We are now less than two months away from the end of the PAYE year, and employers thoughts should be turning to online filing, and preparations necessary for this year’s filing process.

More employers are required to file online this year. The rules now include employers with more than 49 employees as at the count date last autumn. There is no necessity for employers to count the number of employees that they have – this was done in late October by HMRC, and notices requiring employers to make a return online were sent out during November 2005. Some employers may not have registered what these notices were, but a little thought, and perhaps a look in a long buried in-tray will reveal the answer. Any employers in doubt about whether they are required to file online could check with HMRC now to be sure.

Those employers not required to file online will be the smallest category of employer, and these employers (with 49 or fewer employees) will once again be able to claim a tax free incentive payment of £250 if they successfully file online. However, since last year’s PAYE year end, HMRC are quite rightly paying more attention to those employers who intend to abuse the incentive payment arrangements. Employers who pay earnings solely to exploit the system may find their incentive payments blocked by anti avoidance regulations introduced in March 2005 – in some cases too late to prevent abuses last year, but in plenty of time to stop the same problems this year end.

While on this topic, it is worth noting that following evidence of abuse of the system last year, HMRC announced in January that all payments of £250 incentive payments for last year were now being scrutinised in detail before any further payments are made. This will only affect those employers with a nil liability for both last year and this year. Employers in this position may now have to wait a further one to two months to receive their payment.

So what should employers be doing to get ready for the year end? It is wise to remember that the level of accuracy of this year’s data will need to be better than last year. This is because ERIC, the employer master file system was not in use last year, as it was still being updated. It is this that caused the delays to online processing as data filed during April and May last year had to be held in limbo awaiting completion of the ERIC update. The data was then processed late in the summer. Thus any problems arising at that stage did not present employers with a rejection on filing, which may be the case this year.

Help is available in a Table produced by HMRC which is available in both Tax Bulletin Issue 80 http://www.hmrc.gov.uk/bulletins/tb80.htm#emp_returns and the recent copy of Employers Bulletin http://www.hmrc.gov.uk/employers/empbull22.pdf . This shows the most common errors in returns last year, to help employers eliminate these so that they do not cause hold ups with filing.

Employers can also “test in live” certain aspects of their payroll before they are ready to file the year end return. This will allow validation of some of the data during the time the payroll is being prepared for year end. Test in live is not available for third party software until after 5 April, but for those employers intending to use the free HMRC software, they may be able to test their payroll data before the end of the tax year. Larger employers with mandatory filing responsibilities are recommended to test standing data such as National Insurance numbers before filing the entire return.

Agents will be glad to know that it is not necessary to have a client authorised using form FBI2 if you are only going to file his return online. However, this would not give you access to any other PAYE data in respect of that client. If you wish to go for full authorisation then the online process works in the same way as that for Self Assessment. Following your application online, a code is sent to the employer, who must forward it to the agent. Once this code is inputted, the authorisation is complete. Agents might usefully check their clients lists now, so that any problems can be rectified in good time.

Employers should also bear in mind the significant potential for capacity problems presented by such a short filing window. With Easter and May bank holiday, employers have just 29 working days to test and file their returns. Taking into account dates which HMRC recommend that you avoid – that is 6 and 7 of April and 18 and 19 of May, that leaves just 25 working days!

Good Luck!

Rebecca Benneyworth is a regular writer for sister site AccountingWEB.