Any employer who applies to split an existing payroll for PAYE purposes into a series of smaller payrolls must make an election under regulation 98, SI 2003 No. 2682. Each election is considered on its own merits. Where there is evidence that the motivation for such an election is to qualify for incentive payments, which are only available to small employers, the application will be refused.
The Government had anticipated this might be an issue and regulations are in place to address it (Regulation 99, SI 2003 No. 2682).
HMRC does not keep statistics on the number of rejected elections, but there is no evidence from compliance activity undertaken that there has been abuse of the system in this way.
The original estimate of the cost of online filing incentives was £420 million, broken down as follows:
£ million 2005-06 140 2006-07 2110 2007-08 3110 2008-09 to 2009-10 4160 1 In respect of 2004-05 returns. 2 In respect of 2005-06 returns. 3 In respect of 2006-07 returns. 4 In respect of 2007-08 and 2008-09 returns.
2008-09 to 2009-10
1 In respect of 2004-05 returns.
2 In respect of 2005-06 returns.
3 In respect of 2006-07 returns.
4 In respect of 2007-08 and 2008-09 returns.
Since then the estimates have been regularly revised to reflect the success of converting small employers to filing their PAYE employer annual returns online. These estimates are approved by Ministers and details are provided to the Treasury Select Committee.
To qualify for the online filing incentive the employer must:
have fewer than 50 employees (the number is determined by a count carried out every year by HMRC of employees within each PAYE scheme);
successfully send their employer annual return online;
send a return that is required under the PAYE regulations—that is, means a completed end of year pay, tax and national insurance summary (form P35) and a completed form P14 for at least one employee; and
only be established, employ employees or make payments of PAYE income wholly or mainly for permissible purposes (Regulation 6(5) SI 2005 No. 826.)